Are We On The Verge Of Another Major Commodity Supply Squeeze?

Supply Chain Disruption in the Red Sea Raises Concerns of a Major Commodity Supply Squeeze

The threat of another major Commodity supply squeeze ripping through the global economy has overtaken interest rate cuts this month as one of the hottest and most closely watched macro trading opportunities of this year, if not this decade.

The rising number of attacks on commercial vessels in the Red Sea have spiked shipping costs by more than 600% since the outbreak of the Israel-Hamas conflict and could upend efforts by global central banks to bring down inflation.

On Friday, Oil prices soared above $80 a barrel for the first time in 2024 – as the world’s shipping giants were left with no other option but continue diverting their container-packed ships away from the Suez Canal and take the long route past the Cape of Good Hope.

Going around southern Africa adds $1 million in fuel costs and about 10 days to the journey – an outcome that has significantly increased the odds of a supply chain crisis similar to the one that snarled the global economy after the pandemic.

There is no denying, that supply shocks of this nature in an already fragile system can have catastrophic consequences – as history has shown us, time and time again.

In a note to clients last week, JPMorgan said that the fight against inflation could stall in the coming months, if shipping costs drive up the price of Commodities.

The Red Sea disruptions could have a wider domino effect on the supply chain if the situation is not resolved by end of the first quarter. A prolonged blockage could keep freight rates elevated beyond the first half of the year – which presents huge bullish tailwinds for the entire Commodities complex.

Domino Effect Unleashed: Commodities Rally in Tandem with Oil’s Soaring Surge

As traders know, when one Commodity goes the others follow suit, very quickly.

And that’s exactly what we saw playout on Friday. Oil’s explosive rally also pulled many other Commodities higher – including Gold, Silver, Palladium, Platinum, Natural Gas and last but not least Uranium – which surged above $92.50 per pound, its highest level since 2007.

And the rally might not stop there!

The longer this crisis goes on, the higher energy prices go – making it more and more expensive for companies to transport essential Commodities – opening the door to a major squeeze in prices.

Whichever way you look at it, one thing is clear. It won’t take much for Commodity prices to move significantly higher in this current macro and geopolitical environment and breach new highs in the coming weeks and months ahead.

Commodity Price Forecast

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions: