MacroVoices #420 Ole Hansen: Green Shoots in The Commodity Markets

Episode Summary

Executive Summary: Macro Voices episode 420 centers on Ola Hansen’s bullish-but-selective commodity outlook for 2024: broad green shoots are emerging across commodities, led by gold, copper, cocoa, and natural gas, while crude oil and uranium are constructive but still consolidation-prone. The discussion emphasizes supply constraints, backwardation, rate-cut expectations, and the return of momentum as the key forces shaping the sector.

Main Topics: Broad Commodity Turnaround (Priority: 5/5): Ola argues the commodity complex has been bottoming for about a year and is now showing broader strength across precious metals, industrial metals, energy, and select softs/agricultural markets. He sees technical breakout signs and renewed fund interest. Cocoa Supply Shock and Backwardation (Priority: 5/5): Cocoa is highlighted as the most extreme rally, driven by West African supply shortages, poor weather, aging trees, and producer hedging dynamics rather than pure speculation. The front-end squeeze and steep backwardation make the market extremely tight. Natural Gas Rebalancing (Priority: 4/5): U.S. natural gas is discussed as a market finally curbing oversupply through producer cuts and LNG export growth. Ola sees the market moving toward a defended floor near $1.50, but not a repeat of Europe’s 2022 price shock. Gold Breakout and Rate-Cut Link (Priority: 5/5): Gold’s rapid move to all-time highs is attributed to technical momentum, strong physical demand (especially China), central-bank buying, and aggressive futures buying by hedge funds. Longer-term upside depends on actual Fed easing. Copper and Energy Transition Metals (Priority: 4/5): Copper’s rally is tied to tightening supply, weak smelter economics in China, and production downgrades. Lithium and other energy-transition metals are also stabilizing as producers cut output after severe price declines. Crude Oil: Bullish Breakout, Limited Upside Conviction (Priority: 4/5): Oil has broken above $80 on draws, OPEC+ tightness, and geopolitical risks, but both Ola and the post-game analysis remain cautious because rising spare capacity may cap the rally unless tensions escalate further. Positioning, Backwardation, and Commodity Returns (Priority: 5/5): A key educational theme is how backwardation improves investor returns via positive roll yield, while contango erodes performance. The segment explains why commodity indices can differ sharply from spot-price moves and why positioning matters.

Key Arguments: Commodity markets are moving from a prolonged downtrend into a broader recovery, with technical breakouts increasingly supported by supply-side tightening. The catalyst for the current commodity strength is a mix of supply cuts, weather shocks, destocking reversing, and rising expectations for eventual Fed rate cuts. Cocoa’s rally is fundamentally supply-driven, not just speculative; hedge funds were net sellers while commercial users covered shorts due to missing supply. Natural gas is likely to firm as producers cut output and LNG exports absorb supply, but Europe is less vulnerable than in 2022 because infrastructure and storage have improved. Gold’s breakout may be early and momentum-driven rather than a fully mature fundamental bull market; the next major leg higher likely requires confirmed Fed easing. Copper is benefiting from production shortfalls, especially in China’s refining sector, where treatment charges fell near zero and smelters are now curbing output. Crude oil’s breakout above $80 is real, but upside may be constrained by growing spare capacity; geopolitical shocks remain the main route to a much higher price regime. Backwardation is a major hidden tailwind for commodity investors because roll yield can materially improve returns versus spot price changes alone.

Data Points: Macro Voices episode: 420 - Episode identifier Production date: March 21, 2024 - Episode production date S&P 500 June futures: up 103 bps to 5286 - Weekly macro scoreboard U.S. dollar index: up 56 bps to 103.37 - Weekly macro scoreboard WTI crude oil (May contract): up 248 bps to 81.27 - Weekly macro scoreboard RBOB gasoline (May): up 264 bps to 272 - Weekly macro scoreboard Gold (April contract): up 37 bps to 2189 - Weekly macro scoreboard Copper: down 25 bps to 405 - Weekly macro scoreboard Uranium: up 650 bps to 88.50 - Weekly macro scoreboard U.S. 10-year Treasury yield: up 8 bps to 4.27 - Weekly macro scoreboard Cocoa front contract: above $8,000/ton - Front-end futures during the rally Cocoa next-year May 2025 contract: around $5,000/ton - Shows steep backwardation and supply tightness Cocoa backwardation: about 35% - Difference between front and next-year contracts West African cocoa production: down close to one-third - Supply shortfall driving cocoa prices Natural gas storage: around 35% above the five-year average - U.S. gas inventory overhang European gas price peak (2022): about 350 euros/MWh - Contrast with current sub-30 levels Current European gas price: below 30 euros/MWh - Illustrates post-crisis normalization Gold hedge fund buying: 250 tons in two reporting weeks - Weekly COT-driven futures demand surge Fed cuts priced by July: about 1 cut - SOFR futures / rate expectations Fed cuts priced by December: less than 3 cuts - SOFR futures / rate expectations Gold near-term target: 2300 - Suggested upside target in the interview and post-game Gold longer-term target: 2500+ - Potential target if cuts materialize and the rally extends SPX spot level discussed: approximately 5,250 - Post-game options/market structure discussion SPX implied move for Apr. 19 OPEX: +/- 130 points - Post-game volatility estimate NASDAQ/QQQ spot level discussed: approximately 446 - Post-game options/market structure discussion VIX level: approximately 13 - Post-game volatility discussion Crude oil U.S. production: 13.1 million barrels/day - EIA weekly inventory discussion U.S. crude inventory change: down 2.0 million barrels - EIA weekly inventory data Gasoline inventory change: down 3.3 million barrels - EIA weekly inventory data Distillate inventory change: up 624,000 barrels - EIA weekly inventory data Net petroleum draw: 4.6 million barrels - EIA weekly inventory data Cocoa trees / production geography: West Africa (Ghana, Ivory Coast) - Concentrated source of global cocoa supply Uranium spot price peak mentioned: about $105/lb - Recent speculative peak before correction

Pivotal Quotes: "We are seeing some green shoots starting to emerge." — Ola Hansen: Describing the early-stage recovery across commodity sectors "The market is taking quite a sanguine view on the current developments." — Ola Hansen: On natural gas and the lack of imminent European crisis risk "This is not happening overnight." — Ola Hansen: On uranium as a long-duration secular theme rather than a short-term trade

Implications: Listeners should view commodities as improving broadly but unevenly: supply shocks and rate-cut expectations are creating selective opportunities, while backwardation and positioning matter as much as price direction. Near-term rallies may persist, but many markets remain vulnerable to volatility and retracement.