Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Copper Is Falling While Oil Surges
Transcript
- Lucas: If you look at the commodities desk right now, you're seeing two very different stories fighting for attention. Oil is up nearly six percent over just the last five days, pushing crude toward one hundred and two dollars a barrel, while copper has dropped more than six percent in that same window. Luna: That feels like a classic divergence, but given where we are with interest rates, it’s actually signaling something much darker for industrial demand. Lucas: Exactly. And the timing matters because we’re looking at a ten-year Treasury yield that briefly touched five percent this week. When borrowing costs go up, construction projects get delayed, and factories hesitate to expand capacity. That hits copper first because it’s the metal of expansion, not just consumption. Luna: Right, so oil is reacting to geopolitical fear or supply shocks, but copper is reacting to the cost of money? Lucas: Precisely. And here’s the thing most people miss: oil is an input cost, but copper is a leading indicator of growth. If investors think the global economy is slowing down enough to break the green transition timeline, they sell copper before they sell anything else. It’s the canary in the coal mine for electrification. Luna: But wait, isn't the green transition supposed to be immune to interest rates? Electric vehicles and grid upgrades are mandatory, aren't they? Lucas: They’re mandatory in theory, but in practice, they rely on capital expenditure. Look at the core CPI, which is sitting at three hundred and thirty-seven point eight. Inflation is sticky, wages are rising, and companies are facing higher financing costs for every new factory or wind farm. They’re stretching their budgets. Luna: So you’re saying the green transition isn't stopping, but it’s slowing down because the money to build it is getting more expensive? Lucas: It’s not just slowing, it’s being rationed. We’ve seen utility companies pause major grid upgrade plans when their bond yields spike. Every basis point increase in the ten-year Treasury makes those long-term projects less viable on paper. So you get a dip in copper demand, even if the end goal hasn't changed. Luna: That’s a brutal way to put it—rationing the future because the present is too expensive. But does that explain why oil is going the other way? Lucas: Yes, because oil doesn’t care about your interest rate. Oil cares about physical availability and immediate fear. Crude is at one hundred and two dollars because traders are pricing in potential supply disruptions, maybe from OPEC cuts or geopolitical tension in key shipping lanes. It’s a spot market panic, not a long-term investment calculation. Luna: So oil is driven by fear of running out, and copper is driven by fear of paying for it? Lucas: That’s a really clean way to frame it. Fear of scarcity versus fear of cost. And that distinction is critical for anyone trying to hedge their portfolio right now. You can’t use these two assets as proxies for each other anymore. Luna: I’d add that gold is also behaving strangely here, down nearly two percent despite all this uncertainty. Usually, when things get shaky, people run to gold. Lucas: Gold is under pressure because of that five percent yield on Treasuries. When safe assets pay you five percent, holding a non-yielding asset like gold becomes less attractive unless inflation is exploding. And our data shows core PCE is only up a tiny fraction, so inflation isn’t out of control—it’s just stubborn. Luna: Stubborn inflation with high rates creates a perfect storm for industrial metals. It squeezes margins from both sides. Lucas: It does. And let’s talk about the specific numbers for a second. Copper is trading around sixty-three dollars an ounce, down significantly. Meanwhile, silver is also sliding, down over six percent. The entire base metals complex is getting hit by the strong dollar and high yields. Luna: But what about the AI angle? Aren't data centers eating up massive amounts of copper for wiring and cooling systems? Lucas: That’s the counter-argument, isn’t it? AI infrastructure needs power, and power needs grids, and grids need copper. Nvidia and other tech giants are investing heavily. But here’s the catch: those investments are long-term capex. They don’t show up in monthly commodity volumes immediately. The current copper slump is reflecting near-term industrial weakness, not long-term tech demand. Luna: So there’s a lag between the announcement of a new data center and the actual delivery of tons of copper to the site? Lucas: A significant lag. Construction takes years. By the time those data centers are drawing power, we might see copper rebound. But right now, the market is pricing in a soft landing that involves less industrial activity overall. It’s a disconnect between the hype cycle of AI and the reality cycle of manufacturing. Luna: Which means investors who are buying copper futures thinking about AI are probably confused about the timeline. Lucas: Exactly. They’re buying the story instead of the stats. And the stats right now say that global PMI data is weak, particularly in Europe and parts of Asia. Manufacturing output is contracting, which directly reduces copper consumption. You can’t have an AI boom without a functioning industrial base, and that base is currently cooling off. Luna: It’s interesting how oil is ignoring that cooling. If manufacturing slows, shouldn't oil demand drop too? Lucas: Not necessarily, because oil demand is split. Industrial oil is part of that manufacturing slowdown, but consumer oil—air travel, shipping, petrochemicals—is still relatively robust. People are still flying, still driving. The geopolitical premium on oil is masking any underlying demand weakness in the broader economy. Luna: So oil is riding a wave of fear and constant usage, while copper is falling because no one wants to build new factories right now? Lucas: That’s the gist. And it highlights why diversification within commodities is so important. If you were just betting on 'raw materials go up,' you’d be losing money on half your positions today. You have to understand the driver behind each asset. Luna: One quick question on the Fed side—if they do hike rates next week as expected, won't that crush copper even further? Lucas: It likely will, in the short term. A rate hike strengthens the dollar, and since commodities are priced in dollars, they become more expensive for foreign buyers. That reduces demand globally. So we could see copper test lower levels before the ai driven demand eventually kicks in, assuming the global economy doesn’t enter a deeper recession. Luna: So it’s a waiting game. Wait for the rates to stabilize, wait for the construction to start, then watch copper climb back up. Lucas: Or wait for the geopolitical situation to shift again. Oil is a volatile beast. It could crash just as easily as it surged. But copper is telling us about the health of the real economy, and right now, that health check is coming back slightly negative. Luna: It’s a reminder that while headlines scream about AI and energy crises, the quiet pullback in industrial metals might be the more reliable signal for where business is actually heading this quarter. Lucas: Absolutely. Keep your eyes on the cost of capital, not just the cost of fuel. One tells you what it costs to grow, and the other tells you what it costs to move. Right now, growing is the harder part. Luna: And for those of you who stick with us through these deep dives, we want to keep this ad-free and independent. Lucas: We don’t take ads, so a small group of listeners supports us monthly through buy me a coffee dot com slash fexingo, which covers the production costs and keeps the research sharp. Luna: If that value resonates with you, checking out that page is a great way to help us keep bringing you these detailed market breakdowns every single day. Lucas: Thanks for listening. I’ll leave you with this: when the markets are noisy, remember that oil screams, but copper whispers. And sometimes, the whisper is the one that predicts the future.