Which Commodity Is The Most Traded?

The extreme volatility of commodity prices might present a possibility for traders to make money by going long or short in these markets. The foundational elements of the world economy, upon which the majority of other items are produced, are commodities. They can be divided into two major groups. Natural resources that need to be mined or exploited are referred to as "hard" commodities. These include materials like gold and aluminium, as well as energy like oil and natural gas. Contrarily, "soft" commodities are agricultural goods like crops and livestock.

Crude oil is the most traded commodity. It is the most sought-after commodity in the world because it can be processed into goods like gasoline, diesel, lubricants, and a variety of petrochemicals that are used to produce plastics.

Trading in commodities is attractive because of the prices' potential for extreme volatility, which frequently presents opportunities for long- or short-term profit. Consumer trends, weather patterns, infrastructure, governmental policies, economic performance, reserve levels, and currency valuations are just a few of the variables that might have an impact on prices.

Top traded Commodities

Crude Oil

It helps to understand what drives pricing and how to invest in crude oil if you have that in mind. Following production, crude oil is processed to create a variety of goods, including gasoline for use in motor vehicles. But it's not just about gas. Plastics, medications, linoleum, shingles, ink, cosmetics, synthetic fibres, solvents, fertiliser, asphalt, and thousands of more products are all derived from petroleum.

Crude Oil: Brent

Even for those who have no prior knowledge of commodity trading, the first two items on our list shouldn't be shocking. Despite recent efforts to switch to cleaner forms of energy, there is still a significant need for crude oil. It generates plastic, insecticides, fertilisers, and heat for our houses and vehicles.

One of the two main varieties of crude oil—the other being WTI crude—that serve as industry standards on a global scale is Brent crude. Brent Crude, which is obtained from the North Sea, is a light, sweet crude. Due to its low density and low sulphur content, it is both light and delicious. Because of these two characteristics, Brent Crude is relatively simple to process.

What Influences the Cost?

Like the price of any item, Brent Crude is influenced by forces that control worldwide supply and demand. However, it is well known that crude oil is highly susceptible to geopolitical developments. To go into depth about every element that influences the price of crude oil would require a separate post, so here we will just focus on one of the major ones from both the supply and demand sides.

Performance of the global economy and oil demand are interrelated, as is oil pricing. Oil is more in demand during periods of economic expansion because of greater production and transportation, which raises costs. On the other hand, demand for oil declines during a downturn in the economy, which lowers its cost.

The Organisation of the Petroleum Exporting Countries (OPEC), which routinely sets production quotas for its member countries in order to exert pressure on global oil prices when necessary, has a significant impact on the supply of crude oil globally.

Crude Oil WTI

Another variety of crude oil is the second item on our list of the most traded commodities. Another benchmark used to determine international oil prices is West Texas Intermediate (WTI) crude. It is regarded as sweet and light, with even less sulphur and density than Brent Crude, and is drilled in many countries.

What Influences the Cost?

The same elements that influence Brent Crude also influence WTI's pricing to a great extent. Historically, the level of US demand had a significant impact on WTI pricing. This was due to Cushing, Oklahoma being a landlocked city, making international export difficult. Cushing is where the crude oil is delivered to after being drilled.

But the Seaway Pipeline, which connects Cushing and Texas and was formerly used to transport oil from Texas to Cushing, was switched around and started transporting crude from Cushing to Texas. Because WTI was now simpler to export, the price gap between WTI and Brent Crude was reduced, and their prices are now more closely tied.

Futures for crude oil

On July 3, 2008, crude oil futures reached a record high of £145.31 before declining into the upper £30s as a result of the global financial crisis. It made up around 70% of the sharp fall that brought it to the 2011 top before easing into a trading range that was bordered by £112 on the top and £80 on the bottom. In the third quarter of 2015, the contract, which had collapsed in 2014, touched the trough of the bear market.

Beginning in mid-late 2017, a fresh upswing accelerated, peaking in the high 80s in October 2018, before levelling off to reach the high 50s by the end of November 2019. Crude oil reached £100 per barrel for the first time since 2014 in January 2022, and it remained still there as of July 2022.

Gold

Gold is a precious metal that has been highly sought after for millennia due to its shiny golden colour and lustre. These days, it is mostly employed in the manufacture of jewellery and as an investment asset. Because it is extremely resistant to the majority of chemical reactions and transmits electricity, a limited amount is also utilised in industry. China is the country where the most gold is mined, followed by Australia, Russia, and the United States.

Due to its propensity to keep its value or even increase during periods of political and economic unpredictability, gold is frequently seen as a "safe-haven" asset. As a result, the price of gold frequently has an inverse relationship with the value of the pound since many traders move money into gold when the poud is declining.

What Influences the Cost?

Due to its status as a safe haven asset, demand for gold typically rises in times of economic uncertainty, which can lead to price increases. Gold's price typically has an inverse relationship with the British Pound because it can be used as a hedge against inflation or currency devaluation.

Gold Futures

The boom and bust cycles that have affected open interest considerably in gold futures. Currently, it is the fifth-most traded commodities contract. Gold fluctuated between £400 and £500 over the 20 years between 1980 and 2000. The price began a ten-year upward trend, reaching over £1,800 in 2011. By 2015, prices had reversed and were £1,000. In July 2022, the price of gold will have risen to above £1,700 due to a current upswing that began in 2019.

