How Oil and Copper Prices Shape Your Investment Portfolio
Commodities like oil and copper have always been shaped by the basic forces of supply and demand. While events such as wars, tariffs, and the rise of AI can push prices around in the short term, these fundamental forces always win out over time.
Commodities have been one of the best-performing asset classes so far this year, and they have also helped support other parts of the market, such as U.S. stocks. Oil prices have moved up and down sharply from month to month, copper has hit record highs, and precious metals surged early in the year before pulling back. For investors, the key question is not where prices will go next week, but what these moves tell us about the broader economy and how commodities fit into a well-built portfolio.
Oil prices are closely tied to events in the Middle East
Oil markets have been very volatile this year. Prices jumped to multi-year highs in March when the war in Iran began. Since then, Brent crude (a widely used benchmark for oil prices) has ranged from as low as $72 per barrel in early July back toward $100 today, reaching a seven-week high.
The main reason for these swings is the ongoing conflict in the Middle East. Most recently, Houthi militants in Yemen attacked Saudi Arabian energy infrastructure, raising fears about oil supply disruptions and pushing prices back toward $100 per barrel. These hostilities have made shipping oil through key waterways in the region very uncertain.
For everyday consumers, higher oil prices mean higher costs at the gas pump. The national average for regular gasoline has been around $4.15 per gallon, and over $5.00 per gallon for premium, according to AAA.1 This has kept overall inflation (the general rise in prices across the economy) higher than policymakers would like, since energy makes up over 7% of the Consumer Price Index.2 This kind of oil price volatility is not new. During the Russia-Ukraine conflict in 2022, Brent crude surpassed $120 per barrel before falling sharply. Today's high prices are mainly due to geopolitics rather than an overheating economy, and the U.S. is somewhat more protected from shocks, now producing more than 13.8 million barrels per day.3
Copper prices reflect both trade policy and growing long-term demand
Copper has also reached record highs this year. Investors sometimes call it "Dr. Copper" because its wide use in construction, electronics, energy, and transportation makes it a useful signal for the health of the global economy. Two main forces are behind the latest price surge: concerns about new U.S. tariffs on imported copper, and rising demand from AI data centers.
On the tariff side, the U.S. government is exploring new import duties on refined copper to encourage domestic production for national security reasons, under Section 232 of the Trade Expansion Act of 1962.4 On the demand side, AI data centers use thousands of tons of copper for electrical wiring and heat management, helping to keep computer chips cool.5 As technology companies continue to build larger data centers, demand for copper keeps growing. Like other commodities, it takes a long time to bring new copper production online, which naturally leads to large price swings.
Commodities work best when viewed as part of a broader portfolio
Year-to-date, the Bloomberg Commodity Index has been the top-performing asset class, driven by high oil prices and strong supply and demand dynamics for metals and other materials. As the chart above shows, commodities can be quite volatile, outperforming in some years and underperforming in others.
Importantly, many other asset classes have also done well this year, including emerging market stocks, small cap stocks, and U.S. stocks more broadly. Higher commodity prices have helped these areas too. The energy sector, for example, has been the best-performing sector in the S&P 500 this year. This highlights the value of holding a diversified portfolio (one that spreads investments across different asset types), rather than focusing on any single investment. A well-built portfolio is designed to benefit from a range of trends while 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
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