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Keep Your Eye on Raw Materials: A Bull Market Could Be Coming

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As one bull market appears to be nearing its end, another may soon be on the horizon. Following years of underinvestment and tepid growth, raw materials in the form of copper, aluminum and nickel could be poised for a dramatic rebound.

The Next Bull Market?

Stocks, cryptocurrencies and even energy have taken the shine away from primary metals in recent years, but that could be about to change as investors look for new market-beating revenue streams. According to The Wall Street Journal, prices of copper, aluminum and nickel could rise more than 40% in the coming years as markets grapple with a severe supply crunch following a prolonged period of underinvestment.

This year, spending among global mining companies is expected to fall to less than a third of 2013 levels, when investment in new mines topped $121 billion. The year before, spending reached $144.05 billion, according to data from Wood Mackenzie. In 2018, total spend on new mining projects is expected to reach $35.4 billion. For many analysts, this means a major supply crunch is on the horizon.

Demand Drivers

On the demand side, the growth and widespread adoption of electric vehicles will only exacerbate the supply gap as manufacturers raise order books for copper and aluminum. According to the International Energy Agency (IEA), the number of electric vehicles on the road is forecast to reach 125 million by 2030 compared with just 3.1 million in 2017. The surge in electric vehicles also means higher demand for lithium and cobalt, two key components in electric-car batteries.

A growing global economy also playing into the hands of raw materials. Although the International Monetary Fund (IMF) is forecasting slower growth over the next two years, the downbeat view is largely tied to U.S.-China trade relations. Emerging-market growth remains an important driver for commodities.

Assets to Consider

Market participants wishing to gain exposure to raw materials have several options to choose from. In addition to trading futures contracts, resource-rich exchange-traded funds (ETFs) are an easy way to play the market, especially for the long haul. Some of the most notable are SPDR S&P Metals & Mining ETF (XME), Global X Lithium & Battery Tech ETF (LIT), iShares MSCI Global Metals & Mining Producers ETF (PICK) and Global X Copper Miners ETF (COPX). The SPDR S&P Global Natural Resources ETF (GNR) is also an option for those looking for a higher concentration of energy companies.

In terms of individual stocks, large miners such as Glencore Plc (GLEN), Rio Tinto PLC (RIO) and Vale SA (VALE 3) also provide a good option for diversifying into the sector. In addition to being global mining heavyweights, these companies share something else in common: they have significantly reduced capital expenditure in recent years (once again, this plays into the narrative that supply constraints will drive up the value of raw materials).

Investors betting big on the electric-car revolution have no doubt placed Tesla Inc. (TSLA) on their radar. For all its recent troubles, Elon Musk’s company recently reported a massive earnings beat, including a return to profitability for the first time since Q3 2016.

In addition to Tesla, automotive suppliers are also poised for a major breakout should the electric-car revolution play out as expected. Some companies to put on the short list are Aptiv PLC (APTV), Delphi Technologies PLC (DLPH), Magna International Inc. (MGA) and TE Connectivity Ltd. (TEL).

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 666 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Commodities

WTI Falls Below $59 a Barrel for the First Time in Eight Months; U.S. Set to Dominate Energy Market By 2025, Says EIA

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The oil-price collapse became a record fallout on Tuesday, as U.S. crude futures headed for their longest losing streak ever. In the process, the futures contract dipped below $59.00 a barrel for the first time since February and is now trading at its lowest level since last year.

Oil Prices Sink Further into Bear Territory

U.S. West Texas Intermediate (WTI) futures fell by as much as 2.8% on Tuesday, extending their losing streak to a record 12 days. At the time of writing, WTI was trading down $1.38, or 2.3%, at $58.55 a barrel on the New York Mercantile Exchange. Brent’s decline was equally perilous, with the global benchmark falling $1.60, or 2.3%, to $68.52 a barrel.

Oil prices have lost a swift 23% since Oct 3, when markets were pushing toward multi-year highs. The rout intensified this week after U.S. President Donald Trump criticized Saudi Arabia’s plan to lower production amid the selloff.

The Saudis announced Monday they would scale back output by 500,000 to bring supply back in line with demand. Saudi energy minister Khalid Al-Falih said output cuts of 1 million barrels per day are needed to re-balance the market. This suggests fellow OPEC members are likely to join efforts to reduce output in support of higher prices.

U.S. Set to Dominate Energy Market

America’s reliance on Saudi oil is quickly fading as domestic shale production achieves new economies of scale. According to a new report by the International Energy Agency (IEA), the United States will produce half the world’s oil and gas supply by 2025.

In its annual World Energy Outlook report, the agency said the U.S. will account for roughly 75% of global gas growth over the next six years. It will also account for 40% of the growth in natural gas. At the same time, U.S. shale production is forecast to more than double to 9.2 million barrels per day.

“The shale revolution continues to shake up oil and gas supply, enabling the U.S. to pull away from the rest of the field as the world’s largest oil and gas producer,” the IEA said in its report. “By 2025, nearly every fifth barrel of oil and every fourth cubic meter of gas in the world come from the United States.”

