Volatility is rife in the commodity sector at present with crude oil rallying 50% while iron ore has halved all in the matter of a few weeks, elastic bands as we like to say are becoming stretched but there are some major fundamental forces at play with China front and center:
- China’s experiencing an energy crisis which has seen nationwide blackouts and production lines shutdown, suddenly as they aim for zero emission Beijing intends to mine more coal this year than last in an effort to quell the disruption.
- On the bearish side of the ledger is China Evergrande’s collapse which will curtail apartment construction significantly reducing the demand for related materials such as iron ore.
The transition to a clean world is likely to be harder than many anticipate / hope as Chinas currently demonstrating which will lead to plenty of spikes in supply & demands across the fossil fuels space in the years ahead as shortages lead to increased supply when lifestyles are threatened i.e. a balancing act between practicality and ideology. Crude oil is now trading at multi-year highs and although the “easy money” is behind us MM sees no reason to change our positive outlook at this point in time.
MM remains bullish crude oil
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