What are the Best Commodities to Trade Online?

Commodities markets are the places where people trade in all the materials we need to eat, drink, wash and clothe ourselves, get to work, heat and power our homes and businesses, and more. Neverending demand for these materials from consumers and companies in all areas of the globe is what fuels these markets, keeping them liquid at all times of the year.

Each commodity trades by its own rules, meaning that a unique mix of factors determines the way its prices will trend at a given time. Traders who focus on a particular commodity become specialists in the dynamics surrounding its prices, studying them consistently and learning through trading experience. Becoming the “expert” in a given commodity is – at least to some degree – something that’s possible for most people to accomplish. All that’s needed is diligent application and the willingness to learn.

In this article, we’ll delve into three of the most traded commodities in the world, describing what makes each one unique in terms of its uses, supply and demand dynamics, and the ways traders gauge its future price trajectories.

1. Crude Oil: Why We Need It

To keep our economies running, we need energy. At this point in history, there’s one substance that provides us with the energy we need better than any other: crude oil. All the combined energy generated by the wind, sun, and water doesn’t even come close to that produced from crude oil. Dividing our planet’s energy into a pie, fossil fuels (crude oil, coal, and natural gas) made up 84% of it in 2023, with crude oil accounting for the largest slice. 2023 also marked the first year in history when global oil consumption topped 100 million barrels per day.

Many industries require crude oil in order to function, and it’s hard to imagine a day in any of our lives without one of its products. To transport yourself by car, train, or jet, you’ll need crude oil. To light up your house at night and keep it warm, you will likely need crude oil. Many plastic items in your home were created with crude oil. Certain cosmetics women use to beautify themselves are also made from that smelly, sticky substance. There are literally hundreds of products that wouldn’t be sitting on the shelves if not for crude oil.

What Moves its Prices?

Crude oil is considered one of the most popular commodities to trade online. Like any commodity, crude oil prices are determined by the interplay of supply and demand forces. When there’s plenty of demand for it and not much supply, prices go up. When there’s too much supply and weak demand, prices go down. In the case of crude oil, an important caveat must be added, however. Prices are not set in the spot market, which reflects current market values, but, rather, in the futures market, which reflects the prices people will pay to receive oil on a later date.

This means that the key dynamic for setting oil prices is not actually the current supply-demand balance. Instead, it’s the balance of traders’ expectations for future oil prices. If most oil traders believe oil prices will be rising somewhere on the horizon, prices will be driven up today. And when most believe prices are due to fall, they will trend lower now.

OPEC

OPEC (The Organization of Petroleum Exporting Countries) is a cartel that wields lots of influence in the setting of global oil prices. It does this by, either holding back supplies when prices are deemed too low, or opening the floodgates when prices are too high. Founded in 1960 by a group of nations with bounteous oil reserves, their decisions largely pulled the strings behind oil price fluctuations until the turn of this century. Although their decisions are still vital in the market, the advent of hydrofracking technology, which facilitates the release of more underground oil, boosted America’s contribution to world supply, and this weakened OPEC’s clout somewhat. The body’s member states don’t always comply with their official resolutions, and this detracts from the believability of their pledges. Still, you’ll hardly read an oil article that doesn’t make reference to OPEC’s latest policy decisions, which are still doubtlessly integral in setting prices.

Oil Prices in Action

On August 13, 2024, WTI (West Texas Intermediate) oil – the benchmark for oil futures in North America – dropped by 2.1% to $78 per barrel. (The benchmark in Europe, Africa, and the Middle East is called North Sea Brent Crude.) This came after five days of gains for WTI, powered by concerns of a supply threat in the Middle East, where it was expected Iran was going to strike Israel. The bullish trend ceased on the 13th due to a report by the IEA (International Energy Agency) that oil storage facilities were going to be full in the final quarter of the year, which could lead to a surplus if OPEC bumped up supply, as they had promised to do. Traders chose to focus on the issue of potential oversupply and ignored the Iranian threat even though it hadn’t abated.

Two days later, WTI gained over $1 a barrel when Middle East tensions again took centre stage. The bullish effect was strengthened by a strong report on retail sales in the USA. When the economy shows signs of strength, this is bullish for oil since it means more of it will be needed to keep the economic fires burning. Still, traders were ignoring other data with bearish implications for demand, both in the US and China. Chinese oil demand in July was as much as 8% below its level a year before.

