Commodity risk refers to the potential for financial loss resulting from fluctuations in the prices of commodities, such as oil, gas, metals, agricultural products, and other raw materials. This risk can arise from supply and demand changes, geopolitical events, weather conditions, and economic factors. Businesses that rely on commodities for production or consumption can be particularly vulnerable, as price volatility can impact costs and profitability. Effective management of commodity risk involves strategies such as hedging through futures and options contracts, diversifying supply sources, and implementing robust forecasting and risk assessment processes to mitigate potential impacts.

Basel scope:

• Pillar 1
• Pillar 2

Capital requirements:

Mitigated by Capital

Related Links:

•       BCBS 158 - Revisions to the Basel II market risk framework
•                 Basel Framework