Corn

Corn, commonly referred to as "maize," is a significant soft commodity. It is a food source that is mostly utilised to make ethanol, corn syrup, starch, and animal feed. There are several types of corn, but the primary ones include sweet, dent, flint, pod, popcorn, and flour corns. 

The demand for animal feed and biofuels, as well as the strength of the US Dollar, weather patterns, and other factors all have a significant impact on the price of maize, much like they do for soyabeans. Prices may also be impacted by agricultural subsidies, particularly US subsidies. Currently, the United States extensively subsidies corn production, which encourages growth and keeps supplies stable worldwide.

Corn Futures

Between 1998 and 2006, corn futures went dormant, creating a lengthy, rounded bottom with no trading activity. In the second half of 2006, it started a strong climb that continued into the 2008 peak above £7.00. The contract's value decreased by more than half during the financial crisis, but it found support at £3.00 and began to rebound. This recovery wave peaked in the middle of 2012 at £8.24.

Four years of gains were forfeited by the subsequent slump, and in the second part of 2014, the price settled just above the bottom of 2008. The next rise began in 2020 after a period of reversal. In July 2022, prices increased from under £6 to £7.47.

Coffee

It should come as no surprise that coffee is on our list of the most traded commodities considering that an estimated 2.25 billion cups are consumed daily around the world. In the region known as the "coffee belt," more than 50 nations harvest coffee beans, with Brazil being the leading producer.

The great majority of coffee is produced from the two main kinds arabica and robusta. Around 60% of all coffee consumed is Arabica, which is more popular and typically regarded as being of higher quality. When it comes to trade, arabica typically has more consistent pricing, whereas robusta's price is typically more erratic.

What Influences the Cost?

Weather conditions can have a significant impact on the price of agricultural goods, commonly referred to as soft commodities. Unfavorable circumstances will impede production, consequently lowering the worldwide supply and raising prices. Naturally, the inverse is also accurate.

Plant diseases that can harm the harvest can also affect soft goods. A disease known as "Coffee Leaf Rust" impacted, for instance, a number of Latin American and Caribbean nations that produce coffee in 2012. The ensuing crop loss led to a drastic reduction in supply and an increase in coffee's price.

Only five nations produce more than 65% of the world's coffee, so if there is a political or social upheaval in one of them, it might have a significant impact on the world's supply. Any negative occurrences in the nations of production often have an immediate impact on the coffee markets.

Despite being used widely worldwide, coffee is not a need. This implies that its demand can fluctuate based on the state of the economy.

Soybeans

Because they are high in protein and very inexpensive to produce, soybeans, are a valuable commodity. They are utilised to create a range of food and agricultural goods, such as tofu, soy milk, soy oil, and soybean meal (used as animal feed). Additionally, they can be used to make biodiesel. The US is the country that grows the most soybeans, followed by Brazil, Argentina, China, and India.

Demand for meat and dairy replacements, biodiesel, and animal feed, as well as supply-side variables like unexpected weather patterns, can all have an impact on soybean pricing. Since the US is a major producer, the strength of the US currency can also affect costs, with nominal price increases typically occurring as the British Pound declines and vice versa. Prices were significantly affected in 2018 by rumours of Chinese tariffs on US soybeans and their eventual implementation.

Futures on Soybeans

Between 1999 and 2002, soybean futures hit a multi-decade low. After that, the contract entered a powerful upswing with vertical rally tops in 2004, 2008, and 2012. In a steady correction that accelerated to the downside in 2014, it began to decline in the second half of 2012.

Just above the 2009 low, the fall came to an end. Prices peaked at almost £17 by mid-July 2012, but by early May, soybean futures were trading lower at around £8 per bushel. After enjoying a rise in price during 2020, soybeans were trading at about £16 as of July 2022.

Natural Gas

Deep under the earth's surface, natural gas is a significant source of worldwide energy. Natural gas is a non-renewable energy source, yet it burns very cleanly and is very adaptable, fulfilling many of the same needs as crude oil.

By 2040, the demand for natural gas is expected to rise 30%, according to the International Energy Agency (IEA), underscoring the fuel's significance on a worldwide scale.

What Influences the Cost?

Similar to crude oil, demand for natural gas tends to rise when the economy is performing well, which raises the price. The opposite is true when the economy is performing poorly.

Other variables that affect pricing include the time of year because heating demand is higher in the winter, technological advancements that could increase gas output, and natural disasters that could endanger supply.

Natural Gas Futures

Unlike other energy or commodity markets, natural gas futures have a 20-year history of vertical surges that have been promptly reversed. In 2000, 2001, 2003, 2005, 2008, and 2021, rallies above £10 were met with significant resistance, which resulted in retracements of approximately 100% over the following year or two.

Natural gas futures contracts were trading at about £2.50 at the end of November 2019. Prior to an increase beginning in 2021, prices fluctuated below £2. Early in 2022, natural gas prices rose beyond £8, and as of July 20, 2022, they were trading at £7.35.

Conclusion

The most liquid commodity futures market is for crude oil, which is followed by corn and natural gas. While gold futures have had boom and bust cycles that significantly affected open interest, agricultural futures typically generate the maximum volume during times of low stress in the energy pits.