Goldman Sachs: Widespread Shortages are Sending Commodity Markets into Backwardation

Extensive commodity shortages have sent markets into a crisis, with futures curves trading substantially below spot prices.

According to Goldman Sachs head of commodities research Jeff Currie, widespread shortages of various commodities, including oil, gas, aluminum, and copper have caused futures markets to trade in super-backwardation. “I’ve been doing this 30 years and I’ve never seen markets like this,” he said. “This is a molecule crisis. We’re out of everything.”

Investors have been paying substantially higher prices for urgent supply, with the downward sloping price curve indicating that commodities are significantly lacking in supply. Indeed, the Bloomberg Commodity Spot Index has soared to a record already this year, primarily due to skyrocketing oil prices, which have hit an eight-year high.

According to data cited by Bloomberg, diesel futures are displaying some of the strongest backwardation since 2008, with market spot prices surging over the past several weeks. Likewise, all of the six industrial metals trading on the London Metal Exchange also shifted into backwardation territory at the end of 2021, showing a rare spell of tightness not witnessed in 15 years.

Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.