The Bloomberg Commodity Index has been more range-bound amid recession fears and uncertainty over China's path to reopening. (ddp)

In the near term, we expect OPEC's limited spare capacity, a pickup in global travel, and China's eventual economic recovery to support oil prices. We also expect the war in Ukraine and weather-related factors to keep grain prices firm. We see around 15% upside in total returns for broad commodity indexes in the next six months.

Commodity markets have been volatile as investors juggle recession fears against tight supply.

  • After first rallying 42% as the war in Ukraine aggravated global supply, the Bloomberg Commodity Index began to reverse direction June.
  • The index has since been more range-bound amid recession fears and uncertainty over China's path to reopening.


Despite the wild swings, we expect the broader uptrend in commodities to be largely intact


  • While OECD countries' oil demand has been lackluster of late, it has been strong in non-OECD countries, including China, India and Mexico.
  • Tightness in energy supply looks set to worsen with global inventories at multi-year lows, OPEC's limited capacity, Europe's ban on Russian oil, and Russia's reduced gas flows to Europe.
  • Poor weather conditions like La Niña have amplified the disruption caused by the war in Ukraine


We continue to expect commodity prices to rise in the near term.

  • We see another 15% upside in broad commodity indices over the next six months. We forecast Brent crude oil will rise to USD 125/bbl into mid-2023.
  • In the interim, we also recommend selling the downside price risks of select agricultural commodities, particularly those tied to energy markets like sugar.


Did you know?

  • China is the world's largest net oil importer, with demand growing in 2019 and 2020 even as the rest of the world contracted.
  • Russia accounts for around 40% of the EU’s gas imports and 30% of its oil imports.
  • Russia also accounts for around 19% and 18% of global wheat and barley exports, respectively, while Ukraine makes up about 8%, 13%, and 46% of global wheat, corn, and sunflower oil exports.


Investment view


Commodity prices are likely to remain supported in the near term by China's economic eventual reopening and concerns over supply disruptions due to the war in Ukraine. We prefer an active commodity strategy. Investors with a high risk tolerance can consider long-dated oil contracts in Brent or selling Brent downside risks.

Main contributors - Patricia Lui, Giovanni Staunovo, Wayne Gordon

Content is a product of the Chief Investment Office (CIO).

Original report - What's next for commodities, 19 August 2022.