Oil Is Fueling the Commodities Rally: 2019 Halftime Report

Commodities were on mostly sound footing in the first half of 2019. The S&P GSCI returned more than 13 percent as of June 30, one of the best first six months in recent memory. It was not without its challenges, though.

In a repeat of last year, crude oil was the top performing commodity, up 28.76 percent as of June 30. Price action was driven mostly by tensions in the Middle East as well as extended supply cuts by the Organization of Petroleum Exporting Countries (OPEC) and its allies. Global growth concerns began to put pressure on oil in April, but prices surged following June’s attack on two tankers near the Strait of Hormuz, for which the U.S. blamed Iran.

At a meeting in Vienna this month, OPEC settled on maintaining quotas for another nine months. “The rollover of curbs into a fourth year shows oil producers are ever more bogged down in a struggle to wrest control of the market from the booming U.S. shale industry,” according to Bloomberg. OPEC’s dominant producer, Saudi Arabia, will likely continue to do the heavy lifting.

commodity returns in the first half of 2019
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Palladium Still the Highest Valued Precious Metal

In second place was palladium, up 21.86 percent. In January, palladium—a key ingredient in catalytic converters, which reduce pollutants in car fumes—became the most expensive precious metal after it surpassed gold for the first time since 2002. Last month, for the second time this year, the metal broke above $1,600 an ounce.

As I’ve explained before, the metal is surging because it’s not only in high demand thanks to tougher emissions standards around the world, particularly in Europe, but it’s also expected to post another year of supply deficits. 2019 should mark the eighth straight year of deficits, according to Metals Focus. That’s largely because around 80 percent of all palladium (and platinum) production is concentrated in two countries—South Africa and Russia. The geopolitical risks, then, are very high. Just last month, we saw aggressive wage negotiations begin in the South African platinum mining industry. The Association of Mineworkers and Construction Union (AMCU), one of the groups involved in these talks, has called for a whopping 48 percent rise in the minimum wage.

Palladium supply deficit expected to extend into eighth straight year
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