MacroVoices #347 Ole Hansen: Commodities Can Go Up Even In Recession

Episode Summary

Executive Summary: Macro Voices episode 347 centers on Ole Hansen’s bullish long-term case for commodities amid structural inflation, underinvestment in energy/mining, geopolitical fragmentation, and supply tightness. The discussion argues commodities can rise even in recession, while near-term moves are shaped by a strong dollar, Fed tightening, China slowdown, Europe’s energy crunch, and backwardation offering positive roll yield.

Main Topics: Structural bullish case for commodities (Priority: 5/5): Ole Hansen argues the 2020s favor commodities due to scarcity, reshoring, de-globalization, grid rewiring, energy transition, and chronic underinvestment. He sees demand softening cyclically but supply remaining tight, supporting higher long-term prices and inflation. Energy market tightness and the global oil crisis (Priority: 5/5): The interview and post-game emphasize that oil and refined products, especially diesel/distillates, remain constrained by lack of investment, OPEC+ cuts, and reduced strategic flexibility. Crude can rally despite recessionary fears because supply is the binding constraint. European natural gas dislocation (Priority: 5/5): Negative near-term European spot gas prices are explained as a logistical/regasification bottleneck and unusually mild weather, not a solved structural problem. Hansen expects winter volatility to persist and sees 2023 prices stabilizing well above historical norms. Backwardation, contango, and commodity investor returns (Priority: 4/5): Hansen explains that the current backwardated futures curves across many commodities create positive roll yield, reversing the long period of contango-related drag. This improves ETF returns and suggests markets are still not fully pricing recession. Metals, especially copper and gold (Priority: 4/5): Copper remains a favored long-term theme due to electrification, renewables, EVs, and constrained mining supply, despite China weakness. Gold is treated as insurance against policy/inflation error, but has been suppressed by the strong dollar and rising real yields. Macro cross-currents: dollar, yields, and recession risk (Priority: 4/5): A strong dollar and rising yields have been major headwinds for commodities and gold, but both speakers think a rollover in rates could trigger a turn. They also discuss how recession need not imply lower commodity prices if supply stays constrained. Post-game market outlook: equities, FX, and bonds (Priority: 3/5): Eric and Patrick discuss a likely bear-market rally in equities into year-end, a possible dollar top, euro stabilization above parity, crude resilience, muted gold response, copper basing, and whether falling 10-year yields could support risk assets.

Key Arguments: Commodities can rise even during recession if supply remains constrained and production costs are elevated. The 2020s may be a secular commodity decade because structural inflation is being driven by reshoring, de-globalization, energy transition, and infrastructure rewiring. Energy underinvestment, accelerated by ESG pressures and uncertainty about fossil-fuel demand, is creating a multi-year supply problem. Backwardation signals tight physical supply and gives investors positive roll yield, improving the case for commodity ETFs. European gas negativity was a spot-market/logistics anomaly caused by weather and import-terminal congestion, not a collapse in the medium-term gas bull thesis. The dollar’s strength has depressed commodity and gold prices, but a yield rollover could weaken the dollar and support a commodity rebound. Copper is still structurally bullish due to green-energy demand and limited mine-supply growth, even if China’s property sector is weak. Gold is functioning more as portfolio insurance than as a pure geopolitical hedge, and the market is not fully pricing future inflation persistence. Oil/distillate tightness is especially acute in diesel, jet fuel, and heating oil, which matters more for the real economy than headline crude alone. Energy markets are unlikely to revert to pre-pandemic normal quickly because replacing lost supply requires years of investment, not a policy switch.

