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ASSET MARKETS

Commodities market

Where the price of oil, metal and grain is agreed — the one that later shows up in your bill.

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Its role in the system

The market for oil, gas, metals, grain and also permits to emit CO₂. Here producers and consumers of real goods meet financial investors, and the prices formed here determine the cost of fuel, bread and electricity, the rate of inflation and the income of whole exporting countries.

Functions

  1. Physical trading — buying, storing, shipping and reselling real cargoes: tankers of oil, vessels of grain, lots of metal.
  2. Benchmark prices — exchanges and price reporting agencies publish reference prices (Brent and WTI crude, 🇳🇱 TTF gas, 🇬🇧 LME metals, 🇺🇸 CBOT wheat) against which contracts are written all over the world.
  3. Hedging — a farmer, an airline or a steel mill fixes a future price through futures and forwards, so as to plan the business without the risk of a sudden price jump.
  4. Investment — gold as a “safe haven” in a crisis; commodity indices and exchange traded funds as a hedge for a portfolio against inflation.
  5. Emissions allowance markets — the state sets an overall cap on emissions and hands out or sells permits (one allowance equals a tonne of CO₂ equivalent); whoever cuts emissions sells the spare allowances to those who cannot keep up. 🇪🇺 The EU ETS was the first such system in the world and has run since 2005.

What makes it special

  • A commodity has weight — and that is what people earn on: it has to be stored, shipped and insured, so its price depends on weather, logistics, how full the storage is and geopolitics, and the gap between the price "now" and the price "for later delivery" shows how scarce it is and what it costs to hold. That gap is the living of the trading houses (Vitol, Glencore, Trafigura; in agriculture ADM, Bunge, Cargill, Louis Dreyfus), which earn on logistics, storage and price differences between regions and over time, while banks and funds earn on derivatives and on financing cargoes.
  • Regulation is fragmented: exchange-traded derivatives are supervised by 🇺🇸 the CFTC, 🇪🇺 ESMA and national regulators, 🇬🇧 the FCA; EU wholesale energy markets have their own regime (REMIT); allowances fall under environmental law. A large part of physical trading sits outside direct financial supervision.
  • Geopolitics and cartels: 🌍 OPEC+ coordinates oil output; sanctions, wars and export bans rebuild trade flows and prices within days.
  • Climate policy is becoming a price: 🇪🇺 from 2026 the EU's CBAM mechanism entered its definitive phase — for the emissions embodied in imported steel, aluminium, fertiliser, cement and other goods produced in 2026, importers will buy CBAM certificates (sales start in February 2027). For an exporter to the EU, the carbon price now sits inside the cost of the goods.
  • 🇨🇳 China: the largest buyer wants its own price: the country buys more metals, soybeans and oil than anyone, so it wants those prices to be formed at home and in yuan. Futures trade on the Shanghai Futures Exchange (metals), Dalian (soybeans, iron ore), Zhengzhou (cotton, sugar) and Guangzhou; a separate Shanghai International Energy Exchange (INE) has run a yuan-denominated crude contract since 26 March 2018 — China's first commodity contract open to foreigners. A non-resident cannot enter the whole market, only the "internationalised" contracts or the qualified foreign investor route, so local prices can drift noticeably away from world ones.
  • 🇸🇬 Singapore: a small country as the hub for other people's commodities: it has no resources of its own — it has a port, storage and law. Singapore is the world's largest bunkering hub, selling more than 56 million tonnes of marine fuel in 2025, and SGX runs the iron ore derivatives used by everyone kept out of China's onshore market: two separate liquidity pools have formed, Dalian for domestic players and Singapore for international ones, and the spread between them has itself become something to trade. The lesson: the centre of a commodity market is not whoever digs it up, but whoever services the flow.

Why it matters

When the commodities market fails, everyone feels it: jumps in energy and food prices drive inflation and poverty, plants stop for want of supply, and losses on derivatives can bring down even exchanges and banks.

🇺🇸 The negative WTI oil price, 20 April 2020

the WTI futures contract for May delivery closed below zero for the first time in history — minus 37.63 dollars a barrel. The pandemic had collapsed demand, storage at the Cushing hub in Oklahoma was nearly full, and holders of contracts who could not physically take the oil paid to be rid of them. The case shows that a commodity future is an obligation to accept a real good.

