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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Will The Commodity Price Rally Last Into 2022?

  • Global economic recovery and supply chain disruptions have made commodities one of the top-performing asset classes this year. 
  • Prices of metals critical to green energy rollouts could edge lower with supply improving next year. 
  • Oil prices could see lower average levels next year, with a surplus expected on the market early into 2022.
Commodity Bull

The global economic rebound, accommodative monetary policies, bad weather, and supply chain disruptions have propelled commodity prices higher to make the complex the top-performing asset class in markets this year. 

The S&P Goldman Sachs Commodity Index (INDEXSP: SPGSCI) was up by 36 percent year to date to December 22, compared to 27-percent year-to-date increase in the S&P 500 index (INDEXSP: .INX).   

Another strong year is in the cards in 2022, although key downside risks remain, analysts say. These risks include the biggest wild card: how governments will continue to manage COVID and whether the pandemic will lead to more severe restrictions and/or lockdowns. The other major driver of commodities next year will be China’s government policies in containing the virus, procuring commodities, and managing the property crisis following the fallout from the indebted property giant Evergrande.

The property crisis has weighed on the Chinese steel sector in recent months, with global iron ore prices slumping from an all-time high reached in May this year. However, China signaled support for the property sector this month, which lifted iron ore prices that rebounded by 50 percent from an 18-month low hit just six weeks ago, with Chinese steel production expected to increase in December. 

“At the end of 2021, a number of fine-tuning measures targeting the sector combined with credit easing sparked optimism about China's policy becoming more supportive,” Wenyu Yao, Senior Commodities Strategist at ING, said in early December, expecting China to continue playing a key role in the global iron ore market. 

“On average, we expect prices to slide to US$100/t over 2022, with the main upside risks still being potential supply chain disruptions in light of the Omicron variant,” ING’s Yao said. 

Prices of metals critical to green energy rollouts – including aluminum, copper, nickel, lithium, and cobalt – could edge lower with supply improving next year, but they are likely to remain at levels higher than the long-term averages, according to ING. Tighter monetary policy and an expected stronger U.S. dollar, combined with improved supply for most metals, are set to provide headwinds to prices. Aluminum, however, is headed to a structural deficit and could see a tighter market and higher prices in 2022, the bank noted.  

“Inventories are low amongst several metals, whilst sentiment around the outlook for demand in the medium term is constructive due to growing investments in green projects, which happen to be metal intensive,” said Warren Patterson, Head of Commodities Strategy at ING. 

In the medium to long term, “the energy transition makes a supercycle almost inevitable,” Julian Kettle, Senior Vice President, Vice Chair Metals and Mining at Wood Mackenzie, wrote in a report last month. 

In energy commodities, COVID developments and Chinese policies will continue to be the key drivers of prices in 2022, alongside OPEC+ supply-management policies. 

Natural gas and LNG prices are set to remain at elevated levels even after the winter season in the northern hemisphere ends. The current energy crisis in Europe and a colder winter could leave natural gas stockpiles at historically low levels in the spring, which would keep gas prices higher for most of 2022.     

Oil prices could see lower average levels next year, with a surplus expected on the market early into 2022. The extent of the new restrictions due to the Omicron variant and the OPEC+ supply policies will determine how tight (or not) the oil market will be next year. Chinese crude stockpiling policies will also play a prominent role on the oil market, especially if the world’s top oil importer continues to slow down its estimated commercial and strategic stockpiling compared to the massive building of crude reserves in recent years.

In the first quarter of 2022, China could see slowing crude imports. A combination of China’s policies to curb pollution in time for the Winter Olympics, its crackdown on illegal practices at independent refiners, and its zero-COVID policy with intermittent lockdowns are set to slow crude oil imports early next year, industry consultants have told Bloomberg.

Finally, coal prices will likely be supported by what could be a record year of coal demand globally, driven by China and India, despite the numerous net-zero emissions pledges. 

The economic rebound from the pandemic is taking coal power generation to a new record high this year, with global coal demand likely hitting another new high next year, undermining net-zero efforts, the International Energy Agency (IEA) said in its annual Coal 2021 report last week.  

By Tsvetana Paraskova for Oilprice.com

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  • George Doolittle on December 23 2021 said:
    BHP stock totally annihilated the past 6 Months so definitely no commodity boom going on there.

    Neither in Brazil, Russia, Turkey, all of Western Europe etc etc. Temperatures from Texas heading North and East for the next week are crazy high as well. Great news for Tesla given that would be an understatement.

    All of these massive Cities in the USA act as massive "heat sinks" so every day these temps stay well above average simply means they will remain well above average. Great news for the Construction Business tho.
  • Mamdouh Salameh on December 24 2021 said:
    Encouraging latest reports about the very mild impact of the Omicron variant will mean that no global lockdown will be forthcoming and this will prompt the few countries in Europe which declared some sort of lockdown to lift it much sooner than later.

    Therefore, I don’t expect the Omicron variant to have any disruptive impact on the global oil market in 2022. The reason is that both the global economy and the global oil market are robust and resilient enough to take the variant in their stride.

    Moreover, the fact that OPEC+, the most influential player in the global oil market, has gone ahead with its agreed increase in its crude oil production is a vote of confidence in the market and an admission that the organization strongly believes that any adverse impacts from the Omicron on the market will be mild and containable. As a result we have seen crude oil prices recoup some of their losses with Brent crude price exceeding $76 a barrel yesterday.

    Furthermore, oil prices could be expected to recoup all their recent losses and resume their surge which could take Brent crude towards $80-$85 a barrel during the first quarter of 2022.

    However, a widening deficit in the global oil market resulting from underinvestment in oil and gas during the last two years and estimated at 5.0-7.0 million barrels a day (mbd) could bring $100 oil by the end of 2022 or the first quarter of 2023.

    The energy crisis embroiling Europe will continue well into 2022 pushing natural gas and LNG prices to soar even higher than their current levels now. Europeans are expected to pay an additional 350 billion euros ($395 bn) in energy bills in 2022 as global demand for fuel and power threatens to keep prices elevated.

    A harsh winter could push gas and power prices which are already near record levels higher still in the first half of 2022. This could be due to low gas storage levels, nuclear outages in France, very strong demand for both gas and LNG in the Asia-pacific region and tighter global gas market.

    Neither Qatari, or American or Australian LNG nor Norway’s gas exports could satisfy the energy demand of the EU countries. Only Russia can. However, Russia may not be inclined to ship additional gas supplies to the EU without an early certification of Nord Stream 2 gas pipeline. If not, the Europeans will shiver this winter.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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