Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Copper Is Crushing Oil in the 2026 Commodity Race
Transcript
- Lucas: So here's the puzzle of the week in commodities — oil is getting hammered, down more than ten percent in just five days, while copper is hitting new highs, up three and a half percent. Same macro environment, completely different stories. Luna: Yeah, I saw that — West Texas Intermediate crude at 96.60, Brent at 100.21. Meanwhile copper over six dollars a pound. Lucas: Right. And the headline from over the weekend that really captured it was Jeff Currie — the veteran commodities analyst — warning that oil markets are at 'tank bottoms' in Asia, and Europe isn't far behind. That's a vivid way of saying storage is filling up. Luna: Tank bottoms — meaning the tanks are basically empty? Or they're so full you're scraping the bottom? Lucas: The latter. When tanks are near full, the last bit of crude left is harder to pump out — it's called the tank bottom. So when Currie says we're at tank bottoms in Asia, he means storage is almost completely full. That's a massive oversupply signal. Luna: And that's despite OPEC+ cuts, despite all the geopolitical noise. What's going on? Lucas: Demand just isn't there. Chinese crude runs are below expectations, European manufacturing is sluggish, and U.S. driving season hasn't really kicked in. Meanwhile, there's the possibility of Iranian oil coming back to market if talks progress — that headline about European stocks opening higher because U.S.-Iran talks continue? That's weighing on crude too. Luna: So for oil, everyone's looking at the supply overhang. But copper is the exact opposite. Lucas: Completely. Copper is tight. There's a structural deficit — mines aren't producing enough to meet demand from electrification: EVs, solar farms, grid upgrades, data centers. And copper doesn't have the same above-ground storage problem. Once it's refined, it gets used pretty quickly. Luna: So is this the decoupling moment? Oil and copper used to move together — they're both cyclical, both tied to growth. But now they're going in opposite directions. Lucas: I think that's the key question. Copper is being driven by a structural story — the energy transition — while oil is stuck in a cyclical demand funk. And the market is starting to price them accordingly. Copper at 4,500 dollars an ounce equivalent? Actually, gold's at 4,523 — that's a whole other story — but copper is at 6.38 a pound, which is very high historically. Luna: And gold is also diverging. Gold's up slightly on the week, oil crashing. So we have three distinct regimes: precious metals steady, industrial metals surging, energy collapsing. Lucas: Exactly. And I think it tells you something about where the market thinks we are in the cycle. Oil is the old economy — it's about moving stuff, heating stuff, fueling cars. Copper is the new economy — it's the wire that carries electricity. And right now, the market is saying the new economy is where the demand is. Luna: That's a pretty bold thesis. But let's test it — if that were true, wouldn't we see it in the stocks too? Exxon is down three and a half percent, Chevron down one and a half. But the XLE energy sector ETF is down almost two percent. Lucas: Right, energy stocks are getting clobbered. But look at the copper miners — Freeport-McMoRan, Southern Copper — they've been rallying. So the equity market is confirming the commodity signal. If this was just a temporary blip, you'd expect the stocks to shrug it off. Luna: So what's the catalyst? Is it just the Iran talks tipping oil over? Or is there something bigger? Lucas: I think the Iran talks are a factor, but the bigger issue is that demand is genuinely weak. We've got CPI still elevated — 332.4 in April, up from 330.29 — so inflation hasn't cooled enough for central banks to cut rates. That's keeping industrial activity subdued. And if you're a trader looking at oil, you see a market that's well-supplied and getting more so. Copper, on the other hand, has supply constraints that aren't going away. Luna: So you're saying this divergence might persist? Lucas: I think it could. And honestly, if you're looking for a way to think about commodities in 2026, this split is probably the most important thing to understand. The old 'commodities all move together' framework is breaking down. Luna: Speaking of frameworks that are useful — I know for me, having conversations like this really helps clarify my own thinking. And I know a lot of listeners feel the same. If this show is something that makes the economy click for you, the way these stay ad-free is through listener support. You can help keep it going at buy me a coffee dot com slash fexingo. Lucas: Yeah, it genuinely makes a difference. And we appreciate it. So back to the divergence — let's talk about what happens if oil keeps falling. Luna: What's the downside scenario? Could we see crude below 80? Lucas: It's possible. If the Iran deal goes through and sanctions are lifted, you could get another one to one point five million barrels a day onto the market. That would push Brent well below 90, maybe toward 80. But the bigger risk is demand — if we get a recession, oil could fall a lot further. Luna: And copper? If there's a recession, demand for copper would fall too, right? Lucas: It would, but the supply constraints would cushion the blow. Copper mines have been underinvested for years. Even if demand drops five percent, you'd still have a deficit. That's the difference: oil has plenty of spare capacity, copper doesn't. Luna: So oil is vulnerable to a demand shock, copper is vulnerable to a supply shock. Lucas: Exactly. And right now, we're seeing a supply shock in oil — or at least the threat of one from Iran — and a demand shock in copper? No, actually we're seeing demand hold up pretty well. The electrification story is real. Look at the headlines: Huawei planning new smartphone chips, competing with Nvidia and Apple. That means more data centers, more chips, more copper for wiring and cooling. Luna: Let's zoom out a bit. You mentioned gold at 4,523. That's a huge number. Gold is supposed to be the ultimate hedge. Is it telling us something about inflation expectations? Lucas: Gold is interesting because it's barely moved this week — up 0.4 percent. That suggests the market isn't panicking. If oil was crashing because of a systemic risk, gold would be spiking. Instead, it's just sitting there. The ten-year breakeven inflation rate is at 2.40, basically unchanged. So the market sees this as a sector-specific issue, not a macro meltdown. Luna: So the takeaway for a listener trying to make sense of commodities right now: figure out whether you're in the oil camp or the copper camp. Lucas: I think that's right. If you believe the energy transition is accelerating, you want to be long copper, long industrial metals, maybe even long uranium. If you think it's all hype and the old economy still rules, then oil at 96 looks cheap. Luna: Which camp are you in? Lucas: I think the data is pretty clear. Copper at 6.38, up three and a half percent while oil is down ten — that's a signal from the market. It's telling you where capital is flowing. And I think that trend has legs. But I'd be remiss if I didn't say: commodities are volatile. A month from now, this could all flip. Luna: Fair. So we'll keep watching. Thanks Lucas. Lucas: Thanks Luna. And for everyone listening, we'll be back tomorrow with another angle on the commodities economy.