Data Points: Episode number: 347 - Macro Voices feature interview with Ole Hansen and post-game commentary Release date: October 27, 2022 - Production date stated in the intro U.S. crude production: 12.0 million barrels/day - Mentioned in the crude inventory discussion U.S. petroleum product exports: 11.4 million barrels - Includes about 5 million barrels crude and 6.4 million barrels finished products in the weekly data discussion SPR draw: 3.4 million barrels - Explained as part of the apparent 2.6 million barrel EIA build/draw confusion Commercial crude draw excluding SPR effect: 0.8 million barrels - Actual draw after subtracting Strategic Petroleum Reserve release Cushing inventory build: 667,000 barrels - Weekly crude storage data Gasoline inventory draw: 1.5 million barrels - Weekly EIA product inventory data Distillate inventory build: 170,000 barrels - Weekly EIA product inventory data U.S. diesel inventories: 14.7 million barrels - Highlighted as critically low versus prior years U.S. diesel inventories same week 2021: 38 million barrels - Year-over-year comparison U.S. diesel inventories same week 2020: More than 60 million barrels - Comparison noted as pandemic-overstocked period European gas spot move: Briefly negative - Next-hour European natural gas spot price went negative due to local bottlenecks European gas price referenced in interview: Around 100 euros - Hansen says spot gas may stabilize around this level into next year Peak February European gas contract: Above 140 euros - Referenced as the key winter pricing benchmark Next winter European gas contract: Above 130 euros - Used to show the market still prices significant winter risk Demand reduction in Europe: 15% to 17% - Estimate of reduced natural gas demand due to conservation and mild weather Supply decline into Europe including Russia: Around 12% year-on-year - Compared with demand decline to explain inventory builds Commodity basket return year-to-date: 14% - Slide discussing representative commodity producers' performance U.S. inflation over past 20 years: Around 2% - Hansen's historical reference point for underlying inflation Potential future U.S. inflation: At least 4% plus - Hansen's structural inflation outlook for the next decade Backwardation roll yield on heating oil: More than 25% - Slide 7/8 discussion of futures curve shape and investor carry Backwardation roll yield on gas oil in Europe: More than 15% - Investor return from positive roll yield Backwardation roll yield on RBOB gasoline: More than 20% - Investor return from positive roll yield Bloomberg Commodity Index ETF 5-year return: 39% - Compared with spot index to show contango drag Bloomberg Commodity Spot Index 5-year return: 55% - Illustrates difference caused by negative roll yield Bloomberg Commodity Index ETF 1-year return: 6.6% - Compared with flat spot index in a backwardated market Gold year-to-date move: Down close to 10% - Dollar-based performance cited in the interview U.S. 10-year breakeven inflation: About 2.5% - Used to argue the market is underpricing long-term inflation Potentially needed annual oil replacement: 5 to 8 million barrels - Hansen’s estimate for maintaining status quo supply OPEC+ cut announced: 2 million barrels/day - Discussed in the energy section Effective OPEC+ cut estimate: Around 1.2 million barrels/day - Speaker estimate of the realized reduction SP 500 retracement level reached: 3,900 - Patrick notes the rebound has reached a typical retracement target Dollar index key level: 110 - Eric and Patrick discuss whether the dollar has put in a short-term high Gold key upside level: $1,700 - Patrick says a sustained break could attract more momentum flows Silver key upside level: $20 - Patrick mentions this as another threshold for bullish confirmation Copper key resistance: $4.00 - Hansen and Eric identify this as a decisive level for renewed bullish conviction Copper correction low referenced: 3.14 - Technical base discussed in relation to a symmetrical triangle

Pivotal Quotes: "We can have a recession and high commodity price at the same time." — Ola Hansen: Core thesis on inflation and supply constraints "The world has changed." — Ola Hansen: Used to explain de-globalization, geopolitical fragmentation, and structural commodity demand "We are at the very early stages of a global energy crisis." — Eric Townsend: Eric’s summary view in the energy discussion

Implications: Listeners should view commodities as a strategic long-term allocation, not just a recession hedge. Tight supply, underinvestment, and structural inflation could keep prices elevated even in slower growth, while dollar/yield turns and backwardation may create attractive entry points.