Black gold: the next phase of the reopen trade? | BetaShares

Black gold: the next phase of the reopen trade?

BY Jordan Berta | 1 September 2021
Black gold: the next phase of the reopen trade?

Reading time: 2 minutes

Commodity markets including metals and energy sectors have been on a wild ride over the last 18 months. A synchronised global lockdown in the first quarter of 2020 hit global commodity markets hard and led to WTI oil future prices trading below zero for the first time in history (which we wrote about previously here).

Fast forward 12 months, and an equally co-ordinated vaccine roll out (except for Australia…) and government stimulus packages around the world have meant global markets have recovered so sharply and rapidly that worries of an overheating global economy and inflation concerns have recently dominated the headlines!

In this article I will explore what this rollercoaster of a market has meant for two of the largest global commodity sectors – metals and energy – and look at what easing Covid-19 restrictions may mean for these sectors in the short term.

The fall and recovery: Metals

Cast your mind back to March 2020, and it may not feel too different for those (like myself) currently living through another lockdown in Sydney.

Streets are empty, pasta and loo paper are scarce, dolphins are back in the canals of Venice. Governments are worried, and restrictions are pushing the developed world into a recession like we haven’t experienced since the GFC. Then Boom! Over $9 trillion worth of fiscal expenditure in G20 economies floods the market in a two-month period alone1. By the halfway point of 2021, equity markets have defied the odds and performed the coveted ‘V-Shape recovery’, as these fiscal expenditures have weaved their way through the global economy.

Announced fiscal measures in G20 economies, % of GDP

G20 announced fiscal measures

Sources: National authorities; and IMF staff estimates as of May 13, 2020.
Note: G20 = Group of 20, G20 aggregates are calculated using PPP-adjusted GDP weights. Estimates focus on government discretionary measures that supplement existing automatic stabilizers, which differ across countries in their breadth and scope.

Looking at commodity markets over the last year and a half – supply constraints and government infrastructure projects drove up bulk commodity prices like iron ore to over $200/tonne2, increased expenditure on durable goods (which are metals intensive) bolstered prices of base metals such as aluminium and copper, and loose monetary policy and inflation fears provided the catalyst for prices of precious metals such as gold and silver to rise. From the start of 2020 – i.e. before coronavirus – the Morgan Stanley RADAR Base and Precious Metal sub-indices were up 30% and 29% respectively as at 30 June 20213.

Energy’s wild ride

However, all is not equal across the commodity markets.

Due to limited global mobility, expenditure on transportation and therefore energy demand suffered considerably in 2020. The UN agency for civil aviation confirmed that international passenger traffic alone suffered a dramatic 60% drop over 2020, bringing total air travel (measured by the total number of passengers using air travel) back to 2003 levels4. This pandemic-induced slump in demand and collapsing prices led OPEC+ last year to cut production by a record 10 million barrels per day (bpd)5.

This gap in the performance between metal and energy markets however seems likely to close. By the half-way point of 2021, over 3 billion COVID -19 vaccines doses have now been administered6. This has meant mobility restrictions are loosening and travel is improving practically everywhere.

In turn, after slumping to an eight-year low in 2020, oil demand is forecast to rebound by 5.5 million bpd in 2021, according to S&P Global Platts Analytics7. At the same time, short-term supply remains constricted, with OPEC+ announcing a gradual reinstatement of supply of only 2 million bpd and maintaining its supply management until the end of 20228.

This has meant we have already seen some meaningful retracements in the performance of the energy sector. However, (as seen in the below graph) commodity indices such as the MS RADAR Energy Index, which primarily tracks the price of oil and gas, are still down 3% over the last 18 months, significantly underperforming their metals peers, and potentially presenting a timely investment opportunity for investors.

Energy vs metals

Investing in energy

Australian investors can access the oil and energy sectors through:

There are risks associated with an investment in OOO and FUEL, for example:

  • OOO: market risk, commodity volatility risk, roll risk and derivatives risk.
  • FUEL: market risk, country risk and sector risk,

For more information on risks and other features of OOO and FUEL, please see the relevant Product Disclosure Statement, available at

3. Source: Morgan Stanley.
6. Source: Morgan Stanley.

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