Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Copper Is Rising While Oil Plummets
Transcript
- Lucas: If you’re looking at the commodity charts right now, specifically on September twenty third of two thousand twenty six, you are going to see something that feels almost contradictory. Crude oil is down sharply, with West Texas Intermediate falling nearly eight percent over just the last five days, yet copper is climbing, up two point six percent in that same window. Luna: Right, and gold is sliding too, which usually happens when risk appetite cools, so why is copper bucking that trend? It feels like we are watching two different economies operating simultaneously. Lucas: Exactly. The narrative has been that weaker oil demand signals a slowing global economy, which should drag everything down. But copper doesn’t care about your weekly commute or airline tickets; it cares about electrification, grid expansion, and industrial production. The disconnect here is actually quite revealing about where the real pressure points are. Luna: So you are saying the oil drop is driving the macro fear, but the copper rise is showing underlying structural strength? Lucas: Precisely. Let’s look at the numbers. We have Brent crude sitting around ninety eight dollars a barrel, down five point four percent, and WTI at ninety two seventy. That is a significant correction, likely driven by concerns about global growth and potentially softer demand from China. But copper is trading at levels that suggest miners are struggling to keep up with long-term infrastructure needs. Luna: It’s interesting because usually, when oil drops, it drags the entire commodity complex down with it, especially in the short term. Lucas: It does, but not always equally. Think about the supply side. We’ve seen persistent disruptions in major copper-producing regions, particularly in South America, where labor strikes and water shortages have constrained output for months. Meanwhile, the demand side for copper is tied to things like renewable energy infrastructure and electric vehicle manufacturing, which are less sensitive to short-term oil price fluctuations. Luna: So while everyone is panicking about gas prices, the people building the future are still buying copper regardless of what diesel costs? Lucas: That’s a fair way to put it. And if you look at the broader market, the ten-year breakeven inflation rate is up slightly to two point three five percent, suggesting that investors aren’t entirely convinced that deflation is coming. They might be pricing in sticky core services inflation, which keeps the dollar relatively stable and supports hard assets like copper. Luna: But isn’t there a risk that if the economy slows enough, industrial demand will collapse anyway, dragging copper down with it? Lucas: There is always that risk, but the current data suggests a bifurcation. The CPI is at three hundred thirty four point one, up from three hundred thirty two point eight in August, and core PCE is also ticking up. This indicates that the economy isn’t crashing; it’s just becoming more expensive to produce things. And when production costs rise, commodity prices tend to follow, especially for inputs that can’t be easily substituted. Luna: It sounds like we are seeing a classic case of supply constraint overriding demand weakness in a specific sector. Lucas: I think so. And consider the geopolitical angle. With tensions between the U.S. and China still high, particularly regarding technology and trade barriers, any disruption in Chinese imports or exports can ripple through the metal markets. China is the largest consumer of copper, and any hesitation there due to policy uncertainty can create immediate tightness in the global spot market. Luna: And that tightness is exactly why copper is rising even as oil falls, right? Because the physical shortage is real, not just speculative. Lucas: Absolutely. Speculation plays a role, but the fundamental mismatch between mine supply and refinery demand is the driver. We’ve heard reports of smelters cutting back because they can’t get enough concentrate, which forces them to bid up prices to secure supply. It’s a bottleneck problem, not a demand problem. Luna: So if you were an investor trying to hedge against this kind of fragmentation, would you look at copper over oil? Lucas: If you believe that the transition to green energy is inevitable and that supply chains will remain constrained, then yes. Oil is cyclical and sensitive to short-term shocks, but copper is structural. You can’t build a solar panel or a wind turbine without copper, and those projects are funded years in advance, providing a floor for demand. Luna: It’s reassuring to know that not all commodities are moving in lockstep with the broader equity market sell-off. Lucas: It is. And honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. It helps keep these deep dives possible without cluttering the show with ads. Luna: Yeah, we appreciate the support. It lets us dig into the data like this without rushing. Lucas: Back to the divergence. Another factor to consider is the US dollar. Since the dollar has been relatively strong, one might expect commodities priced in dollars to fall. But copper has held its ground, which implies that the buying pressure from industrial users is strong enough to offset currency headwinds. Luna: That’s a powerful signal. It means buyers are willing to pay a premium even when their currency is weaker. Lucas: Exactly. And look at the inventory levels. LME copper stocks have been hovering near multi-year lows, which is a clear indicator of tightness. When inventories are low, any unexpected surge in demand or further supply disruption can cause prices to spike quickly. Luna: So we are walking a fine line where a small change in supply could have a large impact on price. Lucas: Yes. And unlike oil, where storage is relatively easy and flexible, copper is harder to store and move. It’s a bulky, heavy metal with high shipping costs. So when supply chains tighten, the friction is felt immediately in the price. Luna: It makes sense. The logistics alone create a barrier that oil doesn't face to the same extent. Lucas: Right. And let’s not forget the role of recycling. As primary mine supply struggles, secondary supply from scrap becomes more valuable. But recycling takes time to scale, and in the short term, it can’t fill the gap left by reduced mining output. Luna: So the market is essentially paying for patience, waiting for new mines to come online or old ones to ramp up production. Lucas: That’s a good way to frame it. New mines take seven to ten years to bring online, and many projects have been delayed by regulatory hurdles and community opposition. So the supply response is very slow, leaving the market exposed to current deficits. Luna: It’s a classic case of inelastic supply meeting steady demand, which is a recipe for higher prices. Lucas: Precisely. And this dynamic is likely to persist until we see significant new capacity come online, which isn’t expected for several years. In the meantime, the divergence between oil and copper will likely continue to confuse observers who are looking at the wrong indicators. Luna: So the lesson is not to assume that all commodities tell the same story about the health of the global economy. Lucas: No, definitely not. Each commodity has its own drivers, and mixing them up can lead to bad decisions. Oil tells us about energy consumption and travel. Copper tells us about industrial investment and technological adoption. They are related, but they are not the same thing. Luna: It’s a reminder to look deeper than the headline numbers and understand the specific mechanics of each market. Lucas: Exactly. And as we head into the rest of the quarter, keeping an eye on copper inventories and mining output data might give us a clearer picture of where the real economic momentum is, regardless of what’s happening in the energy sector. Luna: I think that’s a smart approach. Following the physical constraints rather than just the financial sentiment. Lucas: Well said. It’s easy to get distracted by the noise, but the quiet moves in the raw material markets often speak the loudest about where the world is heading. Luna: Agreed. Let’s see if that structural tightness holds up as we move forward.