Published on June 2, 2022

Chaos in Commodity Prices: A Temporary Blip, or Panic! At the Disco

With severe spikes in volatility across nearly every asset class, plummeting equity valuations, and rising rates, there is a lot to keep up with in the markets today. With the global economy bearing the brunt of a one-two punch from inflation and geopolitical crises, a savvy advisor would be wise to keep an eye on commodity prices too. As we are all acutely reminded when we fill up our tanks at the pump, the price action of our energy markets, as well as adjacent metals, and agricultural markets can have far-reaching consequences to consumers, producers, and investors. With what is looking more like a potentially protracted period of economic distress, we at Crystal today want to take a look at some of the main sectors within the all-encompassing commodities markets. We seek to analyze where these sectors could go, and how these effects might ripple through other asset classes. Are we looking at a brief blip as the economy continues to work through supply chain bottlenecks, or is it Panic! At the disco?

So, what are we talking about when we say “Commodities”?

The word “commodity” can be used in a variety of ways. In the context of the markets though, at its core, commodities are the products that trade in the primary sector of the economy – in other words, the extraction of natural resources and other raw materials, as opposed to finished manufactured goods. In a similar way that we look at equities markets in industry terms (e.g., financials, consumer discretionary, industrials, etc.), commodities markets can generally be divided into three broad categories: Energy, Metals, and Agriculture, with further subdivisions in each. While each commodity market has its own nuances in terms of how it trades, generally speaking, commodities trade via futures: exchanged traded contracts to buy or sell a product at a predetermined settlement price, to be delivered at specific future date.

While overall, prices tend to move higher in each sector, unlike the more normally distributed equity and bond markets, individual commodity prices have recently seen a wider divergence of relative performance. And with an equally broad range of knock-on effects for other parts of the economy from the volatility we have experienced as of late, there is a lot to unpack. At the forefront of most Americans’ minds, however, is energy:


When we think of energy prices, the first thing that often comes to mind for most of us is either what we pay at the pump, or how much the electric bill is each month. In the context of the markets though, this sector is dominated by fossil fuels such as crude oil, natural gas, heating oil, coal, gasoline, and more. As illustrated in the chart below, year-over-year, we have seen substantial price rises across nearly every major energy market. However, with the exception of coal, over the last year natural gas topped the charts in terms of volatility and price appreciation, and its effect on the economy, can serve as an allegory for overall energy markets.

Commodity Prices: Energy

Chaos in Commodities: Commodity Prices: Energy Prices

Source: Forecast Commodity (

According to the US Energy Information Administration, gas makes up approximately a quarter of total American energy consumption, and while the United States is the largest producer of natural gas in the world, its longtime sparring partner, Russia, is the second largest. Last week saw prices top $9 per million BTU’s (mmBTU) for the first time since the commodity price supercycle of 2008. Unsurprisingly, the economic shock of the Ukraine war and resulting sanctions on Russia have severely dislocated the market. While production of gas is up slightly year over year in the United States and remains far below the price of gas traded in Europe, the EU’s goal of significantly reducing its reliance on Russian gas (which we covered on our recent piece on the War in Ukraine) has driven an export boom from the United States to replace the lost Russian imports. Concerns of a supply crunch are mounting in the markets, especially as stockpiles have remained below average as exports eat into stored capacity. Moreover, markets are anticipating hotter than usual weather this summer, some analysts are anticipating even further price increases.

This could spell good news for Exploration & Production players in the Oil & Gas value chain, who have largely driven the fracking boom of the 21st century, as well as ancillary players involved in the pipeline and Liquefied Natural Gas (LNG) export facilities portion of the value chain. Unfortunately, however, the collateral damage of this volatility will likely be energy intensive industries like utilities, manufacturing, transportation, petrochemical-based fertilizers and agriculture, and more. Some analysts are predicting gas prices in America to reach upwards of $10, as a direct result of the infrastructure needed to replace Russian gas requiring years of investment, the competition for LNG and other non-Russian sources, some analysts are predicting American prices above $10/mmBTU this year. However, as the current administration seeks to rapidly expand production and exports from the United States, these investments could pay dividends for US and European consumers of gas, and further ease one of the largest contributors to the supply driven energy inflation we have seen since the pandemic. Thus, as with much else in the global economy, the potential for geopolitical conflicts to intensify or deescalate will drive much of the price movement for natural gas, and energy overall.


Like energy and agriculture, metals are ubiquitous throughout the economy and markets. Split between industrial and precious metals, this sector of commodities markets’ serves largely as the raw materials needed in manufacturing, with various precious metals trading quite similarly to foreign exchange markets, and often used as inflationary hedges. One segment of the market, however, has been an extreme outlier, something we recently covered in our piece on the Electric Vehicle rat race: the lithium market.

