Commodity prices may have peaked

Most commodity prices fell this week, adding to the sense that the recent rally is close to a peak (if it hasn’t peaked already). Either way, we think energy prices will be falling next year on weaker demand growth and greater supply, contributing to lower commodity prices more broadly. Two stories stood out this week. First, OPEC+ stuck to its existing schedule of production increases, despite growing external pressure to raise output faster. This could force the hand of the Biden administration to release more strategic oil reserves, given its concerns about rising gasoline prices. Second, governments from around the world are discussing how to reduce dependence on fossil fuels at the COP26 summit. One of the UK’s main aims as hosts of the summit is “consigning coal power to history”. In line with that, dozens of countries made new commitments to phase out coal use, although there were notable absences such as China, India and the US. Moreover, the commitments are not binding and many of them are dependent on the receipt of financial aid. Looking ahead, we’ll be watching for any new developments in the last week of COP26. On the data front, we expect that China’s trade data out this Sunday will show strong energy imports in October.