Unusual Commodities

The volatility of the commodity markets, especially natural gas, over the past year has been explicit. The causes for this volatility range from an incredibly active hurricane season to a record-warm November to a remarkably frigid stretch at the start of 2021. These factors, in combination, produced significant price swings in spot natural gas prices.

The relative price stability of the futures market has offset the volatility of spot prices of natural gas. For the current prompt month gas contract (May 2021), prices are trading at $2.75/MMBtu, which is right in the middle of its 12-month trading range displayed in Figure 1. A far cry from their trading behavior a decade ago, natural gas futures have been “well-behaved” and range-bound. The forward markets’ stability has distinguished natural gas from other commodities traded on the CME (Chicago Mercantile Exchange and New York Mercantile Exchange).

   Figure 1: NYMEX Henry Hub Natural Gas May 2021 from 5

The remainder of this article will examine other commodities and compare their prompt month contract prices with natural gas.


As seen in Figure 2, the May 2021 contract price for copper has more than doubled over the past year. The May 2021 contract price for copper has increased from around $2.30/pound in late April of 2020 to its 12-month high of $4.42/pound.

   Figure 2: Copper Futures (May 2021) from cmegroup.com


Similar to copper, aluminum’s May 2021 contract price has increased at a steady clip over the past 12 months, as displayed in Figure 3. Last April, aluminum was trading at approximately $1,600/metric ton. Today, it is trading at nearly $2,400/metric ton, 50% higher than last April.

         Figure 3: Aluminum Futures (May 2021) from cmegroup.com


Steel’s May 2021 contract price did not begin to rally until October 2020, as shown in Figure 4. This time last year, hot-rolled coil steel was trading around $500 per short ton, and remained below $600 per short ton as late as October. Currently, steel is trading at over $1,500 per short ton, having tripled over the past 12 months.

     Figure 4: US Midwest Domestic Hot-Rolled Coil Steel Futures from cmegroup.com


Even more significant than steel, the prompt month contract price for lumber has quadrupled over the past year. Anyone who has visited their local lumber yard or home improvement store recently has likely noticed this increase. The May 2021 contract price was trading at approximately $320 per 1,000 board feet at this time last year. That price is currently up to $1,400 and rising.

      Figure 5: Random Length Lumber Futures (May 2021) from cmegroup.com


Crude oil has also experienced a rally similar to the aforementioned commodities over the last year, as shown in Figure 6. At this time last year, crude oil was trading at around $32/barrel, rising to $62/barrel presently. Unlike the metals and lumber, crude oil experienced a resistance level around $66/barrel in early March and has been bound between $58 and $64 over the past couple months. Even in the face of this recent resistance, crude oil’s prompt month contract price has just about doubled since last April.

         Figure 6: Crude Oil Futures (June 2021) from cmegroup.com

In the wake of the global COVID-19 pandemic, most of the previously mentioned commodities experienced decreases in supply and increases in demand, ultimately resulting in higher prices. However, prices for natural gas and crude oil were constrained by demand destruction last summer and spring. As shown in Figure 7, demand for gasoline is just beginning to return to pre-COVID levels. Additionally, domestic liquified natural gas (LNG) terminals have been forced to operate at record high levels due to the global demand for LNG. In order to hold off a rally in natural gas futures prompted by higher gas exports and storage levels below the 5-year average, production rates will have to increase. As evidenced by the aforementioned commodities, when demand spikes and supplies are thin, the price response is often not linear. Prudent risk management suggests some form of hedging to protect the relatively stable natural gas futures from exposure to volatile increases in commodity prices.

       Figure 7: US Gasoline Demand from eia.gov

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