Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Commodities slipped a bit into December, with losses being led by slumping natural gas prices
- The main event of the week was the OPEC+ meeting, and the decision to delay production again
- Copper witnessed its best week since September on renewed China stimulus optimism
- Silver enjoys the tailwind from firmer industrial metal prices, outshining gold in the process
- Cocoa returns to USD 10,000 with coffee heading for another test of the 1977 high
The commodities sector traded softer during the first week of December—a month that traditionally sees activity slow to a halt ahead of the holiday season and year-end. During this period, traders and investors typically focus on defending hard-earned gains while minimising losses, potentially leaving markets directionless as they prepare for 2025—a year expected to bring both significant risks and opportunities.
The Bloomberg Commodity Total Return Index, which tracks a basket of 24 major futures markets spanning energy, metals, and agricultural commodities, slipped by 0.7% during the week, reducing its year-to-date return to 3.6%. Gains across the industrial metal, grains and soft sectors being offset by a near 4% setback in energy, courtesy of a near 10% slump in natural gas and distillate (diesel) weakness. On an individual level the top performing commodities were cocoa, wheat, copper and silver, while the weakness as mentioned was being led by natural gas, diesel, platinum and gold.
OPEC and crude oil
The main event of the week in commodities was the OPEC+ meeting, and following two postponements, the group delayed further to mitigate the risk of price weakness amid the release of currently unwanted barrels. This decision was underpinned by concerns about robust production from non-OPEC+ producers next year, potentially leading to a major crude surplus and, from OPEC's perspective, undesirable price weakness. In the short term, the combination of US tariff threats, elevated OPEC spare capacity and rising production elsewhere—not least in the US, where output has reached a record 13.5 million barrels per day—has reduced the likelihood of an upside price movement.
Nonetheless, some upside risks remain. These include the Trump administration potentially adding fresh sanctions on Iran and Venezuela, as well as geopolitical risks stemming from the Russia–Ukraine war and the Middle East conflict. A proposal by Treasury Secretary nominee Scott Bessent to increase US production by 3 million barrels of oil equivalent through 2028 will likely centre on increased natural gas and natural gas liquids production. With WTI trading below USD 70, however, incentives for further production increases remain constrained.
Brent and WTI crude oil futures have traded sideways over the past two years as OPEC successfully managed to reduce volatility while supporting prices during a period of softening demand in China. Brent support, as indicated in the chart, is found near USD 70 per barrel, followed by USD 65 per barrel, while the downtrend from 2022 currently provides resistance near USD 80 per barrel.
Industrial metals and copper recover from the November slump
The industrial metals sector was heading for its third consecutive weekly gain as it continued to claw back losses resulting from proposed US tariffs on imports, particularly from China—a move that could disrupt global trade and reduce demand for industrial metals. Copper, which dropped over 5% last month due to additional pressure from concerns about a potential slowdown in the energy transition, witnessed its best week since September. It moved solidly higher and away from recently challenged key support levels. Prices were supported by a continued decline in exchange-monitored warehouse stocks to a May low, particularly in China, and by investor optimism about measures to bolster China’s flagging economy being approved at a key meeting in Beijing next week.Despite the mentioned challenges next year, the global shift toward electrification continues, particularly in China, where the EV and hybrid boom increasingly signals a sooner-than-expected slowdown in demand for traditional fuels. In the US, the surge in power demand from data centres and AI technologies is reshaping the energy landscape. After two decades of flat electricity demand, the US Energy Information Administration (EIA) projects consistent annual increases through 2050, driven largely by these energy-intensive industries. This growth is expected to boost not only natural gas demand but also the need for industrial metals like copper, which is critical for conducting increased electrical loads.
High-grade copper, in an uptrend since the 2020 low, approached support last month near USD 4.00 per pound before rebounding on renewed demand from China and the energy transition. For now, and until China provides further support, the price is likely to remain capped below USD 4.35 per pound.
Industrial metal connection sees silver outshine gold
Silver’s 55% exposure to industrial uses saw the grey metal enjoy the tailwind from firmer industrial metal prices, leading to an outperformance against rangebound gold—its precious metal peer—which suffered a small weekly loss but remains well supported into 2025. Expectations for persistent global uncertainties are driving demand for gold as a safe-haven asset, supported by lower interest rates and continued central bank demand. While we believe gold will resume its ascent next year toward a fresh record high of around USD 3,000 an ounce, silver appears poised for even better performance due to a sizeable market deficit in 2025, driven by continued demand growth in electronics, particularly photovoltaics.
Following a relative deep October to November correction, silver buyers returned after support was re-established at USD 29.65, the 0.618 correction of the September to November rally and now a twice rejected level. For now resistance at USD 31.65 has yet to be challenged and broken in order to achieve an even greater comeback.
Cocoa hits USD 10,000; Coffee taking fresh aim at 1977 high
Other commodities performing well included cocoa, which returned to trade USD 10,000 per tonne, having started the year around USD 4,000 per tonne amid the prospect of a multiyear structural supply-demand deficit due to much weaker production in Ivory Coast and Ghana—two producers responsible for more than half the world’s production. Analysts expect the 2024/25 season to yield another deficit at a time when global stocks are already depleted. Meanwhile, Arabica coffee futures resumed their run higher following a sharp correction after prices recently reached but failed to break above the 1977 high at USD 3.3750. Coffee prices remain supported by a tightening supply outlook in Brazil, the world’s top producer of Arabica, and Vietnam, the main producer of the Robusta bean.
Wheat supported by Russia and Australia output focus
A recent decline in wheat futures in Chicago and Paris, driven by the prospect of ample supplies, was arrested as the dollar softened and poor winter wheat crop conditions in Russia, combined with excessive rains in Australia—two major suppliers of the grain—lifted hopes for US and European export demand. The agricultural sector has experienced a very mixed year, with strong gains in cocoa, coffee, and orange juice due to the concentration of production in regions negatively impacted by adverse weather, partly offset by losses across key crops amid ample supply following another bumper production year globally.
Recent commodity articles:
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
29 Nov 2024: Commodities take a breather after action-packed November
28 Nov 2024: Coffee surges to a 47-year high
28 Nov 2024: Choppy gold market turns to Santa for December support
27 Nov 2024: Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: COT Report: USD long jumps; Mixed week in commodities
22 Nov 2024: Commodity weekly: Strongest performance since April
19 Nov 2024: Gold and silver rise on Russia-US tensions
18 Nov 2024: COT: Limited dollar demand despite strength; Acclerated metals selling
11 Nov 2024: COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: Podcast: US election and the market reactions, including commodities
6 Nov 2024: Trump and Republican victories spark commodity decline
4 Nov 2024: COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
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