While industrial metals overall have largely fallen in price as previous supply chain bottlenecks have begun to clear through the economy, lithium has exploded in price over the last year, rising over 400% year-over-year:

As the market for passenger vehicles continues to shift from internal combustion engines, smart devices proliferate throughout both the developed and developing worlds, and battery cells are built into more and more products, demand for lithium, the metal most commonly used in rechargeable batteries, has exploded. There seems to be no end in sight to the rapid growth of the lithium market, and while macroeconomic headwinds are likely to dampen some of the trajectory in the near term, the future of vehicle electrification and mobile devices is unlikely to slow down over the medium and long term.

However, two competing market forces could drive the future for lithium. First, on the geopolitical front, China could play a role in driving prices either up, or down. As both one of the largest importers of extracted lithium and exporters of refined lithium, tensions in the South China Sea and Taiwan - which we recently covered in our piece – were they to worsen, could lead to the balkanization of the lithium market between the developed world, developing countries allied with the West, and developing countries allied with China. Second, with the awesome rise in prices, we have also seen major advances in the extraction and refining of lithium, particularly from “Lithium Triangle” brine sources in South America, which make up approximately 60% of total global reserves. Regardless of which direction lithium moves, owing to the immense price shifts - particularly in the last year –technology, consumer durables, and transportation industries are likely to be most heavily affected.


Finally, as we recently covered in the Looming Food Crisis, the agricultural market is facing a variety of headwinds and macroeconomic shocks. While COVID, climate change, overall macroeconomic pressures, and the Ukraine war have all affected the markets for nearly every agricultural commodity, one of the highest performing contracts has been wheat, which has seen a rise of over 75% year over year. The story for wheat contracts is simple: Ukraine and Russia account for nearly 30% of the global export market, and the combination of war and sanctions is removing a large chunk of that market.

Since the start of the war, as Russia has captured the major ports of the Black Sea coast, they have simultaneously blocked the export of approximately 22 million tons of grain. Typically, removal of such a large percentage of supply in the markets, such as in a drought or wildfire scenario, would typically be filtered out by the next harvest season. However, because these grains are being stored, Ukraine now faces a situation wherein the additional production that would normally arrive in the upcoming harvest season has nowhere to be stored. Russia has hinted at the idea that it would unblock those exports in return for sanctions relief, effectively holding the world, in particular the developing world, hostage by threat of famine, with harvest season less than two months away.

Thus, as the intensity of the conflict ebbs or flows, the wheat market could be looking at quick correction, or prolonged and exacerbated supply constraints which could lead to starvation for nearly 50 million in the global south, and insufficient food for many more. Given the importance of Ukrainian foodstuffs to sub-Saharan Africa, the Middle East, and Asia, a hungry workforce in these reasons and any subsequent social strife could lead to further trouble form major sources of manufacturing and additional commodities for the global supply chain.


With so many crises facing the world today, and the continued integration of different markets, it could be helpful to keep a broad focus across asset classes. While most advisors are not participating directly in the commodities market themselves, they likely have exposure to underlying commodity prices in the equity or bond markets. With the global economy threatened by war in Europe, inflation, rising rates across the globe, and tensions in Asia, to name only a few risks and issues, a number of these markets are facing a binary situation that could lead to prices plummeting or continued and unprecedented appreciation, with all the consequences to other markets from the price action of these raw materials. While there are numerous risks and complexities for any investment strategy deployed in the public commodities markets, see which experienced global macro, multi-strategy, and private equity managers may be equipped to navigate the myriad effects of the commodities’ price action occurring across multiple sub-asset classes.


  1. The Economist, June 2021. “Is a commodities supercycle under way?”
  2. Center for Strategic & International Studies, Aug 2021. “South America’s Lithium Triangle”
  3. The Economist, Feb 2022. “Two new ways of extracting lithium from brine”
  4. US Energy Information Administration, May 2022. “Natural Gas Weekly Update”
  5. Bloomberg, May 2022. “Natural Gas Tops $9 in US as Supply Crunch Concerns Mount”
  6. Bloomberg, May 2022. “Europe’s Plan to Replace Russian Gas Stumbles on LNG Bottlenecks”
  7. World Food Program, May 2022. “HungerMap”
  8. Al Jazeera, May 2022. “Time running out for Ukraine grain exports from blocked seaports”

See which third-party funds on our platform provide exposure to the commodities’ price action occurring across multiple sub-asset classes.

For financial advisors only.