Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / How Crude Oil Above $100 Reshapes Commodity Markets
Transcript
- Lucas: Brent crude hit a hundred dollars a barrel today for the first time since early 2024. And it's not just a psychological number — there's real supply pressure behind it. Luna: I saw the headlines. Dow dropped 500 points, mostly on energy-driven inflation fears. But let's start with the crude move itself — what's actually driving it? Lucas: It's a combination of things. The Iran situation is clearly the catalyst — Congress is fighting over war powers resolutions to force Trump to abandon the conflict, and the Strait of Hormuz toll is still disrupting flows. But there's also the Saudi output cuts we've been tracking since episode 115. They've kept the market tight, and now with geopolitical risk layered on top, Brent has jumped over 12 percent in just five days. Luna: WTI is up about 10 percent in that same window, but it's lagging behind Brent. The spread is widening again, right? Lucas: Exactly. WTI is at 91.67, so Brent's premium is now over 8 dollars. That's a big signal about where the physical tightness is — it's in the global seaborne market, not so much in U.S. inland supply. The Permian is still pumping, but export routes are getting clogged. Luna: And that spread feeds into other commodities. Natural gas is up too, though more modestly — 2.1 percent over five days, I think? Lucas: Right. NG is at 2.92, so it's moving but not with the same force. That's partly because natural gas is more regional — the U.S. has plenty of supply from the Marcellus and Haynesville. But in Europe and Asia, LNG prices are definitely feeling the oil-linked contracts. Luna: So the real question is: does this change the Fed's calculus? The headline CPI actually ticked down in June to 332.6 from 333.98, but core is still sticky. And the 10-year breakeven inflation rate just rose to 2.28 percent — that's the market's expectation for average inflation over the next decade. Lucas: That breakeven move is crucial. It tells you that despite the CPI drop, the market is pricing in higher inflation going forward because of energy. And the odds of a Fed rate hike surged today — that's directly from the headlines. The Fed had been on hold, but if oil stays above 100, it puts pressure on them to act. Luna: Higher rates, stronger dollar — that's usually bad for commodities priced in dollars, like gold. But gold is actually up today, at 4,049. Lucas: Gold is interesting. It's up about 1 percent over five days, but it's not surging the way you'd expect if this were purely an inflation hedge. I think gold is being pulled in two directions: the geopolitical risk supports it, but real yields are still positive, and that caps the upside. We talked about that dynamic back in episode 111. Luna: Silver is up a bit more, but copper is basically flat. That's surprising — you'd think a supply disruption in oil would also affect copper mining costs, since it's energy-intensive. Lucas: Copper is at 6.32, up just 0.3 percent in five days. That tells you the market is more worried about demand destruction from higher rates than about supply costs. If the Fed hikes, it slows construction and manufacturing, and copper is the first to feel that. Luna: So oil is the outlier. Every other commodity is reacting to the potential economic slowdown, while oil is driven by its own supply-side crisis. Lucas: That's exactly the disconnect. Look at corn — it's up 8.3 percent in five days, but that's weather-driven, not oil. Wheat is up 3 percent, but again, supply fears in the Black Sea. Oil is the only one where the move is purely about geopolitical supply risk. Luna: And that risk isn't going away quickly. The Strait of Hormuz is still a flashpoint, and the war powers debate in Congress suggests the situation could escalate before it de-escalates. Lucas: Which brings us back to the stock market. The Dow dropping 500 points is a rational response — higher energy costs squeeze margins across the board. But the sell-off is concentrated in growth stocks like Alphabet and Tesla, which are more sensitive to rate expectations. Luna: Meanwhile energy stocks are up. ExxonMobil gained 6.3 percent in five days, Chevron 3.8 percent. So the market is rotating into the sectors that benefit from higher oil. Lucas: Josh Brown said the market is 'broadening out.' That's a polite way of saying that if oil stays at 100, the winners and losers get much more distinct. It's not a broad rally anymore — it's a sector-by-sector game. Luna: And that's the conversation we have here every day. Speaking of which — a quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what keeps this show ad-free and independent. It's a small group, but it makes a big difference. Lucas: Yeah, if walking through the economy with us has made something click, that's where you can help. No pressure at all, but it's how we keep doing this without any ads or sponsors. Luna: Exactly. And honestly, it means we can follow the story wherever it goes — like today's oil spike — without worrying about commercial breaks. Lucas: Alright, back to it. So where do we go from here with oil at 100? The key number to watch is the brent wti spread. If it stays above 8 dollars, it tells us the global market is still tightening. If it narrows, maybe the risk is easing. Luna: And the Fed. Friday's PCE data is next week. If it shows any acceleration, that rate-hike talk gets louder. Lucas: Right. The odds of a hike are already climbing. So for the rest of this week, it's oil and rates — those two stories are now one story.