🇬🇧 Nickel on the London Metal Exchange, March 2022

after Russia's invasion of Ukraine the price of nickel nearly quadrupled in three trading days and briefly passed 100 thousand dollars a tonne. On 8 March the LME halted trading and cancelled the deals struck during eight hours of that day in order to avoid defaults by clearing members — an unprecedented decision that was challenged in court. The case shows how concentrated positions in a commodity market threaten the market infrastructure itself.

🇪🇺 The European gas price shock, 2022

after Russian pipeline supplies were cut, the Dutch TTF benchmark — the price of gas for the whole of Europe — rose above 300 euros per megawatt-hour in the summer of 2022, against well under 25 euros before the crisis. Energy companies faced margin calls so large that several states had to lend them cash, and the EU responded with mandatory storage-filling targets and a temporary cap on the TTF price. The case shows how one commodity benchmark reaches straight into household bills, industrial output and the stability of traders.

Links to other zones · 13

  • Banking & Credit InstitutionsTrade finance from Banking & Credit Institutions — letters of credit and loans against cargo — gives Commodities market traders the money for each shipment.
  • Clearing & settlementCommodity trading runs on leverage: both sides of a futures contract top up margin every day inside Clearing & settlement, and if the price outruns what clearing members can pay, the exchange and its clearing house change the rules mid-session, up to cancelling trades.
  • Corporations & Corporate FinanceHedging in the Commodities market is dominated by Corporations & Corporate Finance: farming, metals, energy and airlines fix prices years ahead.
  • DerivativesFutures, options and swaps in Derivatives are the main hedging and price-forming tool of the Commodities market; the physical and the paper market are inseparable.
  • Exchanges & platformsCommodities market futures trade on Exchanges & platforms: 🇺🇸 CME and ICE, 🇬🇧 LME, and energy venues such as 🇩🇪 EEX.
  • FX marketGoods in the Commodities market trade mostly in US dollars, and oil and metal prices move the currencies of exporting countries on the FX market (🇳🇴 krone, 🇨🇦 and 🇦🇺 dollars).
  • Financial Media & DataThe benchmark prices of the Commodities market are not made on exchanges alone: a large share of quotations, from crude grades to gas and metals, is published by price reporting agencies, which belong to Financial Media & Data.
  • Fiscal PolicyFiscal Policy takes excise and royalties out of the Commodities market and, through schemes such as the 🇪🇺 carbon border adjustment mechanism, prices emissions too — a direct tax factor in the price of the goods.
  • InsurancePhysical trade in the Commodities market rests on Insurance: cargo, vessel, warehouse and liability are covered at every stage, and the largest risks go to reinsurers and to the 🇬🇧 Lloyd's market.
  • Investment & Pension FundsCommodities rarely reach a portfolio as barrels: funds in Investment & Pension Funds hold futures, so the return is the price move plus roll yield — negative when the curve is in contango — with storage costs already sitting in the far contracts.
  • Monetary PolicyEnergy and food prices in the Commodities market are the main external driver of inflation that Monetary Policy is forced to react to.
  • Sovereign Wealth FundsMany Sovereign Wealth Funds were created out of oil and gas revenue from the Commodities market (🇳🇴 Norway, 🇸🇦 Saudi Arabia).
  • State Insurance & GuaranteesPrivate insurers are reluctant to cover grain and oil cargoes in a war zone, so State Insurance & Guarantees takes the war risk; without that cover, ships serving the Commodities market do not sail.

Regulation and supervision

Supervised by: Financial Market Infrastructure

Nobody regulates the sack of grain — they regulate futures on it. To stop one player cornering the market there are position limits and position reporting, plus special rules for energy: 🇪🇺 MiFID II and REMIT with the ACER agency, 🇺🇸 the CFTC.

Standards: EU MiFID II 2014/65 (position limits, position reporting) · EU REMIT (Regulation 1227/2011, as amended 2024/1106) · EU Market Abuse Regulation 596/2014 (emission allowances) · US Commodity Exchange Act; CFTC position limits (17 CFR 150) · IOSCO Principles for Oil Price Reporting Agencies

Careers in this zone · 7

Oil market analyst

Puts together the supply and demand balance for oil: how much countries and companies produce, how much refineries and economies consume, how stocks change and what OPEC+ decides. On that basis forecasts prices and spreads for traders, a bank or a government.

