This post is going to serve as much as a question mark as anything - a mostly blank space to be hopefully filled out in future. I was curious about the relative volatility of different commodity prices. I intuitively expected that oil would be uniquely volatile between the very low elasticity of demand and the geopolitical problems with supply.
The above graph shows - so far - three commodities - corn, oil (WTI) and US natural gas. In each case I am plotting the relative departure of the current month from the average of the prior twelve months as a simple but reasonable normalized measure of volatility. In essence this is some kind of measure of surprise - to the extent something happened this month that the market had not already priced in, this month's price will be very different from previous months.
You can see that commodity markets experience high levels of surprise - it's fairly common to see 50% price moves and not unknown to see 100% moves. At a first glance, the most obvious points are
- The 1950s to early 1970s were uniquely calm and stable in both corn and oil
- Since 1973, oil and natural gas have been somewhat more volatile than corn
- However, there isn't an obvious and massive difference between NG and oil volatility