Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
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Commodities weekly: Trump’s tariff threats and energy agenda take center stage
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Price movements across the commodities sector this past week have, for the most part, been dictated by comments and statements from Washington
- The Bloomberg Commodity Total Return Index traded a tad softer after reaching a 25-month high in the previous week
- US energy producers likely focus on gas production instead of starting another crude production binge
- Gold and silver supported by Trump 2.0 uncertainty
- Fresh record highs in cattle futures and Arabica coffee with cocoa staying firm on continued production concerns
Price movements across the commodities sector this past week have, for the most part, been dictated by comments and statements from Washington, where Trump on Monday delivered a muscular inaugural address, marking out a confrontational policy both domestically and internationally. In the coming weeks and months, while his policies take shape, markets will likely trade from one headline to the next, not least when it comes to the threat of tariffs, which, if rolled out against key trading partners—from Mexico and Canada to Europe and China—could trigger a global trade war that may hurt growth while adding fresh upward pressure on inflation.
The Bloomberg Commodity Total Return Index, which tracks a basket of 24 major commodities—split almost evenly between energy, metals, and agriculture—traded a tad softer after reaching a 25-month high in the previous week. Losses in energy and industrial metals were only partly offset by broad strength across the agriculture sector, led by fresh records in Arabica coffee and US livestock futures, and a fifth weekly rise in gold, which is once again flirting with last year’s record prices. Gold has been supported by haven buying and a softer dollar, as the greenback was heading for its biggest weekly loss in 14 months after traders scaled back extended longs.
Ahead of the weekend, some of the tariff angst was reduced, supporting a small rebound in the growth-dependent energy and industrial metal sectors after Donald Trump, in an interview, said he would prefer not to impose tariffs on China, citing tariffs as a “tremendous power” over the country. A Chinese spokeswoman subsequently said there were “huge common interests” between the US and China and that the two sides should step up dialogue and consultation. For now, however, the tariff threat remains, with markets doubting Trump will completely step back from using tariffs as a way of forcing industries to move the production of US-destined goods to the US.
US producers unlikely to start another crude production binge
Combating inflation and promoting growth through lower energy prices and lower interest rates can be found near the top of Trump’s wish list and is the reason why he has declared a “national energy emergency” in order to unleash new oil and gas production across the nation, from the Mexican Gulf to Alaska. However, considering that US energy companies are privately owned and not state-controlled, production will only rise if energy companies see demand and a price that makes new projects viable and profitable.
Considering the risk of US and global demand for crude oil starting to roll over while supply remains ample—not least from a buildup in spare capacity among Middle East producers—the risk of lower prices hurting profitability are two main obstacles preventing accelerated oil production. In fact, we doubt that demand will be strong enough to exceed the 2.3 million barrels-per-day increase seen during the Biden years.Gas, not crude, is needed to meet surging power demand
Instead, the focus will likely turn to the gas market, where historically low prices in the US are expected to rise in the coming years amid a boom in demand from gas-fired power plants, as well as increased exports to Europe and Asia. The electrification of the world continues to gather momentum, and while global demand for crude-based products will remain relatively stable before eventually falling, the use of power—generated from coal, diesel, gas, renewable sources, and nuclear—will continue to rise, not least due to soaring power demand from AI data centres and the increased use of battery-driven vehicles and machines.While consumers of gas in Asia and Europe currently pays around USD 15 per MMBtu, prices in the US have – apart from a temporary surge in 2022 – for the past ten years held steady within a wide USD 2 to 4 per MMBtu range, highlighting the competitive advantage and relative cheapness of US gas.
Crude prices drift lower on profit-taking and demand concerns
Following a very strong start to January, crude prices were heading for their first weekly decline in five, driven by profit-taking from funds amid the risk of a global trade war lowering growth and demand. In addition, Donald Trump has called for US producers to increase production while requesting OPEC to lower oil prices. Against this wish list, prices have recently been supported by a combination of an exceptionally cold winter temporarily lifting demand for heating fuels and diesel and the latest rounds of US sanctions on Russia’s oil industry, which went much further than expected.
These developments underpinned prices, in the process supporting a surge in demand from momentum-focused speculators, which, in the week to 14 January ahead of President Trump’s inauguration, had lifted their combined net long in Brent and WTI crude oil futures to an April 2024 high at 470,000 contracts, or 470 million barrels. The subsequent price weakness was partly due to this group, as wrong-footed longs were being reduced.
The start to 2025, in other words, has so far not played out as expected according to the consensus view of a market that was bound to struggle in response to non-OPEC+ production growth of around 1.4 million barrels per day outpacing global demand growth, which the IEA estimates at around 1.1 million barrels per day.
