Publications: Notes at the Margin

Commodity Futures: No Longer an Asset Class (August 14, 2023)


This mid-August Notes at the Margin takes up two market transition issues.


First, we mark the end of commodity futures as an asset class. Goldman Sachs announced that Jeff Currie was leaving the firm after years as head of its commodities department. Currie was an outspoken cheerleader for the “commodity supercycle.” We attribute his departure to the shrinking energy commodity futures market that was once highly touted as a lucrative alternative investment. For a time, commodities, of which oil was the most important, became a popular asset class. It was a great idea that ultimately failed. Oil futures, in particular, do not work as an asset class.


Second, we explain that refiners have adopted a strategy of “output discipline,” that is, they are keeping their inventories low and cutting operating rates. This tactic copies the “capital discipline” strategy followed by oil producers. As a consequence, refining margins are almost $30 per barrel higher than they might otherwise be. The practice is also costing crude producers substantial sums. Brent would be trading for almost $120 per barrel today had refiners not initiated it.


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