Displaying items by tag: Commodities

Oil prices rose closed higher on Monday to cap off big January, in fact it was the largest monthly gain in the last year. West Texas Crude rose to $88.15 a barrel and the sixth straight weekly gain. Fueling the rising prices are the rising tensions on the border of Ukraine and Russia which seem on the brink of war. Sure, OPEC has supposedly ramped up production by 400,000 barrels a day since August, and however, they have once again underperformed in output in January. While the continued on paper output is expected to be approved in the upcoming meeting the fact is the supply is not moving the needle.

FINSUM: The factors pushing oil prices higher are here to stay, and most likely not all priced in, it could be a big bull market for traditional energy in H1 2022.

(Houston)

Energy prices are rising from the U.S. to Europe, and while that might spark a good upside for energy companies it’s causing a crisis for those reliant in Europe. BSF SE and Aurubis AG are the continent’s number one producers in chemicals and copper respectively, but energy prices are eating at their margins. Major U.K. fertilizer companies are shutting down plant production in Norway. Gas prices are up nearly 200% in Europe and input costs have doubled as a supply crunch ravages the West. This shortage is painful on the frontside with high input costs but on the sell-side as well. Higher energy costs are eating up a larger percentage of home budgets and curtailing retail spending. Goldman Sachs expects the calamity to continue into the winter and warns of blackouts if consumption isn’t curbed. Finsum: This is the time to up the stakes in American energy prices. Energy shortages aren’t good for anyone but oil and gas are release valves.

(New York)

Everyone jumped off the three-month gold rally last week after regional Fed President Jim Bullard spoke of tightening in response to the recent CPI releases. This erased over a month of gains in a week as the price sank from $1900 to nearly below $1780. However, the Hulbert Gold Newsletter Sentiment Index which tracks the average recommended gold exposure among a subset of short-term gold timers is at -9.7%. This contrarian take is that gold rallies when this index sinks. The typical threshold for this index is -14.8%, but the dramatic move could be enough to start to buy. This index is one of the key items to watch as the price of gold falls so that you don’t miss the rebound.

FINSUM: Additionally Powell made it very clear that inflation is transitory and Bullard is in the minority on the FOMC. The Fed won’t pull back the reins until inflation is above its long-term goal and persistent.

(Houston)

The commodities boom has been going on since at least late last year, but the big question is where the booms in many underlying raw materials can last. At least as it concerns major commodities like oil, minerals, and lumber, the answer is a big yes. The reason why is that the current boom has to do with underinvestment in production over the last 18 months, a problem that is hard to solve quickly. This means demand will outstrip supply for the foreseeable future in many areas. Lumber is a good example, where underinvestment has led to soaring prices.

FINSUM: Capital has not been adequately invested to meet the demand of consumers and prices are showing it. Equilibrium will take some find to find. There is a nice runway for commodities.

(New York)

With the huge CPI number hitting the tape yesterday, gold had a predictable reaction: it rose. Since bottoming out a few months ago in the $1,600 range, it has since risen to over $1,900 as inflation fears have picked up. However, inflation is not the only thing driving the metal, as the Fed is playing a big role too. If the Fed stays dovish, and therefore the path of rates looks to stay low, then gold is in a great position—higher inflation with little rate risk from the Fed.

FINSUM: Gold is in a good spot. The Fed will only start hiking if inflation really jumps, which would push gold higher anyway. If inflation is more mild, then at least their won’t be rate pressure.