Commodities ripe for a rebound

LOS ANGELES (AP) — The near shutdown of the economy in response to COVID-19 has reduced demand for commodities like oil, lumber and copper and triggered sharp drops in their prices, but some analysts predict the stage is set for a rebound.

Energy has borne the brunt of the selling as cars stay parked longer, airlines cut back on flights and cruise ships remain idle. A collapse in crude oil prices stunned the market last week as U.S. oil futures for May delivery plunged below zero for the first time ever. Oil is down about 78% this year.

Other commodities are also mostly lower. The Bloomberg Commodity Index, which tracks a diversified basket of commodities, is down 25.7% this year and hit its lowest level ever last month.

Even so, the sharp drop in prices could pave the way for a long-term rally for commodities, analysts say, noting that commodity prices have been mostly declining for nearly a decade because supply has been exceeding demand.

“What we’ve seen in 2020 is just an extension of what’s been happening over the last decade,” said John LaForge, head of real asset strategy at Wells Fargo Investment Institute. “We’ve gone through the crashing phase of commodities and now we’re probably where prices are pretty close to turning.”

Benchmark U.S. crude for June delivery settled at $12.34 a barrel on Tuesday, down from over $60 a barrel in January. U.S. shale oil producers need the price per barrel to average $45 in order to break even.

Last month, LaForge upgraded commodities from neutral to favorable within a 6- to 18-month time frame, noting that the extreme drop in commodities prices this year is the key to eliminating excess supply that has kept prices down for years.

“As bad as all this sounds, keep in mind that what is bad for the commodity...