Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Copper Is Beating Oil in a Cooling Economy
Transcript
- Lucas: So copper is up nearly 3 percent over the last five days, and oil is down 10. And that gap tells you more about the economy than any single headline. Luna: That's a pretty stark divergence. I mean, you've got crude at 75 dollars, Brent near 79, and copper around 6.63 a pound. What's driving that? Lucas: Well, let's start with oil. The story there is mostly about supply. OPEC+ has been gradually raising output, and the market is finally believing it's going to stick. Plus those Iran de-escalation signals we talked about a few weeks ago have taken a lot of the risk premium out of the barrel. Luna: So the geopolitical fear is fading, and that's bringing prices down. Lucas: Exactly. And when you pair that with cooler inflation data — CPI came in lower again in June, and the ten-year breakeven is down to 2.23 — the market is also starting to price in a more dovish Fed, which is usually supportive for growth assets but less so for oil in the short term. Lucas: Copper, though, is playing a totally different game. It's not just about today's demand; it's about what the grid needs to look like in 2030. Electrification, data centers, EV chargers — none of that happens without copper. Luna: And copper's not just holding up; it's rallying. What's the fundamental driver there? Lucas: A couple things. One, China is back to restocking. Their PMI has been ticking up, and they're importing more copper concentrate. Two, there's a genuine supply constraint story — a lot of the big mines are getting older, and new projects are slow to come online. So even a modest uptick in demand pushes prices higher. Luna: So oil is caught in the short-term supply glut, and copper is looking at a structural demand boom. But how much of copper's move is actually about the economy versus just speculative flows? Lucas: That's a fair question. There's definitely a momentum component. But if you look at the fundamentals — like the inventory levels at LME warehouses, which have been drawn down significantly — there's a real physical tightening. It's not just paper trading. Luna: Hmm. So when copper and oil diverge like this, historically, what does that tell us about where the economy is heading? Lucas: Usually, it's a signal of a slowdown. Oil is more sensitive to immediate consumption, while copper tends to lead based on construction and industrial orders. But in this case, copper is doing the opposite of what you'd expect if the economy were falling apart. It's actually a sign that the market is betting on a soft landing, but with a twist. Luna: What's the twist? Lucas: The twist is that the 'landing' looks different from past cycles. The growth is coming from electrification and infrastructure rather than from consumer spending on big-ticket items. So even if the consumer gets tired, copper has its own engine. Luna: That's a nice segue, actually. Because I've been thinking about something while you were talking. We talk about these markets every day, and I'm always surprised that more people don't follow them. It's such a lens into the real economy. Lucas: Yeah, and that's part of why we love doing this. And honestly, a big reason we can keep making this show, day in and day out, is that a small group of listeners chips in a few dollars a month through buy me a coffee dot com slash fexingo. Luna: It's true. No ads, no sponsors, just people who find this useful and want to keep it going. It keeps us independent, which matters when you're talking about oil and copper. Lucas: So if you're one of those people, thanks. And if you're not, no pressure. But it does help. Now, back to that divergence — because I think there's another layer we haven't touched yet. Luna: Go on. Lucas: Gold. It's at 4,135, hovering near its record. And gold is usually the asset that shines when people are nervous about the economy. But here we have oil crashing, copper climbing, and gold holding steady. That's not a classic risk-off picture. Luna: So the message isn't 'the economy is weak.' It's more like 'there are different pockets of strength and weakness.' Lucas: Right. And I think that's the real takeaway. Copper's strength is partly about physical demand, but it's also about the dollar. The dollar has been softening this summer, and that gives a lift to all dollar-denominated commodities. But oil can't shake off its oversupply, so it's stuck. Luna: Do you think this divergence is sustainable? Or is one of them going to snap back? Lucas: I think copper has room to run if China's stimulus actually plays out and if the grid investment story keeps picking up. Oil, though, might be range-bound for a while. OPEC+ is signaling more supply, and demand growth is slowing in some big economies. So I'd expect oil to stay in the 70s for the rest of the quarter. Luna: But if the Fed cuts rates, wouldn't that weaken the dollar and boost both? Lucas: It would, but oil has its own headwinds. The market is more focused on inventories and OPEC's next move. Copper, on the other hand, is a pure play on reflation and growth. So even with a rate cut, you could see copper rally further while oil just ticks up a bit. Luna: That makes sense. So for someone listening, what's the practical takeaway? Is this a signal to be bullish on copper stocks or cautious on oil names? Lucas: I'm not going to give specific investment advice, but I'll say this: copper's divergence is worth watching because it's telling you where the economy is actually growing. And that's more useful than a headline number. For oil, it's a reminder that supply can come back quickly and erase geopolitical gains. Luna: It's almost like copper is the forward-looking indicator and oil is the rearview mirror. Lucas: Exactly. That's a great way to put it. Copper is betting on the future, oil is reflecting the present. And right now, the present looks softer than the future. Luna: But there's one thing I'd push back on. Historically, when copper and oil uncouple this much, it doesn't always end well. Sometimes it's the copper that's wrong. Lucas: That's true. In 2008, copper stayed high for a while before catching down with everything else. So you have to be humble. But what's different now is the structural demand story. It's not just a cyclical upswing; it's a long-term transition. So I'd argue copper has more fundamental support than it did then. Luna: And oil, in the long run, faces a different kind of structural pressure — electrification eating into demand. So maybe this divergence is here to stay, in some form. Lucas: That's the big question, isn't it? Are we seeing a temporary blip or the start of a permanent reordering? I don't think anyone knows for sure, but keeping an eye on copper's inventory levels and China's next moves should give us a clue. Luna: Well, I know what I'll be watching this week. Thanks for breaking that down. Lucas: Always a pleasure. And if you're curious about any other commodity pair, let us know. We read everything.