What you need to know

  • The oil chain: production, transport, refining, products
  • Crude grades and tanker logistics
  • Energy geopolitics and sanctions regimes
  • Inventory statistics and data sources (🌍 the IEA, 🇺🇸 the EIA)

Skills

  • Balance modelling in Excel / Python
  • Working with alternative data (satellites, vessel tracking)
  • Concise conclusions for traders
  • Scenario analysis

Certifications: Usually not required — the ERP (GARP Energy Risk Professional) or the CFA are useful; an engineering or economics background is valued

Physical energy trader

Buys and sells real cargoes of crude, refined products or gas: finds where the commodity is cheaper and moves it to where it is dearer, charters tankers and storage, and hedges the price on the exchange at the same time. Earns on the differences between regions, grades and delivery dates.

What you need to know

  • Delivery bases and Incoterms
  • Freight, storage, product quality
  • The link between the physical market and futures
  • Trade finance and counterparty credit risk

Skills

  • Negotiating and working a network of counterparties
  • Fast decisions that take logistics into account
  • Discipline about risk and limits

Certifications: Usually not required — experience and reputation decide; the ERP (GARP) is a plus

Grain and oilseed trader

Buys grain from farmers, arranges elevators, rail and vessels, and sells cargoes to importers all over the world. Hedges the price on the exchanges and follows the weather, the harvest and countries' export policies. In the big exporting countries it is one of the key roles in the agricultural trade.

What you need to know

  • The world grain balance (🇺🇸 USDA reports)
  • Contract standards and GAFTA / FOSFA arbitration
  • Logistics: elevators, ports, freight
  • Phytosanitary requirements and grain quality

Skills

  • Negotiating with farmers and importers
  • Managing logistics in real time
  • Hedging with futures

Certifications: GAFTA courses are useful; experience usually decides

Physical trade operator

Turns a signed deal into an actual delivery: arranges the vessel or the wagons, quality inspection, insurance, the cargo documents and payment under a letter of credit. A mistake in a bill of lading or a date can cost the company more than the trading position.

What you need to know

  • Foreign trade documents: bill of lading, certificates, letter of credit
  • Incoterms and freight terms (charter, demurrage)
  • Customs and sanctions rules
  • Cargo insurance

Skills

  • Accuracy and control of detail
  • Coordinating many parties across time zones
  • Solving problems on the fly

Certifications: Usually not required — courses in documentary operations (from the ICC, for example) are useful

Metals market analyst

Forecasts the prices of copper, aluminium, nickel, iron ore and gold: analyses mines, smelting, and demand from construction, the car industry and “green” energy. Advises traders, mining companies and investors.

What you need to know

  • The chain of mining and processing metals
  • Demand from China and from the energy transition
  • The structure of exchange metals markets (🇬🇧 the LME, 🇺🇸 COMEX)
  • The role of gold in central bank reserves

Skills

  • Modelling supply and demand balances
  • Working with industry statistics
  • Presenting forecasts to clients

Certifications: Usually not required — the CFA or a geological / engineering background are useful

Carbon trader

Buys and sells CO₂ emission allowances and carbon credits for industrial companies, power producers and funds. Tracks the political decisions that change the emissions cap, helps plants plan their allowance purchases and account for CBAM payments.

What you need to know

  • How the EU ETS and other emissions trading systems work
  • Voluntary carbon markets and credit standards
  • EU climate policy and CBAM
  • The link between gas, coal and allowance prices

Skills

  • Analysing regulatory news
  • Trading allowance futures
  • Advising industrial clients

Certifications: The SCR (GARP Sustainability and Climate Risk) is useful; the ERP

Gas and power analyst and trader

Forecasts gas and electricity prices a day, a month and a year ahead: takes account of the weather, gas storage levels, nuclear output, wind and solar generation and cross-border flows. Trades on energy exchanges and with counterparties to secure supply and protect the company from price spikes.

What you need to know

  • How gas and power markets work (🇪🇺 TTF, the day-ahead market)
  • REMIT rules and the ban on manipulating the energy market
  • Infrastructure: gas storage, LNG terminals, interconnectors
  • Demand and generation models that take weather into account

Skills

  • Modelling in Python
  • Working with weather and physical data
  • Fast decisions in the intraday market
  • Discipline about risk

Certifications: The ERP (GARP) is useful; an engineering or economics background is valued

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