Why the ‘great de-stocking’ in oil and commodities could pave the way for future gains

Episode Summary

Executive Summary: Jeff Curry argues that oil and broader commodities have been weak because of unprecedented physical and financial destocking driven by higher rates and recession fears, not because demand has collapsed. He remains bullish on oil, copper, and European gas, seeing tightening fundamentals, OPEC discipline, and eventual short-covering as catalysts for a strong rebound into late 2023 and early 2024.

Main Topics: The Great Destocking in commodities (Priority: 5/5): Curry says the main driver of lower prices is inventory drawdown across physical barrels, metals, and paper positions, caused by higher interest rates, volatility, and recession fear. He argues this cannot continue indefinitely because inventories eventually hit a floor. Oil demand remains resilient despite weak prices (Priority: 5/5): He contends oil demand is holding up, with no clear recession signal and global oil demand having reached an all-time high in March. He frames recent weakness as positioning and inventory dynamics rather than a true demand collapse. China: producer rebound vs. slower consumer repair (Priority: 4/5): Curry distinguishes between China’s fast-moving producers and slower-recovering consumers. He says April weakness was largely a producer/margin issue and that China’s weaker property market does not invalidate the more important green capex demand thesis for metals. Supply discipline from OPEC and constrained non-OPEC growth (Priority: 5/5): He argues that supply growth is limited by underinvestment outside OPEC, making core OPEC and especially Saudi Arabia/UAE the key swing producers. He expects Russia and OPEC+ to maintain cuts and avoid a price war. European natural gas remains structurally tight (Priority: 4/5): Despite sharp price declines from last summer’s crisis peaks, Curry says Europe’s gas market is still short and vulnerable. Lower prices reflect warm weather, conservation, weak industrial demand, and absent Chinese LNG demand, but he expects a rebound. Gold, copper, and the macro hedge debate (Priority: 3/5): Gold has been supported by central-bank buying, while copper is framed as the most strategically important long-term commodity due to electrification and decarbonization. He says commodities are pricing too much recession risk and may serve as a hedge if growth surprises higher.

Key Arguments: Lower oil and commodity prices are mainly the result of unprecedented destocking, not a collapse in end-use demand. Higher interest rates and recession fears are discouraging both physical inventory holding and financial long positions. Oil demand is still near record levels; global demand data does not show a recessionary environment. Metals inventories, especially copper and aluminum, are near critical lows, supporting a bullish medium-term view. China’s weak property sector matters less than green capex for metals demand; consumer demand should normalize as incomes recover. OPEC+ has unusually strong compliance because non-OPEC supply growth is constrained and core OPEC now has more market power. Russian and Iranian sanctioned barrels have been released from storage, amplifying short-term supply and inventory effects. European gas prices have fallen, but the crisis is not over because the market remains structurally short and Chinese LNG demand should return. The oil market is priced as if a 2020-style recession is underway, which Curry считает overly pessimistic. If recession does not materialize, short positions should unwind and prices could rise sharply into year-end.

Data Points: Oil prices: about $75/bbl at the time of recording - Referenced as the current level versus Curry’s year-end target. Goldman Sachs oil target: $97/bbl by end-2023 - Curry’s base forecast for year-end oil prices. Oil move above $100: above $100/bbl in April 2024 - He expects further upside beyond year-end if fundamentals tighten. Oil demand: all-time high in March 2023 - Used to argue demand was not recessionary. Long positions liquidated: 250 million barrels of paper positions in 30 days - Evidence of financial destocking in oil markets. Strategic petroleum reserves discharged: 250 million barrels globally - France, U.S., and some China SPR draws since last March. Iranian floating storage drawn down: nearly 80% - He cites release of sanctioned barrels as part of physical destocking. Russian storage: floating storage being discharged - Additional supply reaching market through destocking channels. June oil market balance: 1.5 million barrels/day deficit - His second-half 2023 base case for the oil market. Consensus/IEA deficit view: about 2 million barrels/day deficit - Used to emphasize how large a recession would need to be to offset the deficit. China oil demand target: near 16 million barrels/day - He says current demand is close to forecast levels for this time in 2023. European gas price: 29 euros/MWh - Current price cited as far below last summer’s peak. European gas peak: over 300 euros/MWh last summer - Reference point for the scale of the decline. European gas outlook: 70 euros/MWh in summer; 95 euros/MWh next winter - Curry’s forecast for a re-tightening gas market. Gas conservation: 18% less gas per heating degree day - European consumers reduced consumption materially during the winter. Gold central-bank buying: 1,200 tons last year - He says central-bank demand is the strongest since Bretton Woods-era buying. Gold target: $2,050/oz - His forecast versus the then-current high-$1,900s price. Current gold level: around $2,000/oz since July 2020 - He notes gold has traded sideways for nearly three years. Probability of recession: 35% from Goldman economists vs. 55% in markets - He uses this gap to argue markets are too bearish on growth.

Pivotal Quotes: "It cannot go on forever. Eventually, you have nothing left to de-stock." — Jeff Curry: Explaining why the current inventory drawdown in oil and metals must eventually end. "The market is as short today as it was during COVID when prices went negative." — Jeff Curry: Describing how aggressively the oil market has priced in recession risk. "Rock is going to beat paper." — Jeff Curry: His closing metaphor that fundamentals will overpower recession-fear positioning.

Implications: If Curry is right, commodities are near a turning point: short positions may unwind, oil and gas could rally sharply, and under-owned metals like copper may outperform. For investors, commodities remain a hedge against upside inflation and growth surprises.