Commodity Markets: Focus on the Falling Dollar and Recovering Oil

Overall, we are facing a calm week that is one day shorter, without too much new data to be released or analyzed. We can say it is a bit of a lull before an intense May. Generally, the focus is on the dollar, as Trump’s decline of the US dollar continues. The dollar index has fallen to its lowest level in the last three years, pulled down by Trump’s new tariffs, weaker economic data, and ongoing criticism of the Federal Reserve.

Trump has threatened to fire Chairman Jerome Powell, a move that has shaken investor confidence and raised concerns about the autonomy of the central bank. It seems that the US is now a global ‘destabilizer’ as opposed to the normal stabilizer after World War II.

In parallel, the ECB has lowered interest rates by another 25 basis points, the seventh time since June 2024, and the reference rate, or the one on deposits, now falls to 2.25 percent. At the same time, gold has broken the $3,400/oz barrier and set a new record.

Besides the dollar, oil is also in focus as oil prices have slightly recovered last week. In the commodity world, oil is always interesting, and at this moment, the recovery of energy prices is very important for the futures prices of agricultural commodities, especially for markets related to crude oil such as sugar, soybean oil, and palm oil.

China is currently at 125 percent tariffs, the US at 145 percent. All this chaos around tariffs and the trade war is impacting the weakening of the Chinese yuan, something that China wanted to avoid, but now has no other choice. It is clear that their economy is facing tough times, but it seems that this is something they are prepared for; it is just a question of how long they can endure?

Can Trump really destabilize China so much? Or conversely, can Xi destabilize the US so much? The White House has stated that Trump will not seek tariff talks with China, so it is up to China to call Trump. According to the latest data, China’s GDP is at 5.4 percent (which is better than the estimates of 5.1 percent), but can we trust those numbers?

Investors need to be driven out of the stock market

Sticky inflation, a patient FED, potential boycotts from foreign buyers, deleveraging of hedge funds, rebalancing bonds into cash, and an illiquid market are reasons why bond yields continue to rise. The US government needs to refinance debt, specifically $10 trillion of short-term debt, which is about 30 percent of public debt. They need to renew it for at least ten years and at low interest rates. For this purpose, shocks are being created, as investors need to be driven out of the stock market to invest in treasury bills.

This worked quite well at the beginning of the last stock market attack. We saw interest rates fall significantly, but then they immediately rose again under pressure from a large supply. Santa Claus cannot solve the liquidity crisis when you have $37 trillion in public debt and over $100 trillion in public debt, household, and corporate debt. There is not enough liquidity to refinance the debt without devaluing the currency or credit.

Europe made a mistake because we thought we were smart by moving everything to China for cheap labor. Then we had a series of ideologues telling us that electric cars would solve all the world’s problems. Other ideologues told us during the climate crisis that wind and solar could solve everything. Those who said those things, not knowing what they were talking about, should pay for the mistakes made.

We had the European Commission ideologically pushing some things, and now we realize that we have destroyed entire industrial chains, not just the automotive industry. Some countries in Europe today are paying high energy prices because they ideologically renounced nuclear energy and now realize that it is a bit harder to be competitive. And now this has serious consequences for their economies.

US LNG as a geopolitical tool

Futures prices for crude oil have risen again to last week’s levels. However, the start of the new week brought a price drop of nearly three percent on Monday, when the futures price fell below $66/bbl, as easing tensions between the US and Iran increased the possibility of more Iranian crude returning to the market. Talks between the two sides have made “very good progress,” with plans to draft a framework for a potential nuclear agreement. This followed new US sanctions on a Chinese refinery accused of processing Iranian oil.

At the same time, concerns about demand persist due to fears that US tariffs could weaken global growth. A recent survey showed nearly a 50 percent chance of recession in the US within a year. Moreover, OPEC+ is expected to increase production by 411,000 barrels per day in May, although part of that increase could be offset by cuts in countries that have exceeded their quotas.

Futures prices for European natural gas TTF have risen to €35/MWh, trying to modestly recover after an eight percent drop last week to the lowest level in the last seven months. The slight recovery follows broader market optimism after the US temporarily exempted some Chinese technology-related imports from tariffs, alleviating recession concerns that had pressured gas prices.

Meanwhile, milder and windier weather across Europe is expected to boost gas injections into storage and reduce demand from the energy sector. European storage remains relatively low, just over 35 percent full after winter. In terms of policy, EU member states have agreed to allow flexibility in the gas storage rules in the bloc, allowing countries to fall 10 percentage points below the 90 percent storage filling target if market conditions are tough. Additionally, the EU is considering a return to Russian gas supplies.

After the spontaneous economic decisions of US President Trump, EU countries fear that dependence on US LNG supplies could become a new vulnerability, and that Trump’s trade war could turn US LNG into a geopolitical tool. In this context, large European companies have begun discussing the possibility of returning to importing Russian gas. In the first quarter of this year, of the total LNG imported, the EU imported 16 percent from Russia. Last year, LNG imports from Russia amounted to about 20 billion cubic meters, or about 20 percent of the total 100 billion cubic meters of LNG imported.

Copper prices have risen

In the agricultural world, traders are monitoring weather forecasts for Brazil, the harvest cycle in Argentina, planting progress in the US, export demand for agricultural commodities from the US, and hedge fund position movements. France has raised its estimate of the area planted with soft winter wheat. The total area of soft wheat, including a small area of spring wheat, amounted to 4.63 million hectares, which is 10 percent more compared to the 2024 harvest marked by abundant rains and 1.1 percent more than the five-year average. In terms of price, it has not been an easy week for producers, as futures prices on both sides of the Atlantic have plummeted.

Futures prices for copper have risen above $4.70/lbs, reaching the highest level in the last two weeks as the US dollar weakened amid growing unease about the outlook for US economic policy and the independence of the FED. Rising fears about the economic consequences of the US-China trade war have contributed to a risk-averse sentiment.

China has opposed what it described as US “trade bullying,” warning other countries not to make deals that undermine its position. Copper, often seen as a barometer for global economic health, found additional support in speculation about whether US tariffs could eventually target copper imports.