Commodities expert Ole S Hansen discusses the pause in the bull market for some commodities, the Iran-Israel conflict escalation risk, and the impact of weather on agricultural commodities. The podcast also examines backwardation in commodities trading, geopolitical risks in the global oil market, market themes and sectors, and the analysis of the US dollar, gold prices, bonds, uranium, and copper.
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Quick takeaways
The bull market in commodities is expected to continue due to tight supply, fragmentation in production, and the green transformation, highlighting the significance of the commodity super cycle and the impact of inflation expectations.
Backwardation in the futures market provides a roll yield for long investors in commodities, with the positive performance of industrial base metals like copper and aluminum being driven by the demand for energy transition.
The crude oil market faces uncertainties due to geopolitical risks, such as the Israel conflict and potential escalation involving Iran, the United States, and Russia, emphasizing the importance of spare capacity, rising spare capacity, and tight supply issues.
Deep dives
Bullish Outlook for Commodities
Commodities chief Ola Hansen from Saxobank predicts that the bull market in commodities will continue due to tight supply and factors such as fragmentation in production and the green transformation. He highlights the significance of the commodity super cycle and the impact of inflation expectations. Hansen emphasizes the importance of backwardation in the futures market, which provides a roll yield for long investors in commodities. He also discusses the positive performance of industrial base metals like copper and aluminum, driven by the demand for energy transition. Overall, Hansen maintains a medium to long-term bullish outlook for commodities.
Inflation Expectations and Outlook for Gold
Hansen discusses rising inflation expectations and its impact on the price of gold. He explains that despite the recent decline in gold holdings in ETFs due to high financing costs, a turnaround is expected as inflation concerns increase. Hansen suggests that the rising yields, which have been negative for gold, may become positive as they create concerns about potential economic issues. He also mentions the potential peak in interest rates and the history of strong gold moves following peak rates. Hansen maintains a patient bullish outlook for gold, anticipating a potential breakout if key resistance levels are surpassed.
Analysis of Crude Oil Market and Geopolitical Risks
Hansen analyzes the crude oil market and the impact of geopolitical risks. He states that traders are uncertain about the market due to the Israel conflict and the upcoming ground invasion of Gaza. However, he argues that the delay in the invasion, agreed upon by Israel, suggests that the United States has pledged additional military support in the event of escalation. Hansen emphasizes the importance of spare capacity, rising spare capacity, and tight supply issues in the crude oil market. He acknowledges the potential for major escalation if Iran strikes Israel and how this could lead to a broader conflict involving the United States and Russia. Hansen concludes that despite his bullish outlook, there are risks involved and multiple scenarios that could impact the crude oil market.
Concerns over supply and geopolitical risk impacting oil prices
The podcast episode discusses the factors influencing oil prices, particularly the concerns regarding supply and geopolitical risks. The speaker suggests that the availability of supply will determine whether oil prices will remain capped at around 95 or if they may spike higher. Speculators currently seem skeptical about geopolitical risks and are not significantly increasing their positions. The speaker also mentions the impact of volatility on hedge funds and the need to reduce exposure when volatility rises. The potential for a conflict between Israel and Iran, which could involve the US, is highlighted as a major risk that may result in higher oil prices. The speaker mentions the concept of spare capacity, pointing out that Saudi Arabia and the UAE are the countries with the most potential to ramp up production quickly. However, the exact amount of spare capacity is uncertain. Overall, the episode highlights the importance of supply availability and geopolitical risks in determining the direction of oil prices.
Importance of commitment of traders report and its role in analyzing market trends
The podcast episode discusses the significance of the commitment of traders report and its role in analyzing market trends. The speaker explains that the report provides insights into the positions and interests of major players, particularly speculators like hedge funds, in various futures contracts. The managed money group, consisting of hedge funds and CTAs, tends to follow momentum and trend-following strategies, which can amplify price moves once a trend is established. The speaker highlights the importance of understanding the positions of these market participants for making more informed trading decisions. The episode also acknowledges the work of the speaker in visualizing the government reports and providing them for free, offering a helpful resource for individuals who may not have access to the same insights as major trading houses. Overall, the commitment of traders report is seen as a valuable tool for understanding market dynamics, particularly in commodity markets.
MacroVoice's Erik Townsend & Patrick Ceresna welcome Ole S Hansen as this week’s guest. Ole says the bull market has paused in some commodities, but is set to continue. They also talk about crude oil and the debate over how big the Iran escalation risk is in the Israel conflict. https://bit.ly/46HF07i