The upsurge in U.S. shale production has eroded OPEC’s dominance of the international energy market. This was most evidently on display in 2014 when a systemic price collapse forced the Saudi-led cartel to adopt new production policies. While the cartel has succeeded in bringing prices above the break-even rate for Middle East producers, it has failed to deter lean shale producers that are capable of generating profits even with the latest drop in prices. This new reality is expected to play out further over the next six years.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 666 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Commodities

Oil Prices Erase Recent Gain as Trump Blasts Saudi Production Policy

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Crude oil suffered a fresh setback early Tuesday, as markets reacted to further fraying of U.S.-Saudi relations after President Donald Trump slammed the kingdom’s energy policy. Hours earlier, Saudi Arabia had announced it would cut crude production by 500,000 barrels per day in December in response to the recent plunge in prices.

Oil Prices Erase Gains

U.S. West Texas Intermediate (WTI) futures plunged to yearly lows on Tuesday, more than offsetting yesterday’s climb. The U.S. futures benchmark bottomed at $58.85 a barrel. It was last seen trading at $59.00 a barrel, down 93 cents, or 1.6%, from the previous close.

The WTI contract officially entered into bear-market territory earlier this month with losses exceeding 20% over the past six weeks. At the beginning of October, crude was tracking four-year highs. Now, prices are struggling to stave off further declines.

Declining crude prices follow a fresh surge in the U.S. dollar, which is currently tracking 16-month highs against a basket of its peers. The DXY dollar basket spiked 0.7% on Monday to 97.54. As a dollar-denominated asset, crude is highly sensitive to changes in the greenback’s value.

Trump Blasts Saudi Oil Policy

Saudi Arabia’s decision to scale back crude production has been met with heavy criticism by U.S. President Donald Trump. In a Monday afternoon tweet, Trump said the following:

“Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!”

The president’s comments came after the Saudis announced plans to lower crude supply by half a million barrels per day beginning next month. The decision was announced by Saudi energy minister Khalid Al Falih in Abu Dhabi following a meeting of OPEC members.

“The consensus among all members is that we need to do whatever it takes to balance the market,” Al Falih said, as quoted by CNN. “If that means trimming supply by a million [barrels per day], we will do it.”

President Trump is under pressure to keep the economy running strong following sizable losses in the House of Representatives during last week’s midterm election. Although the GOP under Trump performed much better than previous administrations, the loss of a House majority threatens to undermine the administration’s goals.

Washington was relying on Saudi Arabia to keep the global market well supplied, and oil prices down, in the wake of renewed sanctions on Iran. U.S.-Saudi relations have also deteriorated over the killing of journalist Jamal Khashoggi at the Saudi consulate in Turkey last month.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 666 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Commodities

Oil Prices Officially Enter Bear Market

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Crude oil extended its slide on Thursday, with the U.S. futures benchmark encroaching into bear-market territory following weeks of relentless declines.

WTI Succumbs to the Bears

Crude futures were down across the board in the latter half of the week, as concerns over rising stockpiles and higher production continued to grip the market. The West Texas Intermediate (WTI) contract for U.S. crude reached a low of $60.67 a barrel on the New York Mercantile Exchange. It was last down 24 cents, or 0.4%, a $61.43 a barrel. Brent crude declined 28 cents, or 0.4%, to $71.80 a barrel on London’s ICE futures exchange.

WTI has officially entered bear market territory, which is defined as a fall of 20% or more from a recent high. The 20% threshold was met on Thursday as prices resumed their relentless drop from four-year highs set on Oct. 3. Market sentiment has shifted dramatically over that stretch, with investors now fearful that Saudi Arabia and Russia will more than offset a loss of Iranian exports following the resumption of U.S. sanctions against Tehran.

Higher Production on the Horizon

Russia and the Saudis aren’t the only players expected to ramp up production in the near future. The U.S. Energy Information Administration (EIA) recently upped its outlook on domestic crude production, calling for 12.1 million barrels per day in 2019 compared with a previous estimate of 10.9 million barrels per day.
EIA data on Wednesday showed a sharp rise in weekly crude inventories, placing further pressure on oil prices. Commercial stockpiles surged by 5.8 million barrels in the week ended Nov. 2, bringing the total inventory to 432 million barrels. That’s the highest since early June.

Meanwhile, members of the Organization of the Petroleum Exporting Countries (OPEC) are expected to meet this weekend to go over market fundamentals and determine whether additional supply cuts are warranted. Analysts at Commerzbank believe the cartel may have no choice but to scale back output to re-balance the market. The Saudi-led production group will meet in Abu Dhabi on Sunday.

In other news, October was another record-setting month for Chinese crude imports as the world’s second-largest economy stocked up on Iranian barrels before U.S. sanctions took effect. China imported an average of 9.6 million barrels per day last month, government data showed on Thursday.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 666 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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