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Investors around the world choose commodities as a means of either advancing their trading strategies or hedging against investments in stocks, forex or cryptocurrencies. But which commodities are they choosing?

In this article Finance Monthly discusses five of the best, looking at the current market conditions and how things might change in the near future. But first we’ll discuss why you might want to trade commodities.

Why Choose Commodities?

Commodities usually reflect trends in the world at large, and so are a good vehicle for those with their finger on the pulse of international markets and political conditions. They are also generally inversely correlated to the stocks and shares market, making them a useful means of protection from risk in your other investments.

You could even use them to hedge against forex trades, provided you use a trading platform that gives you fast and reliable access to as many markets as possible.

And when it comes to choosing commodities to trade, these are the five that we believe you should know about in 2018:

  1. Brent Crude

With tension continuing across the oil-producing world and growth predicated in emerging markets, this commodity is a good choice for the rest of this year. In fact, the Goldman Sachs Group Inc. has given Brent Crude an ‘overweight’ recommendation for the current period, meaning that they believe this is a commodity worth adding to a trading portfolio.

  1. Natural Gas

High output in countries such as the US and Russia has continued to keep prices lower than they should be for natural gas, but this could change – especially towards the tail end of the year when the Northern Hemisphere moves into winter and demand increases. In fact, demand for natural gas is already outstripping supply in China, and this will surely have repercussions on the price of this commodity worldwide.

  1. Copper

Disruptions in mining output, coupled with urgent demand from the electric car industry, have caused the prices of copper to soar recently. This trend may not continue with such force, but over the course of 2018 prices are expected to rise 9.7% from 2017 levels. In other words, copper is still a commodity you should definitely know about.

  1. Palladium

This commodity is used in vehicle catalytic converters, and so enjoys demand from the automotive industry. As the trend of converting from diesel to unleaded petrol and hybrid electric continues, so too should the price of palladium rise. Palladium has even started to reach the price levels of platinum, giving just some indication of how in demand this commodity is.

  1. Zinc

A top performer in 2016 and 2017, this base metal is beset with supply problems which could see it to another strong year in terms of price growth. Another factor is demand from the Chinese market, which looks set to continue its increase for Zinc and similar commodities.

Of course, there are other commodities to watch in 2018, but these five commodities should provide a good starting point for building a strong investment portfolio.

Following this week’s news on a two year high for the Brent crude oil, Richard King, Trading Manager for Inprova Energy, discusses the current impact of oil price volatility on company energy bills worldwide.

Brent crude oil prices hit a two-year high of more than $58 a barrel on Monday 25 September. Although prices have since reduced slightly, analysts don't expect prices to fall back.

Outlook for oil prices

Oil price increases have been largely driven by cutbacks in supply from the oil exporting cartel OPEC. Market experts predict that OPEC will continue its deal to cut production beyond March 2018 as part of its strategy to rebalance oversupply in the global oil market. Market analysts expect the oil price to be within the range of $55 to $60 a barrel for the remainder of the year, with potential for higher levels in 2018.

In a further boost to recovering oil prices, US producers are struggling to fill the supply gap, and the independence referendum in Kurdistan has the potential to disrupt Middle East oil supplies due to the Iraqi government's call to boycott Kurdish supplies. Mounting political tensions between North Korea and the USA could also be a bullish force.

Impact on energy prices

This is having a knock-on effect on UK business energy market prices. Both gas and electricity contracts for delivery in the next few months have posted significant gains of 2-3%. This has reversed recent decreases in energy prices, linked to the currency improvements for Sterling against both the US dollar and the Euro.

Energy market volatility

Oil prices are firmly linked to wholesale energy prices, which will, undoubtedly, increase energy market volatility in future months. In addition, as we head into winter and uncertain weather conditions, and continue to face energy supply reliability problems from continental Europe, further price swings are inevitable.

Such volatility is becoming the new norm. During the past 12 months there was a 45% price swing in the wholesale power market, which was more than twice as volatile as the average movement of the five years prior.

Smarter energy purchasing

While overall electricity and gas commodity prices remain well below the levels reached in 2014, the sizeable commodity price movements underline the imperative of getting timing right when purchasing energy.

Flexible procurement strategies can be less risky than fixed purchasing because there is the facility to buy energy little and often when wholesale prices are favourable, rather than gambling that the prices are best on the day that you fix your purchase. There is also the facility to take advantage of forward prices, which are currently very attractive beyond 2018.

Above all, it is imperative for energy buyers to manage their energy purchasing within a robust risk management strategy, which will set price limits and guard against buying at the top of the market - helping to counter market uncertainty.

About Finance Monthly

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Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
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