For majority of the commodity markets, 2020 was undoubtedly a bumpy and fierce year. The spread of the Coronavirus pandemic led to a global shutdown of all economic activities which in turn led to disrupted supply chains and depressed demand for commodities in all sectors – base metals, energy, agricultural products and also odd metals and gems.
The Bloomberg Commodity Index tracks 23 commodity futures markets and this too had hit its all-time low during April. The crude oil prices took a funk into the negative zone for the first time ever. During April, 2020, West Texas Intermediate crude futures contract trading via NYMEX (New York Mercantile Exchange) had reached -$37 per barrel.
Will the commodity sector rebound in 2021?
The biggest question among commodity investors is whether or not the commodity market will be able to bounce back in 2021 and obtain future gains. Already in 2021, there are several markets that witnessed bullish trends which forced the analysts to predict a brighter future for the commodities as the whole world tries to put back the impact of COVID-19.
With this rally, that which has been of special interest is the weak position of the US dollar – the de facto currency utilized for pricing every global commodity market. As the dollar gets weaker, this means that the commodities will get cheaper for buyers all over the globe when converted into their respective domestic currencies. This will induce increased demand, everything else being equal. So, the only method of keeping commodities moving in an inflationary manner is through a weaker dollar.
Will the dollar remain weak throughout 2021?
Everything depends on whether or not the dollar will remain weak throughout the whole year 2021. There are definitely certain demand and supply factors that influence the price of commodities. Nevertheless, majority of the experts believe commodities to perform in a better manner in 2021. For instance, ING will witness an economic recovery due to the fiscal stimulus program and expansionary financial policy offered by the governments.
Future of Oil Markets in 2021
As far as crude oil is concerned, prices of Brent Crude surged by 10% in January and early February when they reached their highest levels. This hike helped in negating the pronounced losses that came from the outbreak of the pandemic. As per S&P Global Platts Analytics and its oil market monthly forecast, demand of oil will average at 99.5 million barrels per day in 2021. This figure has seen a considerable hike from the same time in 2020.
What about the Base Metals Market?
For base metals, the picture is apparently more mixed than other commodities like oil. This is that sector which was the best performer through the year 2020, especially during the latter half of the year during the rapid economic recovery of China. The S&P Goldman Sachs industrial metals index gained nearly 40% between June and December with aluminium, copper, zinc and nickel, all of which witnessed noteworthy rallies.
With generous amount of money-supply expansion throughout the world, fiscal stimulus and ultra-low rates have boosted expectations of inflation. Money should keep flowing into agricultural commodities too in 2021.