Economists noted that the global commodity markets experienced heavy turbulence in August, with this underpinned by fears that the Federal Reserve was about to tighten its belt and potentially slash base interest rates.

However, others are also becoming increasingly concerned about China’s recent coronavirus outbreak, with the so-called “Delta” variant beginning to dominate sentiment in the marketplace.

We’ll explore this factor further below, while asking why it’s continuing to threaten commodity stability across the globe.

How Did Commodities Slump in August?

Several commodities were impacted by the sudden outbreak of Delta in China, with oil offering a relevant case in point.

Of course, oil watchers can look towards a triptych of key market assessments in the current climate, with an upcoming announcement by OPEC likely to offer more support for demand risks. 

As China’s case numbers soared to a six-month high on Friday, the Delta variant reached regions that altogether account for 38% of the country’s total GDP. This will also impact directly on global oil demand, with China established as the world’s largest oil importer ahead of the US (having surpassed their rivals by importing 8.4 million barrels per day in 2017

Energy prices are also experiencing a considerable surge in China and across the globe, with some prices having increased by a staggering 1,000% through 2021.

There is some good news for investors, however, with iron ore prices experiencing an unexpected recovery during the last week following a pledge of additional support from the Chinese government.

This could help to stimulate demand for steel in the region, causing the price of iron ore to increase by a significant 7.3% at the beginning of last week.

Appraising the Future for Commodities and Oil Prices

Despite this positive news, the future for oil demand and prices remains decidedly more uncertain in the near-term.

After all, the combination of Covid-19 concerns in China and fears of spiralling inflation in the US have created something of a perfect storm in the energy market, while benchmark Brent crude oil futures declined by 48 cents (or 0.66%) to $72.41 per barrel last week.

During the same session, US West Texas Intermediate (WTI) crude slid by 70 cents (1%), eventually settling at $70.56 per barrel.

Interestingly, both assets had risen more than 60 cents earlier in the same trading session, so the price decline was as sudden as it was noticeable.

This also highlights the innate volatility that underpins oil prices at present, and this trend is likely to remain unchanged in the coming weeks.

Make no mistake; this uncertainty will only be exacerbated by the current Delta spikes in China, and it can only be hoped that this is short-lived and combated effectively.