As summer gets underway, there are some commodities that do seasonally well during this time of year. The one that historically does best in the summer is unleaded gasoline with an average historical third quarter return of 8.2%. This is not surprising from the increased demand from summer driving as people vacation. However, the prices are now falling rather than rising which only happens every one of three years. In fact, the S&P GSCI Unleaded Gasoline has now hit its lowest July levels since 2004 and the total return is having its second worst third quarter start in history since 1988, losing 5.9%, with only 2009 falling faster when it dropped 13.5% in the first nine trading days.
The stronger dollar and stagnant interest rates aren’t helping commodities but individual commodity fundamentals are more powerful. Both the International Energy Agency (IEA) and Energy Information Agency (EIA) released reports yesterday that drove oil down on global supply (according to IEA) and US supply (according to EIA). On June 24, after the Brexit vote oil dropped the most in one day -4.9% since Feb., and since then, there have been two other big down days with yesterday being the third. It certainly questions whether the modest demand deceleration globally as forecasted by the IEA may lengthen the oil rebalance.
On the flip side, cotton, nickel and aluminum are typically the worst in the summer and are having a great start to q3, up 15.2%, 9.6% and 1.6%, respectively. Nickel is increasing from environmental licenses potentially impacting supply. Cotton is rising from the drought impacting supplies in India, and according to their government, inventory could be cut by 1/3 bringing output to the lowest in six years. Aluminum is up slightly from anticipated automobile growth in China, which could grow more if gasoline prices stay low.