Frenzy in Commodity Market: Energy Futures Remain Preeminent

A boisterous situation can be seen where the marketplace of commodities has witnessed bull markets of varying degrees recently. It is believed that the Chicago Mercantile Exchange (CME) must be hustle and bustle because of its business on diversified commodity futures against the backdrop of increasing trading volumes. I was invited by CME to an online lecture relating to NYMEX West Texas Intermediate (WTI) Crude Oil futures (CL) last Friday, during which I shared my optimistic attitudes to transient transactions conducted in this field where a bearish trend could be encountered in the long run as numerous countries, including China and America, have made their energy policies focusing on environmental protection and new energy resources.

According to Reuters, the entire marketplace of energy futures has continuously taken the lead, accounting for over 34.8% of the whole trading market, which has surpassed that of the other industrial materials, such as basic metals, livestock, crops, and precious metals. However, from my long-term point of view, I am still positive about the performance of basic metals, copper in particular, because of the economic recovery worldwide and the increasing demand for electric automobiles. In fact, every type of commodity futures harbors its advantages in the short term. Even gold, weak in the first quarter, has been boosted by the worsening global inflation, the weakening of USD, and the plummet of virtual currencies.

As for individual investors interested in the WTI CL trading, it is worth mentioning that Micro WTI Crude Oil futures (MCL) will be introduced by CME on July 12th 2021 to fine-tune the crude oil market exposure up or down in 100-barrel increments (the size of one contract). This figure is at a tenth of the size of the benchmark WTI futures contract. The new MCL is believed to be popular among individual investors as the cost of one contract is only around USD 530.

I remain prudent but optimistic about the annual performance of oil prices because they are favored in the short run by the situations where the financial market is still playing up the continuous economic recovery around the world, and Europe has kept the pandemic under preliminary control and lifted the lockdown gradually, coupled with the Middle East tensions. In addition, as we all know, oil prices generally see more increases than declines in summer, the main reason for which is that the Gulf of Mexico is often attacked by severe hurricanes in summer that result in shutdowns caused by the destruction of the refining infrastructure in the area, which is conducive to the growth of oil prices.

However, the upward trend of oil prices may succumb to the unstable performance of the American economic statistics in recent months and the adjustments of varying degrees made by the global market. Based on the contract analysis of the situation in July where the largest trading volumes occurred, oil prices have dropped from the peak at USD 67 impacted by the selling pressure but risen from the trough close to USD 57 supported by the buying power since March, whereas the latest figure for the supportive level is USD 60.56. If oil prices fall back to the aforementioned trough, purchases of CL at low prices will be induced, leading oil prices to a rally.