A3 Commodity price shock

Topic

A commodity price shock is an anomaly occurring within the Resources/Extraction sector when a commodity's price variation spikes far beyond its historical volatility over a short period—manifesting either as a collapse or an abrupt surge. As long as the price variation remains within the bounds expected based on the commodity's historical volatility, the price follows its normal fluctuations without triggering a commodity price shock.

A commodity price shock is triggered when the price variation over a short period deviates significantly beyond the commodity's established historical volatility. It does not matter whether this variation takes the form of a collapse—an abrupt price drop—or an abrupt surge—an equally sudden rise; it is the magnitude of the variation relative to historical volatility, rather than the direction of the movement, that defines a commodity price shock.

Consequently, monitoring each commodity's price variation against its own historical volatility is the most direct way to anticipate a commodity price shock within the Resources/Extraction sector: once the short-term variation far exceeds expectations based on historical volatility, the price breaks out of its expected range and shifts into a collapse or an abrupt surge.

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