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Commodities Rose on Tightening Global Crude Oil Supplies

Commodities rose in September amid Venezuelan crude oil production shortfalls and reduced Iran exports due to upcoming US sanctions, while the demand for crude oil and petroleum products remained strong.

The Bloomberg Commodity Index Total Return was higher for the month, with 14 out of 22 constituents posting gains.

Credit Suisse Asset Management observed the following:

  • Livestock gained 7.90%, led higher by Lean Hogs, after Hurricane Florence caused extensive flooding throughout North Carolina, a key US pork production region, disrupting production at processing facilities throughout the state.
  • Energy increased 5.19% as Iranian crude oil export demand continued to decline ahead of the re-introduction of US sanctions. Venezuelan production shortfalls also helped tighten global supplies.
  • Industrial Metals rose 2.15% due to expectations that China may further increase infrastructure spending measures to help soften the impact from the current economic slowdown.
  • Precious Metals declined 0.28% after the US Federal Reserve raised short-term interest rates again at the end of September, causing the US Dollar to increase while reducing the appeal of Gold as an alternative store of wealth.
  • Agriculture fell 2.09%, led lower by Wheat, after the USDA's September WASDE revealed a strong upward revision to Russian wheat production estimates, leading to an increase in expected global inventories.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "As the deadline to resume sanctions on Iran approaches, oil exports out of the country have already been on the decline as buyers have begun securing supplies elsewhere. In addition, the political issues affecting Venezuela's oil industry are far from being resolved. However, the country received some funding from China, which may allow it to buy some additional time to keep production from falling even more rapidly. So far, Saudi Arabia and Russia have increased production to offset these losses. However, it is unclear how much additional production each can generate in the near-term without major capital expenditures. In addition, there are upcoming elections in Libya and Nigeria. Both nations have been growing their crude oil production over the past several months. Upcoming elections have the potential to lead to production disruptions and further test OPEC's available spare capacity constraints."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "By the end of September, the US, Mexico and Canada have all agreed to preliminary trade deals among each other, potentially supporting the demand for US agricultural products and livestock. Additional progress made in trade relations between the US and other trading partners may further improve demand expectations for commodities across the globe. However, the trade conflict between the US and China escalated after the US imposed a 10% tariff on an additional $200 billion worth of imported goods from China, effective September 24th. Both countries followed suit with promises of additional tariffs. Potentially as a result of the escalating trade war, the manufacturing PMI readings for both small and large Chinese firms fell in August. This has increased expectations that China may further enact stimulus measures to help soften the impact from the economic slowdown until the trade conflict with the US subsides. Meanwhile, the US economy continued to show strength as exemplified through strong manufacturing and consumer confidence data. As a result, the Fed raised rates in September and remained committed to continue raising interest rates to combat rising inflation. This environment of sustained global growth and rising inflation may create an opportunistic time to include commodities in a well-diversified portfolio."

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy is managed by a team with over 35 years of experience, and seeks to outperform the return of a commodities index, such as the Bloomberg Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:

  • Spot Return: price return on specified commodity futures contracts;
  • Roll Yield: impact due to migration of futures positions from near to far contracts; and
  • Collateral Yield: return earned on collateral for the futures.

As of September 30, 2018, the Team managed approximately USD 9.0 billion in assets globally.