Five Key Charts to Watch in Global Commodity Markets This Week

Spot gold reversed a four-week slide last week, but the rally may not last. Meanwhile, global subsidies for fossil fuels have never been higher even as the climate crisis wreaks havoc around the world.

Here are five notable charts to consider in commodities as the week gets underway.

Metals

Jerome Powell has spoken. The Federal Reserve chairman — in a highly anticipated speech at Jackson Hole on Friday — said the US central bank is prepared to raise interest rates further if needed and that borrowing costs would likely remain elevated. That took some of the edge off of spot gold’s first advance in five weeks, with it slipping back toward $1,900 an ounce. At the same time, global holdings in bullion-backed exchange-traded funds shrank for 13 straight weeks, the longest stretch since November, and are on course for their third straight month of net outflows.

While there are signs that US inflation may have peaked, the fact that the Fed’s tightening cycle may not be over will likely keep a lid on future gains for the non-interest bearing precious metal, which tends to have an inverse relationship with interest rates.

Fossil Fuels

Repeated pledges by governments to combat climate change and help mitigate extreme weather events have done little to curb subsidies for oil products, coal and natural gas, which surged to a record $7 trillion last year. Explicit support — such as regulated prices set below international levels and energy bill rebates — almost doubled to $1.3 trillion from the prior year, according to the International Monetary Fund. Implicit support — undercharging for environmental costs and failing to levy taxes on consumption, for example — jumped to $5.7 trillion. In total, backing of fossil fuels costs the equivalent of 7.1% of global gross domestic product, the IMF found. Cutting subsidies, which help keep energy prices low but also bolster demand, will be key as the world seeks to limit global warming to 1.5C from preindustrial levels.

Shale

Oil drillers across the most prolific US shale patches are scaling back activity after staging a robust comeback from the pandemic. Despite well-performance improvements, production is expected to decline over the next two months after setting a record in July with major explorers maintaining capital discipline. Meanwhile, oil prices have been volatile amid concerns over output cuts from Saudi Arabia and Russia, as well as a disappointing economic recovery in China. The production pullback in August and September comes as the Biden administration seeks to rebuild emergency reserves after a historic drawdown in the wake of Russia’s invasion of Ukraine last year. Even so, longer-term shale output is expected to grow through the end of this decade and then peak.

Agriculture

The Kremlin’s efforts to paralyze Ukrainian food shipments are succeeding, with a third of the country’s crop exports wiped out since its Black Sea ports were effectively blocked last month when Russia pulled out of the safe-corridor pact that had been in place since July 2022. With fewer routes to the market — and many of those under threat amid the ongoing war with Russia — Ukraine’s grain stockpiles are expected to swell through next year, according to the US Department of Agriculture. Shipments that do succeed are facing delays and higher transport costs, adding further risks to a key component of its economy. On the flip side, Russia continues to benefit from Ukraine’s weakness: exports are booming and are expected to make up nearly a quarter of global wheat trade in the 2023-24 season.