Weather Shocks, Oil Supply, and Inflation Risks Shift Commodity Strategies

Energy and Metals Prices React to Supply Dynamics and Dollar Strength

Oil prices are hovering in a tight range despite significant geopolitical headwinds. Brent crude traded at $65.48 per barrel, while U.S. West Texas Intermediate settled near $62.70. The recent stagnation in oil prices reflects competing forces: stronger Asian demand—fueled by improved refining margins—and fears of supply disruption due to stalled U.S.-Iran nuclear negotiations.

According to the International Energy Agency’s May report, global oil supply is forecasted to increase by 1.6 million barrels per day this year, largely driven by non-OPEC+ countries. However, this growth is shadowed by macroeconomic pressures including slowing industrial output in China and a sovereign credit downgrade in the U.S., which have tempered broader investor enthusiasm in energy markets.

In the metals sector, diverging trends continue. Gold has retreated from recent highs amid a rising U.S. dollar and increased market risk aversion. Analysts are closely monitoring critical support levels, as further declines could dampen safe-haven inflows. Conversely, silver has remained resilient, buoyed by industrial demand and relative undervaluation compared to gold. The Times of India notes that silver may present more favorable upside potential in the current macroeconomic backdrop.

Agricultural Volatility Driven by Disease and Climate Disruption

Agricultural commodities continue to face volatility, with cocoa prices soaring due to severe production disruptions in West Africa. Ghana’s critical cocoa-producing Western North region has been devastated by the cacao swollen shoot virus, impacting over 80% of farmland. The resulting supply squeeze has driven cocoa prices to record levels, worsening cost pressures for food producers and chocolate manufacturers globally.

Meanwhile, U.S. egg prices, which hit historic highs in March, declined modestly in April. But the reprieve may be temporary. The USDA warns of future price spikes due to the ongoing Highly Pathogenic Avian Influenza (HPAI) outbreak, which has led to the culling of more than 166 million birds across the U.S. poultry industry. Recovery has been slow, and renewed supply constraints remain a strong possibility. Michigan’s Thumb reports that even with decreased infection rates, commercial farms are taking longer to replenish stock.

Looking ahead, the World Bank forecasts a 12% decline in overall commodity prices in 2025, followed by another 5% drop in 2026. These projections are tied to weakening global growth, rising trade barriers, and potential climate shocks. While falling prices could help ease global inflation, the outlook remains challenging for emerging economies reliant on commodity exports.

For a broader view, consult the World Bank’s Commodity Outlook and IEA’s latest updates to track evolving investment signals in these volatile sectors.