Market Insights

Oil’s crashing as supply-and-demand worries hammer commodity prices.

Crude oil futures (@CL) are down 3.2 percent in afternoon trading. If the move holds, it will be @CL’s biggest decline of the year. Copper (@HG), another economically sensitive product, fell to its lowest level since late January.

Worries about President Trump’s trade war against China are a major catalyst but not the only one. Yesterday, for instance, the Organization for Economic Co-Operation and Development (OECD) cut its global growth outlook because of the impasse.

Goldman Sachs (GS) has estimated higher tariffs could trim corporate profits by 6 percent. Germany cut its numbers, and global-market expert Mohamed El-Erian said investors may be underestimating Washington’s resolve in pushing against Beijing.

That’s the demand side of the equation. Supply is also showing problems. This morning’s Energy Department report showed crude-oil inventories rising more than expected for a second straight week. The London Metal Exchange has also reported steady growth in copper stockpiles since March.

Commodities Index Tumbles

Throw all those catalysts together, and Thomson Reuters’ CRB Commodity index ($TRCCRBTR) is having its worst session since January 28. The benchmark mostly tracks energy products, agriculture and industrial metals.

Other actively traded symbols are on the move:

• The SPDR Oil & Gas Exploration ETF (XOP) is having its worst drop since late March. This one’s a favorite among options traders, averaging more than 160,000 contracts per day.
• The Market Vectors Oil Services ETF (OIH) is headed for its third-lowest close of 2019.
• SPDR Energy Fund (XLE) is down much less than the others and remains within its monthly range on either side of $64. Will it get more active outside of that channel?
• Freeport McMoRan (FCX): The word’s No. 2 copper producer. Options volume typically exceeds 50,000, which could help traders find tight bid/ask spreads.

There are also some positives for energy, including tensions with Iran and OPEC’s production cuts. But how long will that matter if global growth slows and U.S. shale fields keep pumping at a record pace?

In conclusion, some traders may have overlooked the ongoing weakness in commodities. But now the market may start paying attention as the full effects of a trade war sink in.

Disclosure: This post is intended for educational purposes only and shouldn’t be interpreted as a trade recommendation.