Commodities: Forward curves and carry framework – Societe Generale

Societe Generale’s Michael Haigh and Jeremy Sellem note that the commodity complex has been resilient to Middle East tensions, with Oil gains capped and forecasts for prices at $70 by year end unchanged. They introduce a cross-commodity term-structure model that builds continuous forward curves, fills contract gaps, and supports pricing, hedging, basket construction and de-seasonalised carry signals across BCOM and GSCI markets.

Cross-commodity term structure and carry

"Despite major Middle East headlines, the commodity complex barely moved. The BCOM gained 2% on the week, less than a standard weekly move this year. Prices briefly firmed midweek following the end of the ceasefire and the resumption of strikes by both sides."

"Oil was the main driver, rising about 10% from $72 to $78/bbl in three days before pulling back later in the week. The rally appears capped for now, and our forecasts published last week remain unchanged ($70 by year end)."

"Attention is gradually shifting toward agricultural markets and the widely anticipated return of El Niño later this year. Agricultural commodities are up 7% this month, with softs up 8% alone."

"We introduce a model for basket-level curve analysis that will ultimately make the relative value carry trade easier to apprehend. Our approach combines the economic intuition of commodity term structure theory with a practical interpolation framework."

"This framework produces consistent monthly forward prices out to two years across 27 commodity markets. It fills gaps where contracts are listed only quarterly or seasonally and extends maturities beyond the final observable contract when needed."