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: Copper up nearly 4 percent over the last five days. Crude oil barely hanging on above 70 dollars. That spread tells a pretty clear story about what markets think matters right now. Luna: It's a striking divergence. Usually when you get a big geopolitical truce, both oil and industrial metals react in the same direction — risk-on, everything rallies. But that's not what we're seeing. Lucas: Right, because the Iran truce that hit headlines this morning — U.S. and Iran halting hostilities — should, on paper, be bullish for risk assets broadly. And the Dow's up 300 points, heading for a record close. But oil is actually down on the week. Copper is up. That's a signal worth unpacking. Luna: And it's not just today. Look at the five-day numbers: copper futures at 6.17 dollars per pound, up 3.9 percent. WTI crude at 70.38, basically flat. Brent down slightly. So the move has been building. Lucas: Exactly. So let's start with the oil side, because it's the counterintuitive piece. The Strait of Hormuz is one of the world's most critical chokepoints — about 20 percent of global oil transits through it. An Iran truce means less risk of a disruption there. That should be positive for oil prices? Actually no, because the risk premium that was baked into crude over the past few weeks just got stripped out. Luna: So the market had already priced in some probability of a disruption, and now that probability drops — so oil falls. That makes sense. But then why isn't copper falling too? Lucas: Because copper's move isn't about geopolitical risk. It's about something more fundamental: the real economy. Copper is used in construction, power grids, electric vehicles, data centers. When copper rallies on a day like today, it's telling you that industrial demand is actually holding up, maybe even strengthening, despite all the headlines about inflation and Fed policy. Luna: And that fits with something else in the data. The latest CPI reading for May came in at 334.0, up from 332.41. Core CPI at 336.1. Inflation is still sticky. But the ten-year breakeven inflation rate actually ticked down to 2.20 percent. So bond markets are saying inflation expectations are anchored, even if the actual numbers are elevated. Lucas: That's the kind of environment where industrial metals can thrive — moderate growth, stable inflation expectations, and no immediate recession fear. Meanwhile, oil is getting hit by the supply-side news. The truce doesn't just remove a risk premium; it also opens the door for more Iranian oil to come back to market. Iran has been under sanctions, but if relations thaw, those barrels could flow. Luna: And that's a real supply increase, not just a sentiment shift. Iran was producing around 3 million barrels a day before sanctions tightened. Even a fraction of that returning would pressure prices. Lucas: Right. So the oil move is a combination of risk premium unwinding and a potential supply overhang. Copper is a different beast entirely. Let's look at the other metals — silver is up 1.1 percent on the week, gold up 1 percent, holding above 4,000 dollars. So the precious metals are moving in sympathy with copper, but not as dramatically. Luna: Gold above 4,000 is still a big deal. That's up from around 2,000 just two years ago. But the real standout is copper's 4 percent gain. What's driving that specifically? Lucas: A couple of things. First, there's a genuine supply constraint. Copper mines are struggling to ramp up output — grades are declining, new projects take a decade to permit. The energy transition requires massive amounts of copper. A typical EV uses about four times as much copper as a combustion engine car. Data centers for AI are also copper-intensive. Luna: So demand is structural, not cyclical. That's a different story from oil, where demand growth is slowing and supply is potentially increasing. Lucas: Exactly. And then there's the macro backdrop. The Supreme Court ruled today that Trump cannot fire Fed Governor Lisa Cook for now. That's a signal of Fed independence holding up. Markets like that — it means monetary policy won't be politicized in the short term. The Fed can keep fighting inflation without interference. Luna: Citi Wealth actually put out a note today warning investors to move out of excess cash because inflation is hot. They're saying don't sit on cash — put it to work. That kind of advice tends to flow into real assets like commodities, especially ones with a supply story. Lucas: Absolutely. And copper is the perfect candidate for that. It's a real asset with a supply squeeze and demand tailwinds. Oil, on the other hand, has a supply overhang and demand uncertainty. The divergence is rational. Luna: So for listeners who want to track this, what are the key levels to watch? Lucas: On oil, WTI at 70 dollars is a psychological level. If it breaks below that convincingly, you could see a move toward the mid-60s. On copper, 6 dollars was resistance; now it's support. If it holds above 6, the next leg could be toward 6.50. Luna: And if I'm an investor, does this divergence tell me to favor copper miners over oil producers? Lucas: Not a straightforward recommendation, but the signals are worth noting. The XLE, the energy sector ETF, is down 1.6 percent on the week. Chevron down 4 percent, ConocoPhillips down 5. So oil stocks are reflecting the same headwinds. Meanwhile, copper miners like Freeport-McMoRan are probably benefiting. But the bigger picture is that this divergence is a window into how markets are parsing geopolitics vs. fundamentals. Luna: And it's a reminder that not all commodities move together. Even within the same asset class, you can have entirely different stories. Lucas: Right. Which is why we do this show — to help make sense of those stories. And speaking of that, we have a small request. If walking through the economy with us has made something click, a handful of listeners already chip in monthly at buy me a coffee dot com slash fexingo. That's literally what funds making this many of these episodes possible. No ads, no sponsors, just listeners who find it valuable. It's a simple way to keep it going. Luna: Yeah, it's a small group that really makes a difference. And we're grateful. We get to focus on the data and the analysis without any outside pressure. Lucas: So back to copper and oil. One more data point: the PCE price index for May came in at 131.5, up from 130.94. Core PCE at 130.1. That's the Fed's preferred inflation measure, and it's still running hot. That supports the case for holding real assets like copper, which can act as an inflation hedge. Luna: But oil is also a real asset. Why isn't it acting as an inflation hedge here? Lucas: Because oil's inflation-hedge properties depend on demand being strong. If the truce leads to more supply and demand growth is slowing — especially with China's recovery patchy — then oil doesn't provide the same protection. Copper, on the other hand, has more inelastic demand in the short run. You can't delay building a data center or a power grid. Luna: So the divergence might persist for a while. What could change that? Lucas: A few things. If the truce falls apart, oil would spike and copper might dip on risk-off. If the Fed surprises with a rate cut, both could rally. But right now, the market is pricing a clear distinction: copper is about the real economy, oil is about geopolitics and supply. And that distinction is likely to hold until we get more data on industrial production or a shift in Iran policy. Luna: And that's the kind of insight that makes listening to this show worthwhile. So thanks for sticking with us through that. Lucas: We'll keep tracking these moves. Next time, we might look at what the corn surge — up 5.3 percent this week — says about the agriculture side. But for now, copper and oil are telling us a lot about where we stand in mid-2026.