Seemingly, Every Commodity is Rallying – Beware the Time When They Peak

Commodities of all kinds are soaring at some of the fastest rates in history as a result of the stringent sanctions that have been applied to Russia’s economy. The prices of oil, European natural gas, wheat, and, to a lesser degree, copper are rising at video game-like speeds. Perhaps even more frightening, for prices to normalize to lower levels, additional commodity supply from “friendly” countries must be established to compensate for shunned Russian materials and such supply is unlikely to be available for quite some time.

Eventually of course, high commodity price levels will choke off demand, causing the prices of these materials to retreat, perhaps significantly. In other words the old axiom, “the solution to high prices is high prices,” will in time prevail in the markets.

Stock market investors are gradually — and grudgingly — factoring in the enormous inflationary effects of commodity price trends. But if history is any guide, the U.S. stock market could correct quite dramatically when commodity prices begin to plummet. One has followed the other in the past.

St. Louis Fed index of global commodity prices. Note the graph only runs through January 2022. Price levels are much higher now.
15-year graph of S&P 500 Index

In the meantime, it would seem prudent for investors to shift more of their portfolios into commodity producers which benefit from this tailwind and away from other types of discretionary stocks. 

Selkirk Copper Mines — sponsored Sponsored · Selkirk Copper Mines

The commodity environment which seems to parallel most closely the current environment is the 2008 period when a commodity “supercycle” period was in the process of ending. In particular, the prices of oil, iron ore and fertilizers were soaring. When those prices peaked and then rolled over, stocks cratered. Clearly other factors were at work, such as the bursting of the housing bubble and investors’ realization that large sums of mortgage securities had little value, but the pace of commodity price gains then and now seems eerily familiar.

WTI crude has recently hit as high as US$129 a barrel, the highest level since 2008. Its last leg higher appears related to fears that the West will stop accepting Russian oil.

WTI crude oil price, in US dollars per barrel

Dutch natural gas futures, the European benchmark —  much like Henry Hub futures is the U.S. natural gas price standard — reached 193 euros per Megawatt-hour (Mwh) on March 4. This price equates to a staggering US$61 per thousand cubic feet of gas (Mcf). By comparison, March Henry Hub gas futures closed at US$5.05 per Mcf on the same day.

Dutch natural gas futures prices, in euros per Megawatt-hour

Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Views expressed within are solely that of the author. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Video Articles

The Gold & Copper Stocks Everyone Keeps Asking About | Oct. 12-16 – Weekly Mining Mailbag

Similar Gold Mines Are Valued 10X Higher. Why Not This One? | JW Dumont – Granada Gold Mine

The US Interest Bill Gold Can’t Ignore | Peter Grandich

Recommended

Sage Potash Expands Sage Plain Resource to 771.5 Million Tonnes, Adds First Measured and Indicated Tonnage

Cambria’s Silver Coin Infill Program Delivers 98.56 g/t Gold Over 8.2 Metres

Related News

European Governments Considering Billions in Aid as Energy Crisis Deepens

Out-of-control energy prices are forcing European governments to consider billions of euros in financial aid...

Thursday, September 23, 2021, 02:45:00 PM

Gazprom Threatens to Halt Gas Shipments Over Alleged Ukrainian Theft

Russian-owned Gazprom is threatening to axe natural gas shipments through the last remaining pipeline into...

Wednesday, November 23, 2022, 06:32:00 AM

Is A Commodity Supercycle Just Starting? – The Daily Dive feat Tavi Costa

On today’s episode of the Daily Dive, we sit down with Otavio “Tavi” Costa, whom...

Wednesday, March 17, 2021, 01:30:00 PM

Advantage Energy Curtails Up To 130 mmcf/d Of Natural Gas Production

Low natural gas prices have led Advantage Energy (TSX: AAV) to curtail natural gas production...

Tuesday, October 8, 2024, 08:51:07 AM

UK Unveils Windfall Tax on Utility Providers as Energy Inflation Soars

As energy expenses become increasingly unsustainable for most UK households, the country’s government on Thursday...

Friday, May 27, 2022, 11:39:00 AM