MacroVoices #373 Ole Hansen: Commodities Update

Episode Summary

Executive Summary: Macro Voices episode 373 centers on Ola Hansen’s bullish long-term commodity thesis amid a confusing macro backdrop of shifting rate expectations, sticky inflation, deglobalization, and energy-transition demand. Short-term weakness in crude, copper, and broader markets reflects positioning and cyclical risks, but the guests argue structural tightness, backwardation, and recessionary buying opportunities could set up major long-term entries in energy, metals, and agriculture.

Main Topics: Interest rates, inflation, and the macro backdrop (Priority: 5/5): Hansen argues U.S. rate expectations have whipsawed sharply and that inflation is likely to settle above the market’s 2.5% assumption, closer to 3%-4%, supporting commodities over time. Structural commodity bull market drivers (Priority: 5/5): The discussion links commodities to deglobalization, reshoring/friendshoring, the war in Ukraine, energy transition demand, and supply-side constraints from rising production costs and declining ore quality. China reopening and uneven commodity demand (Priority: 4/5): Both speakers note China’s recovery has been less commodity-intensive than prior cycles, tempering expectations for an immediate surge in oil and industrial metal demand. Contango, backwardation, and investment returns (Priority: 5/5): Hansen explains futures-curve structure and why backwardation is supportive for commodity investors, while contango erodes ETF performance through negative roll yield. Crude oil positioning, OPEC cuts, and refinery margins (Priority: 5/5): Crude is presented as short-term vulnerable after a sharp rally and OPEC-induced gap-up; collapsing refinery margins and potential demand softening could pressure prices before a longer-term recovery. Copper, uranium, and the energy transition (Priority: 4/5): Hansen and Townsend frame copper as a long-duration scarcity story, with mining supply challenges and M&A activity reflecting anticipated deficits for electrification and decarbonization. Gold and agricultural commodities (Priority: 4/5): Gold is supported by weaker real yields, central-bank buying, and a weaker dollar, while agriculture faces weather-driven upside risks, especially in softs and potentially grains.

Key Arguments: The market’s rate path has swung from hikes to cuts and back again, creating confusion, but Hansen expects inflation to remain structurally above target and supportive for hard assets. Commodity prices are being driven not only by demand but by supply-side fragility from deglobalization, geopolitics, and underinvestment. China’s recovery is happening, but it is more services- and less materials-intensive than prior reopenings, reducing the immediate commodity impulse. Backwardation remains a positive signal for commodities because it indicates tight nearby supply and improves returns for passive investors via positive roll yield. Crude oil’s near-term setup is fragile because speculative positioning became crowded after the OPEC cut, refinery margins collapsed, and the market may retest lower support. Natural gas prices in the U.S. remain unusually low versus Europe/Asia; Hansen expects eventual convergence, but not necessarily at current U.S. levels. Copper’s long-term bull case is driven by electrification and constrained mine supply, but the trade may stay range-bound until later in the year. Gold’s bull case rests on weaker real yields, lower dollar support, and persistent central-bank demand rather than a single crisis event. Agricultural commodities, especially softs and potentially grains, face upside risk from low inventories and weather volatility.

Data Points: S&P 500 weekly change: -2.4% - Macro scoreboard at the close of April 26, 2023; SPX closed at 4,076. US dollar index weekly change: -0.1% - Macro scoreboard; DXY closed at 101.84. June WTI crude weekly change: -6.2% - Macro scoreboard; June WTI closed at 74.30. Gold weekly change: -0.5% - Macro scoreboard; gold closed at 1,996. Copper weekly change: -5.6% - Macro scoreboard; copper closed at 385 (cents/lb implied by context). Uranium weekly change: +1.8% - Macro scoreboard; uranium closed at 5,210. US 10-year Treasury yield: 3.45% - Macro scoreboard; yield down 14 bps on the week. EIA crude inventory change: -5.1 million barrels - Post-game discussion for the week ending April 26, 2023. SPR release implied in inventory math: 1.0 million barrels - Eric noted the draw would be 6.1 million barrels after accounting for another Biden administration SPR release. Gasoline inventory change: -2.4 million barrels - EIA weekly data discussed in post-game. Distillate inventory change: -576,000 barrels - EIA weekly data discussed in post-game. Cushing crude inventory change: +319,000 barrels - Only build on the EIA board in the post-game segment. U.S. production: 12.2 million barrels/day - EIA weekly data; down 100,000 barrels/day. WTI support levels discussed: 73.66 and 72.68 - Post-game technical levels after the gap fill and reversal attempt. SPX support/resistance levels discussed: 4,000 support; 4,300 call wall - Post-game options and technical discussion. SPX implied move for May 19 OpEx: 120 points - Nick’s options-market rundown; roughly 4,180 up / 3,940 down from ~4,060. Gold resistance: 2,080 - All-time high from 2020 referenced repeatedly in the gold discussion. Copper spot area: around $4/lb - Technical discussion in both feature interview and post-game. U.S. LNG export capacity: ~15 billion cubic feet/day - Hansen noted current LNG exports are far above 2019 levels. U.S. natural gas price: just above $2 - Hansen contrasted low U.S. gas with European/Asian gas around $13. European/Asian gas price: around $13 - Used to illustrate the still-large transatlantic/Asia pricing gap. Central bank gold demand: record level last year - Hansen cited official-sector buying as a key gold support. Gold ETF return examples: 53% spot vs 22% with roll yield; 7% spot vs 16% ETF in backwardation - Hansen explained contango/backwardation effects over 2017-2021 and last year. Wheat positioning: most shorted of major commodity futures - Hansen noted wheat was heavily shorted by speculators. Sugar price level: highest since 2011 - Hansen cited strong gains in soft commodities. Natural gas price reference in the U.S.: $2.20 - Hansen said convergence with Europe would need higher U.S. prices than current levels.

Pivotal Quotes: "The curve rarely lies, and right now, the curve is telling us that the market remains tight." — Ola Hansen: Explaining why backwardation matters more than spot-price weakness for commodity investors. "I think the long-awaited recession is finally going to hit the stage sometime this year." — Eric Townsend: Eric laying out his bearish macro view and why he is building a commodity shopping list for the eventual bottom. "If you're not confused, you're not paying attention." — John Hardy (referenced by Ola Hansen): Title of Saxo’s daily podcast used to describe the current macro and market environment.

Implications: Listeners should expect near-term volatility and possible downside in crude, copper, and equities, but the interview argues for patience: structural inflation, constrained supply, and backwardation could make recession lows attractive entry points for energy, metals, and select agriculture.