Copper and Oil Surge – Are We in a Commodity Super-Cycle?

The surge in global commodity prices continues with copper and oil leading the way.

Oil Prices – It’s Not Just About Increased Demand

 

The price of crude has risen by almost 50% in the space of only three months. At Thursday’s opening of European markets US Oil (WTI) was trading at $61.60, up 2.17% from Monday, the time of its continued price surge being highlighted by the Forex Traders analysts.

Increased demand for oil looks a certainty as economic activity resumes and populations become more mobile. The supply-side factors are, as ever, trickier to gauge.

• So far, OPEC members are demonstrating an ability to stick to their designated production quotas. Therefore, the OPEC Plus convention due to take place on the 4^th of March is an important date for those holding positions.
• Shale gas production imploded in 2020 as gas and oil prices tumbled through zero dollars per barrel. Kick-starting production will take time and require backing from investors willing to take the risk of being blown away by OPEC again.
• Trade volumes in the oil markets are holding up. The daily chart shows consistent volumes passing through the exchanges, which points to ‘real-world’ activity rather than speculators. Businesses across the globe are literally pump-priming in anticipation of a return to something like normality.

US Oil (WTI) – 1M price chart – 100 SMA coming in to play

Source: IG

Technical resistance / Upside target for US Oil (WTI):

• $62.43 – Monthly 100 SMA
• $65.46 – 2020 high (January)

US Oil (WTI) – 1D price chart – volumes holding up

Source: IG

Copper – New Demand and Limited Supply

 

Copper’s 10% month-to-date price rise for February reflects demand and supply working in tandem.

• Production levels are down as Covid-19 restrictions make it logistically more challenging for miners to extract the metal. With a lot of extraction based in less developed countries, this could be an ongoing issue as vaccine rollouts face country specific challenges.
• The metal is earmarked as an essential requirement in the global restructuring needed to move away from carbon heavy activity towards renewables.
• With clean energy infrastructure and clean transportation likely to receive funding as part of pandemic recovery plans, the metal could be at the beginning of a super-cycle – an extended period of price rises seen only four times in the last century.

Copper – 1D price chart – Super Cycle?

Source: IG

The price of copper has been trending upwards for months – it’s up 96% since March 2020 and the price move continues to build momentum. Copper has now posted ten consecutive up days but a recent drop in trade volumes raises some questions.

Monday’s trading volumes were the lowest for more than one year (since the 17^th of February 2020). That could reflect that there is not enough of the metal to satisfy demand due to the mentioned supply problems. Alternatively, it could reflect the capitulation of sellers – short interest being exhausted as only buyers enter the market.

 

Copper – 1D price chart – Low Trading Volumes

Source: IG

The 1.06% daily price rise on Monday points to the path of least resistance being upwards; however, a short-term pullback sometimes follows a capitulation.

 

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