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Commodities wrap: oil volatility peaks, iron ore remains resilient

We examine some of the key moves across commodities markets from the last week.

Commodities wrap Source: Bloomberg

It has been a busy and volatile week for global commodity markets. Global economic data continues to show signs of deterioration, equity markets have traded cautiously, and US oil markets have experienced unprecedented price swings.

Oil price volatility hits historical levels

Financial markets seem full of stories which usually start with a long list of reasons why X event cannot or will not happen; only to end with a fantastical recounting of how X event eventually came to pass.

Oil markets look prime for a story of this kind: with WTI’s May Nymex futures contract finishing out Monday’s session at negative $37.63 a barrel.

The catalysts here were complex and manifold: as oil demand remains at historical lows as a result of COVID-19 and with US crude storage capacity quickly filling up; traders, faced with the prospect of being forced to take physical delivery of a commodity they likely (and evidently) didn’t want and/or wouldn’t be able to store, dumped their futures contracts at whatever the cost.

That cost, at its worst, was negative $40.32 a barrel.

Positively at least, oil markets have rebounded since that dramatic Monday – with the front month contracts for WTI and Brent trading at $17.31 a barrel and $22.00 a barrel, respectively, as of 10:23 EDT.

A short-term positive, yes, but one should remember that just four months ago both contracts traded north of $60 a barrel.

Iron ore spot prices range trade

While oil has collapsed off the back of the COVID-19 pandemic, iron ore prices have continued to hover around multi-year highs, as Chinese demand holds up the commodity. In saying that, iron ore spot prices have traded mostly flat this week, according to IG data, dropping ~1.7% from Monday to Friday.

As it stands, the front month, April 2020 Nymex 62% Fe Fines iron ore futures contract last traded at US$84.04 per tonne.

Moreover, as part of BHP Group (BHP) and Rio Tinto’s (RIO) latest round of quarterly production results, it was pointed out that while demand has fallen across the board, demand for iron ore in China remains robust.

Rio Tinto’s management stressed that:

'Demand for the high-quality iron ores we produce remained strong in the first quarter [Q1] of 2020, mainly driven by a combination of seaborne disruptions and solid demand from China's steel mills despite COVID-19 impacts.'

BHP’s commentary essentially mirrored RIO’s, with it being pointed out that:

'While demand in China has strengthened in recent weeks, we expect other major economies, including the US, Europe and India, to contract sharply in the June 2020 quarter.’

Looking forward, back month futures prices suggest traders expect iron ore prices to remain elevated for some time, with only the July 2021 Nymex futures contract trading below $70 per tonne.

In other news, Fortescue Metals Group (FMG) is set to report their March production results next Thursday, 30 April.

Other commodities: a fast take

Elsewhere, spot gold continues to trade close to its 52-week highs at $1723 per ounce; while the story for spot palladium is more mixed, with the precious metal currently trading at $765 per ounce, around the middle of its 52-week range, according to Bloomberg Data.

Natural Gas's May 2020 Nymex futures contract also sits well off its 52-week high of $2.61 per million British Thermal Units (MMBtu), last trading at $1.82 per MMBtu.

Silver’s July 2020 Comex futures contract also sits around the middle of its 52-week range, last trading 0.12% higher to $15.55 per ounce.

How to trade oil markets: long and short

What do you make of the current situation: do you see bullish or bearish opportunities? Whatever your opinion, you can trade WTI spot and futures, as well as Brent spot and futures – long or short – through IG’s easy to use trading platform now.

For example, to buy (long) or sell (short) WTI spot using CFDs, follow these easy steps:

  • Create an IG trading account or log in to your existing account
  • Enter ‘Oil - US Crude’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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