Publications: Notes at the Margin

What Commodity Supercycle? (March 11, 2024)

 

Speculators have abandoned commodity futures for assets offering potentially higher returns. Today, Bitcoin, Ethereum, and other cryptocurrencies attract the hot money that used to chase crude oil, natural gas, gasoline, diesel, iron ore, copper, corn, and wheat.

 

Passive investors who once sought portfolio diversity in commodities have also abandoned commodity futures, eschewing them entirely or choosing to own physical assets such as forests instead.

 

The vaunted commodity supercycle has fizzled. Significant price increases and spikes require a fuel called money. The funds that more than once drove crude prices above $100 per barrel have gone missing. Today, oil prices are set by sluggish supply and demand movements, and price volatility has declined.

 

The supercycle’s demise has troubling consequences for the energy transition, which requires high prices. Transitions move quickly when the new alternatives offer cost savings and fail when they do not. Low oil and gas prices due to tepid speculative interest threaten to slow or stall the shift away from fossil fuels.

 

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