Commodity Market Sees December Slowdown: Natural Gas Declines, Copper and Cocoa Shine Amidst OPEC+ Decisions and Chinese Stimulus

• The commodity market experienced slight falls at the beginning of December, led by declining prices of natural gas
• The most significant event of the previous week was the OPEC+ meeting, where a decision was made to further delay an increase in production
• Copper had its best week since September, benefiting from optimism related to new economic stimuli in China
• Silver benefited from stronger industrial metal prices, allowing it to outperform the percentage performance of gold
• Cocoa returned to the level of 10,000 USD, and coffee is heading towards another test of its historical high from 1977

The dynamics of the commodity market slightly weakened in the first week of December. It is a month traditionally characterized by a slowdown in activity in relation to the holiday season and the end of the year. During this time, traders and investors usually focus on securing the profits they have made and minimizing losses, which can lead to a lack of a clear market direction awaiting 2025 – a year expected to bring both significant risks and opportunities.

The Bloomberg Commodity Total Return Index, which tracks a basket of 24 major futures markets covering energy, metals and agricultural commodities, fell 0.7% over the week, reducing its annual rate of return to 3.6%. Gains in the industrial metals sector, cereals and soft commodities were balanced by an almost 4% decrease in energy, caused by a nearly 10% weakening in natural gas prices and a decrease in distillate prices (diesel oil). At the individual commodity level, cocoa, wheat, copper, and silver performed the best, while the largest losses were noted for natural gas, diesel oil, platinum, and gold.

OPEC and Crude Oil

The main event of the week in the commodity market was the OPEC+ meeting. After two prior postponements of deadlines, the group decided to further delay production increases. The goal is to minimize the risk of price drops related to the introduction of currently unwanted barrels into the market. The decision was driven by concerns about high production from non-OPEC+ producers next year, which could lead to a significant oil supply surplus on the market and, from an OPEC perspective, unwanted price drops. In the short term, a combination of factors, such as the threat of American tariffs, elevated OPEC production capacity, and increasing production in other countries – including in the USA, where extraction has reached a record 13.5 million barrels per day – reduces the likelihood of price increases.

Despite this, there are still certain risk factors related to potential increases. These include potential new sanctions from the Trump administration against Iran and Venezuela, as well as geopolitical risks arising from Russia’s war with Ukraine and conflict in the Middle East. The proposal by recently nominated Treasury Secretary Scott Bessent to increase production in the US by 3 million barrels of oil equivalent by 2028 will likely focus on the development of natural gas production and its derivatives. However, with WTI prices below 70 USD, motivations for further extraction remain limited.

Contracts for Brent and WTI crude oil have moved within a narrow range for the past two years because OPEC has effectively managed price volatility and supported prices during a period of weakened demand in China. Support for Brent crude is indicated by the chart to be around 70 USD per barrel, with further support levels at 65 USD per barrel, while the downward trend from 2022 is currently near 80 USD per barrel.

The Industrial Metals Sector and Copper Recover After November Decline

The sector of industrial metals was heading for the third consecutive weekly increase. It continued to recover losses caused by anticipated US tariffs on imports, especially from China. This was a move that could disrupt global trade and decrease demand for industrial metals. Copper, which fell by over 5% last month due to additional concerns related to a potential slowdown in energy transformation, recorded its best week since September. Its price rose solidly, moving away from key support levels that were under threat. The increases were supported by a further decrease in stocks monitored on the exchanges, reaching their lowest level since May, especially in China. They were also triggered by investor optimism related to the announcement of actions to support China’s weakened economy, which may be approved during a key meeting in Beijing this week.

Despite the aforementioned challenges that may arise next year, the global trend towards electrification continues. It is particularly visible in China, where the boom in electric and hybrid vehicles increasingly signals that the slowdown in demand for traditional fuels will occur earlier than expected. In the USA, the increasing demand for energy from data centers and artificial intelligence is transforming the energy landscape. After two decades of stable electricity demand, the US Energy Administration (EIA) is forecasting consistent annual growth until 2050, driven primarily by these energy-intensive industries. This growth is expected to increase not only demand for natural gas but also for industrial metals such as copper, which is a key material for conducting increased electrical loads.

High-quality copper, which has been in an upward trend from a 2020 bottom, approached a support level around 4 USD per pound last month before rebounding due to new demand from China and energy transformation. For now, as long as China does not provide further support, the price will likely be constrained to a level below 4.35 USD per pound.

Silver Outperforms Gold Thanks to its Link to Industrial Metals

Silver, with 55% of its applications in the industry, benefited from the rise in industrial metal prices. This allowed it to beat gold, its precious counterpart, which is moving in a narrow range and although it recorded a slight weekly loss, it remains well supported looking forward to 2025. Expectations of continued global uncertainty are driving demand for gold as a safe-haven asset, supported by lower interest rates and ongoing demand from central banks. Although we forecast that gold will resume its rise next year, heading towards a new record of around 3,000 USD per ounce, silver appears to have even better prospects, due to a significant market deficit in 2025, driven by growing demand in electronics, especially in the photovoltaic sector.

After a deeper correction from October to November, silver buyers returned after stabilizing support at the level of 29.65 USD, which constitutes a 0.618 correction of the upward movement from September to November. It is currently a level that has been rejected twice. For now, resistance at the level of 31.65 USD remains unbroken, a condition for further growth and a full silver price recovery.

Cocoa Reaches 10,000 USD; Coffee Aims for a 1977 Record

Among the commodities with the best performance, cocoa returned to the level of 10,000 USD per tonne, after circulating around 4,000 USD earlier in the year. This increase results from forecasts of a multi-year structural deficit of supply and demand caused by significant production decline in the Ivory Coast and Ghana – two countries accounting for over half of global cocoa production. Analysts predict that the 2024/25 season will bring another deficit at a time when global stocks are already exhausted. Meanwhile, Arabica coffee futures contracts resumed their rise after a sharp correction, with prices approaching, but not breaking the historical level of 3.3750 USD from 1977. Coffee prices remain supported by worsening supply forecasts in Brazil, the world’s largest producer of Arabica and in Vietnam, the main producer of Robusta.

Wheat Supported by Attention on Russia and Australia

The recent drop in prices of futures contracts for wheat in Chicago and Paris, caused by prospects of abundant stocks, was halted. This happened as the dollar weakened, and poor conditions of winter wheat crops in Russia, combined with excessive rainfall in Australia – factors related to two major suppliers of this cereal – increased hopes for export demand from the USA and Europe. The agricultural sector had a very mixed year, with strong price increases for cocoa, coffee, and orange juice, which resulted from production concentration in regions affected by adverse weather conditions. The increases were partly offset by losses in key crops due to large supply after another world-record production year.

Writer: Ole Hansen, Director of Commodity Market Strategy Saxo