MacroVoices #261 Ole Hansen: Commodities Are Back!

Episode Summary

Executive Summary: Macro Voices episode 261 centers on the emerging commodity supercycle: Ole Hansen argues that reflation, stimulus, China demand, and underinvestment are creating broad strength across energy, metals, agriculture, and uranium, while gold remains pressured by rising real yields and the dollar. The hosts also warn that markets are wobbling after Powell disappointed expectations for yield backstops.

Main Topics: Broad commodity supercycle and reflation (Priority: 5/5): Ola Hansen argues commodities have likely entered a new secular bull phase driven by stimulus, China demand, green transformation, and years of underinvestment, with gains broadening beyond energy into agriculture and metals. Gold weakness vs. rising real yields (Priority: 5/5): Gold is under pressure because nominal yields are rising faster than inflation expectations, pushing real yields higher; Hansen says gold needs either higher inflation expectations or Fed intervention to resume a durable uptrend. Crude oil breakout and OPEC strategy (Priority: 5/5): The hosts see oil as structurally strong despite a record inventory build caused by Texas freeze disruptions. OPEC’s apparent trial balloon and cautious production stance may be aimed at pushing prices through key resistance near 65.65. Green transformation beneficiaries (Priority: 4/5): Copper, silver, platinum, rare earths, and uranium are highlighted as key beneficiaries of electrification, decarbonization, EVs, solar, and emissions regulation, though some trades are crowded and volatile. Market wobble after Powell and yield shock (Priority: 4/5): Patrick’s post-game emphasizes that equity weakness, especially in Nasdaq growth names, intensified after Powell failed to signal aggressive yield control, making Fed policy the central market driver. Backwardation and commodity ETF attractiveness (Priority: 4/5): Hansen explains that commodity curves have shifted from prolonged contango to backwardation, improving roll yield and making broad commodity ETFs far more attractive than in the prior decade. Positioning and speculative crowding (Priority: 3/5): Hedge funds are heavily long across commodities, especially agriculture, which supports the trend but also increases the risk of sharp corrections if yields, the dollar, or China data turn against the trade.

Key Arguments: Commodities are not merely bouncing; the combination of stimulus, green policy, China buying, and underinvestment suggests a secular commodity bull market is underway. Oil is supported by tight supply and OPEC’s apparent desire to engineer a breakout above 65.65 before allowing more production. The crude inventory build of 21.6 million barrels was distorted by Texas freeze-related refinery shutdowns and should be viewed in net product terms instead of headline crude alone. Gold’s weakness is primarily a real-yield story; until inflation expectations rise or the Fed caps yields, gold can remain under pressure. The market may be in a temporary correction because Powell did not reassure investors that the Fed would cap yields or backstop equities. Copper is a long-term winner from electrification and grid buildout, but near-term performance is vulnerable to China credit slowdown and speculative crowding. Commodity ETFs are now more viable because backwardation creates positive carry instead of the long-standing contango drag. Agriculture may be the most exposed to near-term correction because farmers can respond relatively quickly to high prices by increasing planting and output, unlike mining supply. Uranium is becoming investable again because decarbonization requires baseload power and current prices may be too low to incentivize adequate supply. The biggest market risk is not the commodities themselves but the outside markets: higher yields, a firmer dollar, and a potential deleveraging event in risk assets.

Data Points: SP 500 level: around 3770 - Discussed after the market sold off following Powell’s speech. SP 500 decline after Powell: over 100 points - Patrick described the immediate post-speech drop. U.S. dollar index range: 89 to 92 - Eric said the dollar remains in a sideways consolidation range. Crude oil inventory build: 21.6 million barrels - Largest recorded weekly crude build, distorted by Texas freeze-related disruptions. Distillate inventory draw: 9.7 million barrels - Part of the weather-disrupted inventory data. Gasoline inventory draw: 13.6 million barrels - Offsetting draw in finished products during refinery shutdowns. Net petroleum products change: -1.7 million barrels - Crude plus products combined, showing a net draw rather than true bearish build. Cushing, Oklahoma crude build: 485,000 barrels - Storage change in the key delivery hub. U.S. crude production change: +300,000 barrels/day - Recovery from the Texas freeze-driven drop. Crude oil high: 64.87 - Market nearly reached the important resistance at 65.65. Crude oil resistance: 65.65 - Eric and Ola identified this as a major breakout level. Gold low: 1688 - April gold contract low discussed as a key technical level. Gold prior key level: 1760-1765 - Recent band broken before the latest decline. Potential gold downside: $100 to $200 lower - Eric suggested further downside remains possible. 10-year Treasury yield: above 1.5% - Yields rose despite expectations for Powell to calm the market. 10-year breakeven inflation: around 2.2% - Hansen said break-evens have plateaued but could rise further. Copper price behavior: more than doubled since March lows - Reflecting powerful recovery and electrification demand. Copper use in EVs: about 10x more than conventional vehicles - Eric cited the copper intensity of electric vehicles. Platinum discount to gold: narrowed from about $700 to around $500 - Hansen described platinum as gaining relative strength. SP GSCI energy weighting: 54% - Illustrated why the index is more energy-heavy than other benchmarks. Passive commodity roll yield: close to 5% - Average roll yield across 25 commodities moved into backwardation. Agricultural roll yield: >1% per month - Especially in soybeans and corn, versus negative carry a year earlier. Average prior agricultural roll yield: around -0.5% - Hansen contrasted past contango with current backwardation. Oil rally since January Saudi production cut: almost 30% - Attributed to supply restraint and improving market structure. Oil demand growth forecast: around 5.5 million barrels/day in 2021 - OPEC/IEA/EIA had been downgrading forecasts since August. Potential OPEC spare supply: around 7 million barrels/day - Hansen noted OPEC+ could still release this capacity later. URNM ETF performance: more than doubled - Uranium exposure surged as decarbonization and baseload demand gained attention.

Pivotal Quotes: "the curves don't lie" — Ola Hansen: Explaining why backwardation signals genuine tightness and improves commodity investment carry. "there's absolutely no buy signal in the gold price" — Ola Hansen: Describing why momentum-driven funds are not yet re-entering gold despite long-term bullish fundamentals. "the market stops panicking when central banks start to panic" — Patrick Serezna: Commenting on why Powell’s lack of urgency may have unsettled equities rather than reassured them.

Implications: Listeners should view commodities as a structurally stronger asset class, with backwardation improving ETF economics and green-transition metals gaining relevance. Near term, however, equities, gold, and crowded commodity longs remain vulnerable to higher yields, a stronger dollar, and policy disappointment.