Commodities

Brent crude oil has already rallied 19% in 2024, creating a tailwind for the Energy Sector while at the same time concerning economists that inflation will prove more challenging to vanquish as the influence of higher fuel costs rolls through the global economy. Interestingly, the advance by oil hasn’t been accompanied by many bulls, and with the potential conflict between Israel and Iran increasing, supply concerns are likely to remain elevated for some time. However, the recent supply disruptions are more widespread than just in the Middle East:

• Mexico’s recent move to slash its crude exports has compounded the global squeeze, prompting refiners in the US, the world’s biggest oil producer, to consume more domestic oil.
• American sanctions have left Russian cargoes stranded at sea, with Venezuela supply a potential next target.
• Plus, Houthi rebel attacks on tankers in the Red Sea have delayed several crude shipments.

The Goliath in the room, OPEC+ and its allies, have so far stuck with their production cuts, making a test of $US100 look increasingly likely. Coincidentally, crude’s rally has stalled the Biden administration’s plans to refill emergency US oil reserves, which reached a 40-year low after Russia invaded Ukraine – not a great election backdrop for the incumbent President with food and energy prices remaining high.

• We can see crude oil re-testing $US100 in the coming months as geopolitical tensions rise in the Middle East.

The copper bulls, of which MM is one, have got the bit between their teeth after last week’s 5.7% surge higher. “Dr Copper” powered ahead last week after Jerome Powell reaffirmed his view that it would be appropriate to start lowering borrowing costs at some point this year, which, by definition, should help economic growth and the copper price. The industrial metal has advanced over 15% from its recent February low, and we feel its journey has just begun as Chinese smelters move closer to implementing output cuts.

• We are bullish on copper, encouraged by last week’s breakout to fresh 14-month highs.