Commodity Market Scenarios

Direct Answer

Commodity scenarios analyze how specific supply and demand events affect commodity prices and their downstream effects on inflation, energy stocks, agricultural equities, and portfolios with commodity exposure. Oil supply disruptions raise energy prices and create winners (energy producers) and losers (transportation companies, consumers) simultaneously. Gold typically responds to real interest rates and dollar strength more than to economic growth.

Common questions

Why do commodity prices and the US dollar tend to move in opposite directions?

Most commodities are priced in US dollars in global markets. When the dollar strengthens, it takes fewer dollars to buy the same commodity for non-US buyers, which reduces global demand and tends to push prices down. When the dollar weakens, commodity prices in dollars tend to rise because each dollar buys less of the commodity. This relationship is not perfect and is dominated by supply and demand fundamentals in the short term, but the inverse dollar-commodity correlation is a persistent structural feature of global commodity markets.

What is a commodity supercycle and how long do they last?

A commodity supercycle is a multi-year period of broadly rising commodity prices, typically driven by a structural increase in demand (such as industrialization of a major economy) outpacing the slow supply response of capital-intensive commodity production. Historical supercycles have lasted 10 to 35 years and have been associated with major industrialization waves, including the post-WWII US economic expansion and the Chinese growth surge of the 2000s. The supply response eventually builds overcapacity, which ends the cycle with a prolonged period of low prices.

Every guide in this section

30 guides in this section.

All guides

• Agricultural Commodities During a Major Drought?

  Agricultural commodity prices usually rise during a major drought, because crop yields fall and supply shrinks, though the size of the move depends on stocks.

• Agricultural Commodities When Export Restrictions Rise?

  Global agricultural commodity prices usually rise when export restrictions increase, because exporters withhold supply from world markets.

• Agricultural Commodities When Fertilizer Costs Rise?

  Agricultural commodity prices tend to rise after fertilizer costs rise, because farmers face higher costs and may use less fertilizer or plant different crops.

• Copper When China Growth Slows?

  Copper prices usually fall when China's growth slows, because China uses roughly half of the world's copper and construction and manufacturing drive most.

• Copper When Global Manufacturing Accelerates?

  Copper prices usually rise when global manufacturing accelerates, because factories, construction and electrical equipment need more copper.

• Copper When Mine Supply Is Disrupted?

  Copper prices usually rise when mine supply is disrupted, because production is concentrated in a few countries and a strike.

• Gold During a Market Crisis?

  Gold usually rises during a market crisis as investors seek safety, though in the sharpest liquidity squeezes it has fallen at first because investors sell.

• Gold When Inflation Expectations Rise?

  Gold has tended to rise when inflation expectations rise, but only if real interest rates do not rise at the same time.

• Gold When Real Yields Fall?

  Gold usually rises when real yields fall, because the opportunity cost of holding a non-yielding asset drops and the relative appeal of gold increases.

• Gold When Real Yields Rise?

  Gold usually falls when real yields rise, because investors can earn more on inflation-protected bonds and the opportunity cost of holding gold increases.

• Gold When the U.S. Dollar Strengthens?

  Since 1971, gold (the World Bank monthly average price in dollars) changed by a median -7.6% in the 12 months after a rise of at least 8% in the trade-weighted.

• Gold When the U.S. Dollar Weakens?

  Since 1971, gold (the World Bank monthly average price in dollars) changed by a median +6.9% in the 12 months after a fall of at least 8% in the trade-weighted.

• Lithium When EV Demand Slows?

  Lithium prices usually fall when electric vehicle demand slows, because vehicle batteries are the largest source of demand and supply expansion planned.

• Lithium When New Mine Supply Surges?

  Lithium prices usually fall when new mine supply surges, because the market is small and sensitive to additions, and low-cost producers can keep expanding even.

• Natural Gas During a Mild Winter?

  Natural gas prices usually fall during a mild winter, because heating demand is lower than expected and storage ends the season with more gas than usual.

• Natural Gas During an Extreme Winter?

  Natural gas prices usually spike during an extreme winter, because heating demand surges and cold can also freeze wells and pipelines.

• Natural Gas When LNG Export Capacity Rises?

  U.S. natural gas prices tend to firm when liquefied natural gas export capacity rises, because exports add a source of demand that is linked to global markets.

• What Happens to Oil During a Recession?

  Since 1982, crude oil (the West Texas Intermediate monthly average price) changed by a median +2.3% in the 12 months after the start of a recession.

• Oil During a Shipping Disruption?

  Oil prices usually rise during a major shipping disruption, because a risk premium is added and rerouting lengthens voyages and raises freight costs.

• Oil When Global Demand Falls?

  Oil prices usually fall when global demand falls, because supply is slow to adjust and inventories build, and a drop in demand of a few percent can move prices.

• Oil When Global Demand Rises?

  Oil prices usually rise when global demand rises faster than supply, because producers have limited spare capacity and prices must rise to balance the market.

• Oil When OPEC Cuts Production?

  Oil prices usually rise when OPEC cuts production, because supply falls against steady demand.

• Oil When OPEC Raises Production?

  Oil prices usually fall when OPEC raises production, because supply increases against demand, particularly if the increase is larger than markets expected.

• Oil When the U.S. Dollar Strengthens?

  Since 1982, crude oil (the West Texas Intermediate monthly average price) changed by a median -24.0% in the 12 months after a rise of at least 8%.

• Oil When the U.S. Dollar Weakens?

  Since 1982, crude oil (the West Texas Intermediate monthly average price) changed by a median -6.5% in the 12 months after a fall of at least 8%.

• Silver When Gold Rallies?

  Silver usually rises when gold rallies, and often by more, because it trades as both a precious metal and an industrial metal and is a smaller.

• Silver When Industrial Demand Rises?

  Silver prices usually rise when industrial demand rises, because roughly half of silver demand comes from electronics, solar panels and other industrial uses.

• Silver When the Dollar Strengthens?

  Silver usually falls when the U.S. dollar strengthens, because it is priced in dollars and becomes more expensive for buyers in other currencies.

• Uranium When Mine Supply Tightens?

  Uranium prices usually rise when mine supply tightens, because production is concentrated in a few countries and utilities need long-term contracts to fuel.

• Uranium When Nuclear Reactor Demand Rises?

  Uranium prices usually rise when nuclear reactor demand rises, because new reactors and extended lives increase long-term fuel needs.