From a strong start, however, the mood among crude oil traders has in the past few days shifted back to one of caution, with the focus now squarely on Washington and the increased uncertainty caused by a wave of Trump announcements following his inauguration. Not least among these is the prospect of tariffs threatening to erupt into a global trade war, which may lead to lower growth and, with that, lower demand for energy. In addition, 2025 is forecast to see non-OPEC+ production growth of around 1.4 million barrels per day outpace global demand growth, which the IEA estimates at around 1.4 million barrels per day. Increased sanctions against Iran, Russia and Venezuela may invite back increased production from the Middle East, but for now there seems to be limited room for additional barrels from OPEC+.
Brent and WTI have, apart from a few geopolitical-led peaks and China growth risk slumps, been trading sideways for the past two years, not least due to active production management from OPEC+ producers. We maintain our 2025 price focus on a range-bound market that, for now, should see prices struggle to break outside a USD 65 to USD 85 range.
Gold and silver supported by Trump 2.0 uncertainty
Precious metals have benefited from the increased uncertainty caused by a wave of Trump announcements following his inauguration, including tariffs, with investors also evaluating their inflationary impact and effects on monetary policies. The latest run-up in prices—in gold to near last October’s record at USD 2,790, and silver towards resistance around USD 31—was triggered by Trump’s threat to impose tariffs on some of its major trading partners, including Canada, Mexico, Europe, and China.
In addition, the dollar, as mentioned, reversed lower for the first time in five weeks, thereby adding some tailwind to both metals. In our recently published Q1 2025 outlook, we reiterated our long-held bullish view on both gold and silver. Demand for investment metals continues to be fuelled by an uncertain geopolitical landscape, where global tensions and economic shifts have led investors to seek safer assets. With Trump 2.0 upon us, this development shows no signs of fading, given the potential risks of tariffs causing inflation to move higher and the dollar eventually weakening, thereby removing an obstacle standing in the way of further gains.
Silver continues to recover from the deep end-of-year correction that saw the white metal tumble 17% from a 12-year high at USD 34.87 to a December low at USD 28.74. Besides renewed demand from wrong-footed short sellers in the futures market at the start of the year, prices have also been supported by the factors driving gold higher, as well as the fundamental outlook for a fifth consecutive annual supply deficit, amid industrial demand from sectors such as electronics and renewable energy.
US livestock futures hitting record highs
Live and feeder cattle futures traded in Chicago continue to reach fresh record highs, with the latest run-up driven by reduced availability after the current cold weather across parts of the US slowed the growth process, thereby restricting further an already-tight cattle supply amid an ongoing halt to imports from Mexico due to disease concerns. The live cattle contract has been trending higher for the past five years, with the first-month contract breaking above USD 2 per pound, a year-on-year increase of 15%.
Cocoa resumes rally; Arabica coffee hitting fresh record high
Cocoa futures jumped to a one-month high this week as dry Harmattan winds threatened West African crops, with dryness and high temperatures causing cocoa pods to wither. As a result, deliveries to Ivory Coast’s ports are slowing, potentially raising the risk of a fourth consecutive annual deficit, despite recent data on European grindings pointing to slowing demand as consumers start to respond to a dramatic price rise that has seen the first-month futures price in New York gain 150% in the past year.
Arabica coffee prices, meanwhile, remain supported by the prospect of a lower 2025/26 crop in Brazil, the world’s top producer. This week, the Arabica coffee futures contract traded in New York, which primarily sources its supply from Brazil, reached a fresh record at USD 3.4695 and has surged close to 80% in the past year. Prices accelerated in November when concerns about the outlook for production in Brazil, amid adverse weather lowering the crop size, gathered momentum. Prior to November’s accelerated rally, coffee prices had generally been supported by developments in the Robusta coffee market, where hot and dry weather in Vietnam had sharply lowered production.
Recent commodity articles:
24 Jan 2025: Podcast: Four days in, Trump continues to dominate headlines, but ...
23 Jan 2025: Crude oil weakens amid tariff uncertainty
22 Jan 2025: Gold and silver see fresh gains as Trump 2.0 era begins
20 Jan 2025: Podcast: Trump 2.0 swings into action
20 Jan 2025: COT Report: Elevated commodities longs face short-term risks
17 Jan 2025: Commodities weekly: Strong January rally pauses ahead of Trump
17 Jan 2025: Podcast: Brace for Monday, as a new era begins
15 Jan 2025: Q1 2025 Commodity outlook: A bumpy road ahead calls for diversification
14 Jan 2025: COT Report: Hedge fund long jumps to 17-month high led by crude, gas and metals
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
20 Dec 2024: Silver's resurgence in 2024: A precious metal with an industrial edge
17 Dec 2024: Investors cash in: Gold and silver see year-end profit taking
17 Dec 2024: Podcast: A wild ride in 2025 awaits
16 Dec 2024: COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: Commodities weekly: The forward curve and impact on returns
10 Dec 2024: Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024: Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
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