Commodities in 2024: What Could Have Impact on Valuations?

As we embark on the journey through 2024, the landscape of global commodities markets is poised for potential shifts, driven by a myriad of factors that wield influence over prices. While the year unfolds, a cloud of uncertainty still looms over the direction of commodity price volatility. This makes it imperative to dissect the various elements that could shape this intricate economic tapestry.

This article delves into the web of forces that may sway commodity trading in the coming months, exploring critical determinants that extend beyond mere market dynamics. Geopolitical tensions, perennially capable of sparking market upheavals, are examined for their potential impact.

Simultaneously, the article scrutinizes the pulse of global economic activity, recognizing its pivotal role in dictating demand and supply dynamics. Moreover, the capricious influence of weather patterns on agriculture and energy commodities comes under scrutiny, emphasizing the interconnectedness of environmental factors with market fluctuations.

Together, these factors weave a complex narrative, one that necessitates a keen understanding of the interplay between geopolitics, economics, and nature to navigate the evolving terrain of commodity prices in 2024. If you are active in CFD trading, then this article can help you plan for what might happen in the months ahead.

Geopolitics

As January already started to unfold, the markets are focused on the Red Sea area. Escalating Houthi attacks on cargo ships are raising concerns about whether a broader conflict could spill over across the Middle East.

That’s not the case for the time being, yet shipping companies like Evergreen, Hapag-Lloyd, and Maersk decided to avoid the Red Sea. With transportation costs on the rise, it’s possible to see inflation bottoming out, or even start to edge higher again.

Elevated geopolitical uncertainty can influence commodity trading meaningfully. That could be the reason why many traders choose CFD trading when buying/selling oil, natural, copper and other important commodities.

If tensions will eventually continue to rise, the main concern is that the “war premium” will have to be priced into oil and other commodities again. A similar situation happened when the conflict between Russia and Ukraine started two years ago.

A piece of good news deals with the supply side. As OPEC countries reduced their production, attempting to prop up oil prices, the market is now in a position where there’s plenty of spare capacity. As long as there won’t be a major conflict in the Middle East, OPEC members have the ability to hike output by an aggregate of 5 million barrels.

Global Economic Activity

Commodity trading is also impacted by global economic activity and expectations moving forward. Current projections from the OECD point to a mild slowdown in 2024 and then an improvement in 2025.

However, people who are involved in CFD trading on a daily basis know that forecasts can be wrong many times. Heading into 2023, the economic forecasts were poor, with many analysts expecting a recession.

That scenario failed to materialize and now the consensus is pointing to a moderate expansion this year. As always, the focus will be on the United States and China, the two largest economies in the world.

On one side, the US is entering an electoral year and the probability of a recession occurring is low, given the government has the ability to increase the deficit in order to boost GDP. China, on the other hand, had to face difficulties with the real estate sector, yet even in this case, the government decided to raise the deficit to above 4% of GDP, to achieve its economic growth targets.

Developing economies shouldn’t be ignored, since that’s where the biggest share of the world’s population lives. For now, economic activity continues to expand, but there are risks to the downside, mainly because these countries are financing debt in foreign currencies.

Weather

In 2024, the intricate dance between weather patterns and commodity prices continues to shape the landscape of global markets. The year opened with heightened concerns as meteorological events cast shadows on various commodities. Unpredictable weather conditions, ranging from extreme droughts to unprecedented storms, can leave their mark on agriculture and energy sectors, directly impacting commodity prices.

Commodity traders are closely monitoring the repercussions of these weather anomalies, acutely aware of their potential to disrupt supply chains and drive prices up. In agricultural markets, prolonged droughts pose threats to crop yields, leading to concerns about shortages and subsequent price hikes. Simultaneously, intense storms can disrupt transportation and production in the energy sector, causing volatility in oil and gas prices.

As commodity trading remains inherently sensitive to environmental variables, market participants are advised to stay vigilant in navigating the dynamic landscape shaped by the capricious forces of weather in 2024.

Are Major Shocks Still Possible?

Recency bias is one of the main challenges in CFD trading. This refers to instances when trading decisions are influenced by recent events that happened in the market. The last three years were marked by major shocks, including the pandemic and the Russia-Ukraine war.

Volatility in commodity prices surged and now the big question is whether such events have a high probability to occur in 2024. You can’t predict black swan events, so the only option left is to adapt once they occur.

Positioning for a major shock before it occurs is not the best option, especially since with CFD trading you have to pay overnight swaps for each day you keep the trade open. Because price disruptions are very rare, it’s better to rely on the best case and assume that won’t happen in the near term, while also being aware that the world is still uncertain.

Summary

In conclusion, as you navigate the currents of 2024, the commodities landscape stands at the intersection of geopolitical, economic, and meteorological forces. The delicate balance between these factors renders predicting price movements a formidable challenge.

While steering clear of providing explicit investment advice, it is evident that the year ahead holds the promise of an intriguing journey for the commodities market. As participants in this intricate dance, vigilance, and adaptability will be paramount in navigating the twists and turns of this dynamic commodities arena.

Work It