Commodities wrap: oil volatility peaks, iron ore remains resilient

It has been a busy and volatile week for global commodity markets. Global economic data continues to show signs of deterioration, equity markets have traded cautiously, and US oil markets have experienced unprecedented price swings.

Oil price volatility hits historical levels
Financial markets seem full of stories which usually start with a long list of reasons why X event cannot or will not happen; only to end with a fantastical recounting of how X event eventually came to pass.

Oil markets look prime for a story of this kind: with WTI’s May Nymex futures contract finishing out Monday’s session at negative $37.63 a barrel.

The catalysts here were complex and manifold: as oil demand remains at historical lows as a result of COVID-19 and with US crude storage capacity quickly filling up; traders, faced with the prospect of being forced to take physical delivery of commodity they likely (and evidently) didn’t want and/or wouldn’t be able to store, dumped their futures contracts at whatever the cost.

That cost, at its worst, was negative $40.32 a barrel.

Positively at least, oil markets have rebounded since that dramatic Monday – with the front month contracts for WTI and Brent trading at $17.31 a barrel and $22.00 a barrel, respectively, as of 10:23 EDT.

A short-term positive, yes, but one should remember that just four months ago both contracts traded north of $60 a barrel.

Iron ore spot prices range trade
While oil has collapsed off the back of the COVID-19 pandemic, iron ore prices have continued to hover around multi-year highs, as Chinese demand holds up the commodity. In saying that, iron ore spot prices have traded mostly flat this week, according to IG data, dropping ~1.7% from Monday to Friday.

As it stands, the front month, April 2020 Nymex 62% Fe Fines iron ore futures contract last traded at US$84.04 per tonne.

Moreover, as part of BHP Group (BHP) and Rio Tinto’s (RIO) latest round of quarterly production results, it was pointed out that while demand has fallen across the board, demand for iron ore in China remains robust.

Rio Tinto’s management stressed that:

‘Demand for the high-quality iron ores we produce remained strong in the first quarter [Q1] of 2020, mainly driven by a combination of seaborne disruptions and solid demand from China’s steel mills despite COVID-19 impacts.’

BHP’s commentary essentially mirrored RIO’s, with it being pointed out that:

‘While demand in China has strengthened in recent weeks, we expect other major economies, including the US, Europe and India, to contract sharply in the June 2020 quarter.’

Looking forward, back month futures prices suggest traders expect iron ore prices to remain elevated for some time, with only the July 2021 Nymex futures contract trading below $70 per tonne.

In other news, Fortescue Metals Group (FMG) is set to report their March production results next Thursday, 30 April.

Other commodities: a fast take
Elsewhere, spot gold continues to trade close to its 52-week highs at $1723 per ounce; while the story for spot palladium is more mixed, with the precious metal currently trading at $765 per ounce, around the middle of its 52-week range, according to Bloomberg Data.

Natural Gas’s May 2020 Nymex futures contract also sits well off its 52-week high of $2.61 per million British Thermal Units (MMBtu), last trading at $1.82 per MMBtu.

Silver’s July 2020 Comex futures contract also sits around the middle of its 52-week range, last trading 0.12% higher to $15.55 per ounce.
Source: IG Bank