Commodity weakness is a buying opportunity

Abraham George Macro View

The Fed continues to emphasize that the risks to the economy are skewed to the downside. This fuels the markets more to the upside. As the market becomes more bold and concludes that there is no interest rate hikes any time in the future. What has really taken a beating is the commodities minus gold. The CRB Index which tracks a broad basket of commodities was down about 5% from about 10 days ago. The high flyer in commodities, copper, was down to the tune of 8% and oil was also hard hit.

Oil had almost doubled since Election Day but it has found it hard to break the $67 to $68. Energy stocks have been one of the biggest winners of the year from a sector perspective. The news of last week was negative for oil prices. And it had all to do with supply. There were rumors that the US may lift sanctions on Iranian oil exports. Then Biden waived sanctions on a Russian pipeline company working in Europe.

The globally coordinated ‘clean energy revolution’ promotes higher oil prices, not lower. That’s the structural driver for oil prices. Any funding for new exploration has been choked off. So, foreign oil producers who don’t play by the rules will be the big beneficiaries. These producers will command and demand higher prices, especially in a less competitive lower supply world. So these dips that you get in oil and copper are good opportunities to buy again.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.