Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Copper Is Surging While Oil Tanks on Iran Truce
Transcript
- Lucas: So oil is below 70 bucks a barrel for the first time since May, and copper is up almost five percent in a week. If someone told you that was the same market on the same day, you'd probably ask what planet you're on. Luna: It's a pretty dramatic split. WTI crude closed yesterday at 69.93, down about 0.6 percent on the week. Meanwhile copper — high-grade copper futures — hit 6.22 a pound, up 4.6 percent over the same five days. Lucas: And the trigger for oil's move was actually a headline that would normally send crude spiking: fresh U.S.-Iran clashes over the weekend. But then, almost as quickly, both sides paused hostilities, shipping through the Strait of Hormuz resumed, and the market just… exhaled. Luna: Right — that's the part that feels weird. A weekend of clashes in the Strait of Hormuz, and oil is down? Usually that's a five-dollar jump overnight. Lucas: Exactly. But look at the context. The market has been pricing in a pretty high risk premium for months — each new escalation in the Middle East added a few bucks to the barrel. By Friday, a lot of that was already baked in. So when the ceasefire actually held — even temporarily — the premium got stripped out fast. Luna: And then there's the demand side. The 10-year breakeven inflation rate fell to 2.20 percent last week, down from 2.21. That's a whisper, but it signals that bond traders think inflation pressure is easing, which usually means weaker oil demand ahead. Lucas: Plus the May CPI print came in at 334.0, up from 332.41 — that's about 0.5 percent month-over-month, which is actually a tick lower than the prior month's pace. So the inflation narrative is softening, and oil is caught in that downdraft. Luna: But copper is going the other way. That's the puzzle. If inflation is cooling and demand is softening, why is the red metal ripping higher? Lucas: Because copper isn't just a commodity anymore — it's a technology metal. And it's getting pulled by forces that oil doesn't benefit from. Chinese stimulus is one. Over the past two weeks, Beijing announced new infrastructure spending and looser property-buying rules in several cities. That's pure copper demand. Luna: And then there's the AI data-center buildout. Every new data center needs massive amounts of copper for wiring, grounding, and cooling systems. I saw a report last week that a single large-scale data center can consume up to 8,000 tons of copper. Lucas: Eight thousand tons. And we're building dozens of these a year now, globally. That's structural demand that has nothing to do with the business cycle. Oil, on the other hand, is still a cyclical fuel — tied to miles driven and jet fuel burned. AI doesn't help oil much. Luna: So copper is getting a double boost: short-term Chinese stimulus and long-term tech buildout. Oil is getting a double hit: fading geopolitical risk and cooling demand expectations. Lucas: Exactly. And it shows up in the flows. Look at the XLE — the energy sector ETF — it's down 0.4 percent on the week. ExxonMobil and Chevron both fell over a percent. Meanwhile, copper miners like Freeport-McMoRan are up. The money is rotating. Luna: It also tells you something about how markets are viewing the 'energy transition' narrative right now. Oil is still needed, but the growth story is elsewhere. Copper sits at the intersection of everything being built: EVs, solar farms, transformers, transmission lines. Lucas: And yet, it's not a straight line. Copper is still volatile. It fell 11 percent back in April when the macro fears spiked. But the rallies are getting bigger and the dips are getting bought faster. That's a bull market pattern. Luna: I want to come back to that inflation point. The breakeven rate falling to 2.20 — that's almost exactly where the Fed wants it. But copper prices going up is usually inflationary. So the bond market is basically saying 'we don't believe copper's rally is going to stick.' Lucas: That's the tension. Copper is surging, but long-term inflation expectations are falling. One of them is wrong. Either copper is about to roll over, or bond traders are underestimating the commodity cycle. My bet is on the latter — but only if the Chinese stimulus actually translates to real demand, not just speculative buying. Luna: And the Iran situation is far from resolved. The ceasefire is fragile. If hostilities resume, oil could spike back above 75 quickly, and copper might get caught in a risk-off move. But for now, the market is betting on détente. Lucas: It's a fascinating moment because you've got two commodities telling completely different stories about the world. Oil says 'the world is slowing down and geopolitics are manageable.' Copper says 'the world is building like crazy and supply can't keep up.' Luna: Which story do you find more convincing? Lucas: I think copper's story has more structural weight behind it. Oil's demand peak might still be a decade away, but the growth rate is declining. Copper's demand pool is expanding. But in the short term, oil could easily snap back if the Middle East flares up again. It's a coin flip. Luna: Seems like a good moment to be paying attention. And if you've been listening to these episodes and feel like you're getting a clearer picture of how these markets fit together — honestly, if today's show was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Lucas: It genuinely helps. No pressure, no perks. Just a way for listeners who find value here to keep us ad-free and focused on the data. Luna: Alright, back to the divergence. One more thing I want to touch on: natural gas. It's actually up 1.5 percent on the week, which is interesting given that oil is down. Lucas: Yeah, nat gas is its own animal right now. Putin said yesterday that Russia is facing fuel shortages after Ukrainian drone strikes. That's tightening the European gas market again. And here in the U.S., we're coming into summer cooling season, which drives power-burn demand. Nat gas doesn't care about Hormuz. Luna: So we've got three different narratives: oil driven by geopolitics and demand fears, copper driven by stimulus and tech, nat gas driven by supply disruption and weather. That's a lot for one market to process. Lucas: It is. And if you're a commodity investor right now, you can't just buy the index and hope. You have to pick your spots. The days of 'commodities go up together' are over — at least for now. Luna: We'll be watching copper especially. If it breaks above 6.30, that's a new high for the year. And if oil breaks below 68, that's a new low since January. Lucas: Two very different levels to watch. Let's see which story wins by Friday.