Jim Wiederhold, Commodity Indices Product Manager at Bloomberg, comments on environmental change and its effect on commodity prices.
Q: Where were the unprecedented heat records set in May?
A: Africa, Europe, and South America had their warmest YTD period ever (Jan-May). The average global May Temperature was the warmest May in NOAA’s 175-year global record. For reference: NOAA news article.
Q: Why do you forecast 2024 to become the hottest year on record and is this globally or in a specific part of the world?
A: If this continues, it could be the hottest year on record surpassing 2023 but I’m not explicitly forecasting it. This last Sunday, July 21st was the hottest day ever recorded on Earth according to the Copernicus Climate Change Service.
Q: How has this climactic trend impacted commodities markets and contributed to a robust second quarter?
A: Extreme hot and dry situations affect agriculture commodities by causing potential crop damage. With commodities shipped via waterways, low water levels from drought can cause delays.
Q: Why are gains in metals like copper and gold reaching new all-time highs?
A: Different drivers pushed these two metals prices to new highs. Copper prices rose initially on the back of a short squeeze and still solid but slowing economic growth data around the world. Gold hit new highs as central banks bought across the globe and expectations for a rate cut by the FED started to be priced in more.
Q: Why have the power demands of AI technologies significantly influenced natural gas investments?
A: Natural Gas is the single-largest source of energy used to generate electricity in the US. AI takes a lot of energy compared to other processes and increases the load on the power grid.
Q: Why did most commodity futures curves shift into steeper contango, posing potential headwinds for returns?
A: Supply of most commodities picked up as demand cooled and production either stayed strong or increased this year. Prices of futures contracts further out the curve tend to rise for oversupplied commodities due to the cost of storage.
Q: Why did commodity volatility increase, moving closer to historical averages, while equity volatility decreased with new all-time highs in US equity indices?
A: Commodities volatility tends to be higher than other asset classes over the long run and when there are bouts of low volatility, this tends to reverse. The risk on mode in equities continued with several new all time highs for the major indices and only one small correction of about 6 per cent.
Q: Why did industrial and precious metals crucial for the shift from fossil fuels to electrification see significant price increases?
A: The Energy transition is picking up, so demand is helping drive metals prices higher as renewable energy gains a higher percentage within countries’ energy mixes.
Q: How could the transition from El Niño to La Niña lead to increased hurricane activity, potentially disrupting energy and agricultural markets in H2 2024?
A: NOAA scientists predict a quick transition to La Nina conditions, which are conducive to Atlantic hurricane activity because La Nina tends to lessen wind shear in the tropics. At the same time, abundant oceanic heat content in the tropical Atlantic Ocean and Caribbean Sea creates more energy to fuel storm development.
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