2. Cocoa: Durable Demand

Another one of the popular commodities in online trading is cocoa. Cocoa is the main ingredient in chocolate, which usually needs the addition of other commodities too, like sugar, milk, nuts and corn. Many of us have strong feelings about chocolate in general, and about our favourite brands in particular. This is a strongly bullish factor with respect to cocoa demand, and one that is famously resistant to economic downturns. Even when people’s budgets are tight, they tend to accept the relatively manageable expense of a chocolate bar now and then. This has been the case in North America and Europe for quite some time, and the taste for chocolate is now spreading into nations in the Asia-Pacific too.

Market Trends

Despite the large community of die-hard chocolate eaters, there’s also a growing trend of health consciousness that makes for a demand headwind. Putting aside the medical facts, many people perceive chocolate as unhealthy and thus tend to pursue different snack options. The good news for cocoa growers is that there’s a branch of the chocolate market that does appeal to health enthusiasts: dark chocolate.

Research has shown that this sort of chocolate may protect the brain from the stresses of age and even Alzheimer's disease. Dark chocolate requires cocoa in greater quantities than milk chocolate, which may boost demand even more. It’s produced with cocoa butter rather than coconut or palm oil, which keeps the fat content down. And some manufacturers use natural sweeteners like stevia instead of sugar.

Price Dynamics

The cocoa tree is a sensitive one. It’s grown in small family farms in West Africa, chiefly Ghana and Ivory Coast, where the humid conditions are favourable for the crop. When rain is late in coming, the crops suffer. When too much rain comes, it can lead to crop diseases. The latter was the case in early 2024 – the third consecutive year of below-average harvests that contributed to continually rising prices. April 2024 saw cocoa trading as high as $11,000 per metric ton, as compared with the average in previous decades of less than $2,000.

By August 2024, cocoa prices had settled down a bit due to forecasts of necessary rains, but risks still surrounded the upcoming crop season in October. Traders were worried enough about the supply scenario to buy up cocoa futures in great numbers, sending their prices up 7.2% in a single day. Analysts said that the arrival of wetter weather would probably not lead to lower prices anywhere on the immediate horizon.

3. Copper: Where is it Needed?

This intriguing red metal makes up a large part of every American coin. More relevantly, though, it’s relied upon heavily in industry for manufacturing factory equipment, motors, and transformers. It’s also highly prized in the housing market, where it’s needed for wiring, plumbing, and roofing. This commodity is so closely tied to the market for new homes that it surged amid China’s property boom of the late 1990s, but tanked along with US real estate market in 2008. In fact, whenever emerging economies like India, which lack infrastructure for transport and housing, experience growth, it’s considered bullish for copper.

Beyond housing, the future-looking demand story has a lot to do with the push towards green energy, where copper’s special qualities are increasingly being recognized. Electric vehicles, for instance, need a good dose of copper in order to get on the roads. Builders of solar plants and windmills make use of copper too. Artificial intelligence technologies are also developing an affection for the commodity.

Price Dynamics

Since copper is intimately bound up with economic growth, the outbreak of the coronavirus in March 2020, which cast a big shadow over the global economy, sent estimates for demand and prices groundward in a hurry. In that month, CRU Group said that Q1 demand would come in 22% below the previous year’s figure. S&P Global Intelligence lowered their price forecast for the year from $6,211 per ton to $5,997.

From the supply side, the most sizeable copper deposits are found in Chile, Peru, Mexico, Australia, and China, among a few others. Whenever political unrest or worker strikes threaten mining operations in these countries, it’s bullish for prices. Complications at mines contributed to the soaring prices seen by copper in 2024 when, in May, they touched $11,000 per ton for the first time ever.

Bears in the market warned that prices were inflated far beyond realistic levels, especially since China – a major buying force – was experiencing a lull in demand. Chinese inventory was also holding at elevated levels, adding to the bearish argument. Still, the bulls were able to take charge in the market, keeping their eyes firmly fixed on potential supply shortages and green energy demand.  

Wrapping Things Up

Learning about the forces guiding the prices of top commodities can be enjoyable and enriching. The more you appreciate what makes your commodity’s prices tick, the more effective you can be as an online trader. When trading commodities as CFDs with iFOREX, you can get live prices for your commodity coming directly into your smartphone, but also the most relevant news for the market.

Using iFOREX’s versatile trading platform, you can trade in the prices of the raw commodities themselves, or, alternatively, in the shares of companies with exposure to them. Each option comes with its own advantages and the right choice ultimately depends on your preferences.