Oil futures at the beginning of commodities supercycle

When the covid-19 pandemic first struck, the world’s appetite for raw materials plummeted. As demand fell, so did prices. Yet it was not long before they were soaring again. Some excited analysts have been quick to proclaim a new commodities “supercycle”, a prolonged period of high prices. To support their theory they cite resurgent economies, growing enthusiasm for the sort of “green growth” that devours minerals, and supply shortages. Yet in May the price rally stumbled, giving credence to supercycle-sceptics who insist the revival is temporary. Who is right?

At Laurence Holdings Group, we have been advising our clients since Q4 2020 that we are potentially at the beginning of a commodities supercycle.

Since then, we have seen the explosion to the upside in many commodities. A prime example is CME Copper futures (HG).

Copper broke out of its 10-year consolidation triangle pattern in late 2020 and accelerated to the upside, rallying over 40% as of June 2021.

Another commodity that has just joined the 'breakout party' is oil. The significance is that oil is the most heavily traded commodities futures in the world, with a daily average volume of over US$62 billion.

Below is the weekly candlestick chart of WTI oil futures (CL). We can see the instrument has been in a downtrend since its peak in 2008.

However, in 2021, oil decisively broke above the 13-year long downtrend line that has been capping the rally in oil, and is holding nicely above that broken trendline.