What’s Coming Next in the Commodities Market?
During FOREX EXPO Dubai 2023, the premier two-day trading event, traders, investors, risk managers, and analysts had the exclusive chance to attend a specialized seminar featuring key note speakers, including Amro Zakaria, Senior Market Analyst – MENA at FOREX.com – part of StoneX Group Inc – who shared valuable insights about emerging trends, risks and opportunities in the commodities market.
Zakaria tapped into the ever-evolving landscape of the market, which plays a significant role in the global economy, impacting the prices of essential goods and resources. He also shed light on the latest trends and challenges while exploring the factors driving those trends.
“Understanding the dynamics of the commodities markets is crucial for businesses and individuals” says Zakaria, citing three primary factors influencing these markets today, including: supply chain disruptions, geopolitical influences, and inflation and interest rates.
Earlier this September, the World Bank had published the latest commodity prices, indicating a 7.8% increase in Energy prices during August, as well as an 8.2% jump in fertilizer prices. On the other hand, prices decreased across different categories such as non-energy (-1.2%), food (-2.2%), raw materials (-0.6%), metals (-1.9%), and precious metals (-1.9%).
According to Amro Zakaria, “Supply chain disruptions and unforeseen events, such as conflicts and extreme weather patterns, may affect commodities markets. Similarly, geopolitical influences, such as the ongoing Russia-Ukraine conflict, may impact various commodities, including industrial and precious metals, grains, and energy commodities”, adding “the dynamics between inflation, interest rates, and commodities, also have repercussions on the market, especially in emerging markets.”
Furthermore, Zakaria discussed the main tools and models used by market participants in exploring commodity price risk analysis. These encompass technical analyses which enable informed decision-making; Liquidity-adjusted VaR (L-VaR) modeling, useful for assessing the impact of price fluctuations on large portfolios; diversification, which spreads risk across commodities, markets, or regions; and hedging, using financial instruments to safeguard against price volatility.
“These tools and models are used by traders and companies in the sector to manage commodity price risk effectively, enhance their risk management strategies, and may improve their overall financial performance”, said Zakaria.
For oil-producing Middle Eastern countries, a massive part of the commodities market’s stability and growth is determined by demand on refined products.
According to financial data and analytics experts S&P Global Inc., commodities market global consumption of major refined products, including gasoline, diesel, jet fuel and fuel oil, is expected to reach 69.3 million b/d by 2030. Exports of major refined products from KSA, the UAE, Kuwait, Iraq, Qatar and Bahrain to Northwest Europe grew by 240% in the first four months of 2023, compared with the same period in 2022. Shipments to the Far East also rose.
With global oil flows being reshaped by the Russia-Ukraine conflict, oil-producing countries in the Middle East are seizing the day, sparing no efforts to cater to the growing demand. In fact, four new refineries have recently launched or are aiming to do so by the end of 2023, in KSA, Kuwait, Iraq and Oman. The S&P Global Commodity Insights expect the Middle East’s total production of major refined products to increase 5.5% year over year in 2023 to 8.17 million b/d and to reach 8.48 million b/d by 2024.
