In the 19th century, geologist Charles Lyell introduced the idea of "uniformitarianism," which simply means that the same natural forces shaping the earth today are the same ones that have always shaped it throughout history. A similar idea applies to commodities, which are raw materials we extract from the earth, like oil and copper. While events such as wars, tariffs, and artificial intelligence (AI) developments can influence commodity prices in the short term, it is ultimately supply and demand that drive these markets over the long run.
Commodities as an asset class (a group of similar investments) have not only outperformed many other investments this year, but have also provided support to other parts of the market, such as U.S. stocks. Investors pay close attention to commodities because their prices tend to reflect the health of the broader economy. Oil prices have moved up and down from month to month, copper has climbed to new record highs, and precious metals like gold and silver surged to all-time highs early in the year before easing back. Short-term price swings in commodities are normal, and the forces behind them, including geopolitical events, tariffs, and shifting economic trends, are hard to predict.
For investors, the more important question is not where oil or copper prices will be next week, but what supply and demand tell us about the overall economy, long-term trends, and how commodities fit into a well-built portfolio. Commodities can act as signals about global economic conditions, and their price swings are a natural part of how they work. So how can investors keep a clear head when commodity markets are moving sharply?
Oil prices remain tied to geopolitical uncertainty
Oil markets have seen big swings this year, showing both how sensitive they are to world events and how difficult it is to predict commodity prices. Oil jumped to multi-year highs back in March when the war in Iran began. Since then, Brent crude (a widely used global oil benchmark, or reference price) has moved from as low as $72 per barrel at the start of July back toward $100 as of today, reaching a seven-week high.
The main driver of these swings is the ongoing conflict in the Middle East, which has continued despite multiple ceasefire attempts and failed peace negotiations. Most recently, the Houthis, a group of militants based in Yemen, carried out strikes on Saudi Arabian energy infrastructure. This raised new concerns about supply disruptions in the region, pushing Brent crude back toward $100 per barrel.
While the Strait of Hormuz, which connects the Persian Gulf to the rest of the world, remains the main focus in energy markets, Houthi forces have also continued to target the Bab al-Mandab Strait, another key shipping route. Because it sits at the southern entrance to the Red Sea, it is a growing route for Saudi oil exports. Altogether, hostilities across the Middle East have made the transportation of oil very fragile.
For everyday consumers, these moves show up directly as higher prices at the gas pump. The national average for regular grade gasoline has hovered around $4.15 per gallon according to AAA, and over $5.00 per gallon for premium. These elevated levels have kept energy costs high and overall inflation (the general rise in prices across the economy) higher than policymakers would like.1 This has influenced inflation figures all year, since energy makes up more than 7% of the total Consumer Price Index (a common measure of inflation).2
From a historical standpoint, oil price swings of this kind are not unusual. During the Russia-Ukraine conflict in 2022, Brent crude surpassed $120 per barrel before dropping sharply. In the mid-2000s, oil stayed around $100 for several years as global demand grew quickly ahead of the financial crisis. Today, high oil prices appear to be mainly due to geopolitical tensions rather than an overheating economy. Additionally, with the U.S. now producing more than 13.8 million barrels per day, the country is somewhat better protected from price shocks than in the past.3
Copper reflects both trade policy and long-term structural demand
While oil has been the biggest commodity story this year, copper has also hit its own record highs. Investors often use the term "Dr. Copper" to describe the metal, because it is seen as a forward-looking economic indicator, meaning its price can offer clues about where the economy is headed. This is because copper is used in a wide range of industries, from building construction and energy, to electronics and transportation.
The recent jump in copper prices is mainly driven by two factors: tariff concerns combined with tight supply, and growing long-term demand from trends such as AI data centers. Regarding tariffs, there are concerns about possible new U.S. import duties on refined copper. While it may seem surprising that the U.S. would add tariffs on such an important material, the goal of the administration is to encourage domestic production for national security reasons. These tariffs are being considered under Section 232 of the Trade Expansion Act of 1962, which targets foreign reliance on sensitive goods.4These factors, along with tight supplies and slower production growth, have pushed copper prices higher.
At the same time, demand for copper has also increased significantly. AI data centers, for example, naturally use thousands of tons of copper.5
Copper is not only a key part of power delivery systems, including electrical wiring, but it is also very effective at transferring heat. This makes it essential for keeping large data centers and thousands of semiconductor chips (the tiny electronic components that power computers) cool. As large technology companies continue to build bigger data centers, the demand for copper keeps growing.
Like most commodities, prices and demand can change quickly, but bringing new production online takes a long time. This naturally causes large price swings. While copper is different from precious metals, there are similarities with the big rallies and pullbacks seen in gold and silver earlier in the year. Across all of these metals, maintaining a longer-term perspective and avoiding overreaction to short-term moves remains important.
Commodities are best viewed in a portfolio context
For long-term investors, what matters most is what commodities signal about the broader economic environment and how these assets behave within a diversified portfolio (a mix of different types of investments designed to spread risk).
So far this year, the Bloomberg Commodity Index has been the top-performing asset class, reflecting high oil prices as well as the supply and demand dynamics for other metals and materials. The chart above illustrates just how volatile, or variable, commodities can be, with the asset class outperforming in some years and underperforming in many others.
What is especially encouraging is that many other asset classes have also performed well this year. Emerging market stocks (shares in companies from developing economies), small cap stocks (shares in smaller companies), U.S. stocks, and other major asset classes have all delivered solid returns. This is partly because these parts of the market also benefit from higher commodity prices. The energy sector, for instance, has been the best performing sector within the S&P 500 for this reason.
All of this highlights the importance of thinking about your investments as a whole portfolio, rather than focusing on any single asset class or investment. A well-constructed portfolio is designed to benefit from a variety of trends that can interact in complex ways, while also managing risk, all in pursuit of long-term financial goals.
The bottom line? Commodity prices are sensitive to geopolitics, trade policy, and economic cycles. A balanced portfolio that includes exposure to different asset classes remains the best way to navigate these swings to achieve financial success.
Index Descriptions
S&P 500
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Bloomberg Commodity Index
The Bloomberg Commodity Index is a broadly diversified financial benchmark that tracks the price performance of futures contracts on physical commodities across multiple sectors.
References
1. https://gasprices.aaa.com/
2. https://www.bls.gov/cpi/tables/relative-importance/home.htm
3. https://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=mcrfpus2&f=m
4. https://www.congress.gov/crs-product/IN12614
5. https://www.spglobal.com/en/research-insights/special-reports/copper-in-the-age-of-ai