Heng Koon How, Head of Market Strategy, Global Markets and Economics Research, UOB Singapore

2024: A Year of Challenges for Key Global Commodities

Brent crude oil peaked at around USD 90 per barrel in Q2 and has since fallen to approximately USD 75 per barrel. Copper, another barometer of global economic health, reached a high of just under USD 11,000 per ton in Q2 but declined to USD 9,000 per ton by December.

On the contrary, gold continues to benefit from economic and geopolitical uncertainties and is poised for further growth next year. Slowing growth in both China and the Eurozone has exerted downward pressure on oil and copper prices.

The volatility of Brent crude oil and copper prices reflects an increasingly tough global economic environment.

Following the initial optimism generated by recent economic stimulus measures, investors have acknowledged that China's economic recovery remains difficult. Massive restructuring of domestic real estate debt remains necessary, and consumer and investor confidence in China has yet to recover appreciably. As a result, retail expenditure growth remains modest, and the money supply continues to decline.

China's faltering economy faces additional pressure with the looming prospect of even higher trade tariffs next year under a potential second Trump administration. As a result, UOB has revised China's GDP growth forecast for next year downward by 0.3 percentage points to 4.3%. Meeting the 5% growth target is becoming increasingly difficult for China.

In Europe, the growth outlook is also becoming more challenging. Amid the Russia-Ukraine conflict, Eurozone countries must now allocate more spending to strengthen the bloc's collective defense capabilities. This higher debt burden coincides with sluggish growth in Germany and France, the industrial powerhouses of the Eurozone, both of which are nearing recession. France's credit rating has recently been downgraded due to worsening political and budgetary crises.

The European Central Bank (ECB) has rapidly slashed interest rates, bringing the refinancing rate down from 4.5% at the start of 2024 to 3.15% by December. 2025 is shaping up to be a challenging year for both France and Germany, especially with Germany's federal election in February 2025, which has the potential to further destabilize the economy.

Trade Tariffs Add Another Burden

For Brent crude oil, past correlations among major energy producers have shifted. The Organization of the Petroleum Exporting Countries (OPEC) is finding it increasingly difficult to stabilize crude oil prices and maintain market share, as the U.S. continues to dominate the market.

The United States now produces approximately 13.5 million barrels of crude oil per day, making it the world's largest producer. Its energy output has increased dramatically over the last decade, beginning under the first Trump administration and continuing under Biden. In contrast, Saudi Arabia's crude oil production has significantly dropped to just 9 million barrels per day due to pressure to maintain production cuts. In essence, the U.S. today produces nearly 50% more crude oil per day than Saudi Arabia.

With slowing growth in both China and the Eurozone, OPEC has consistently lowered its global energy demand outlook. This oversupply threat continues to weigh on Brent crude oil prices, which have faced a challenging year trading around USD 70 to 75 per barrel. Additionally, the risk of Brent crude falling below USD 70 cannot be ruled out if a second Trump administration imposes significantly higher tariffs on China and globally in 2025.

For copper, often referred to as "Dr. Copper" for its ability to signal the health of the global economy, prices are struggling at just under USD 9,000 per ton at the end of 2024. Dr. Copper signals that the global economy's health may deteriorate further in 2025.

Copper prices have been highly sensitive to concerns about China's economic slowdown. With China's industrial activity yet to show significant recovery, copper inventories on major exchanges worldwide have risen, and immediate demand for the metal is weakening. Consequently, UOB's outlook for copper remains bearish, with prices expected to slide to USD 7,500 per ton by the end of 2025.

While the short-term forecast for Brent crude oil and copper is undoubtedly unfavorable, their medium- to long-term prospects may differ dramatically.

The futures curve for Brent crude oil is basically flat, indicating a low probability of a significant price increase despite ongoing hostilities and geopolitical threats in the Middle East. Any escalation in the region might limit crude oil supply and raise prices.

For copper, there is growing acknowledgment of a potential medium-term supply shortfall. Declining output from aging copper mines may struggle to keep pace with rising demand driven by the green transition and the increasing adoption of electric vehicles worldwide. As a result, price takers and consumers of both Brent crude oil and copper could capitalize on the currently lower prices to hedge their future needs.

Gold Continues to Shine as a Safe Haven

One commodity is reaping strong benefits from economic and geopolitical uncertainties: gold. In 2024, gold has seen a robust rise of about one-third, from USD 2,000 per ounce in January to around USD 2,600 per ounce currently. Over the long term, the positive drivers for gold remain intact, including continued allocations by emerging markets and Asian central banks, as well as strong physical gold and jewelry demand from the retail sector.

Gold is forecast to continue benefiting from uncertainties, with strong growth ahead.

A common thread among increased demand from central banks and the retail sector is the drive to diversify away from the growing geopolitical and economic concerns surrounding the U.S. dollar, prompted by disruptive trade and fiscal policies under a potential second Trump administration.

UOB maintains its positive outlook for gold, forecasting further gains to USD 3,000 per ounce by the end of 2025. In the short term, the immediate strength of the U.S. dollar could lead to a consolidation phase for gold before resuming its upward trend in 2025.

Next year will bring varied developments for Brent crude oil, copper, and gold.

Both Brent crude oil and copper are likely to remain under pressure from the deteriorating economic growth prospects of China and Europe. Concerns over disruptions from higher trade tariffs under a second Trump administration will also negatively impact these two commodities, despite a relatively positive outlook for the U.S. economy.

However, gold is likely to benefit from continued uncertainty and maintain its strong upward momentum throughout 2025.