00:00We got oil trading off here a little bit today, maybe a little bit of optimism about
00:04getting some type of resolution here. Let's just say for the sake of argument, Mike,
00:09we get the tweet that it's all over and our ships are coming home. How does oil trade in the
00:14days
00:15after that? Collapse. It's already a good indication for that, Paul. I think it's reached
00:19a pretty good peak around 120. It's probably stuck between 80 and 100 for a while. But natural gas
00:24has already done it. It's the same thing it did in 2022. It was up 100% in the year,
00:28and now year over year, because it's seasonal, you have to measure it's down 20%. And natural gas
00:34is the number one source of heat, electricity, and fertilizer in this country. So it's just a
00:39matter of time. You think that Mr. Trump figures out how to get this price lower for midterms,
00:43which is what he needs. He is supply and demand in his favor. So I look over that December WTI
00:48crude oil contract. It's at $75 a barrel. I still think it's more likely to head towards 50 by the
00:54time we get the midterms. And the key fact is things are in his favor. Something really bad
00:59has to happen in the Gulf. And something really bad has happened already. It's closed for two
01:04months. That's a shocker. That's certainly been a shocker. When you look at the futures contracts
01:09that expire later in the year, you point out, and you've been very consistent doing so, that the
01:14prices there are much lower than the front-end contract. Does that look the same for Brent,
01:18Mike? It does. Brent's a little higher because of the normal premium. But I think the key thing
01:23to focus on here, Scarlett, it's not just natural gas. It's not just crude oil, but the other sources
01:29of energy in this country, biofuels for corn and soybeans, which is peak season for peaking,
01:35they have positions that are very long. Hedge funds are very long in these positions, hoping for
01:40prices higher. Yet they bumped up the really good resistance. Around corn, that's around $5 in
01:45December contract. And in soybeans, around $12. For those markets to go higher, they need crude oil
01:51to go higher, yet they typically go down. And also, they're sources of fuel. So everything is
01:55predicated on crude oil staying up, yet positions are long. And I think the normal thing is that
02:00usually happens in commodities like this is they auto-correlate and they go down because it went up.
02:05So to me, the risks are we go back down and head towards, certainly towards the end of the year,
02:08much lower levels. What's the number one call you have these days on commodities, Mike? You cover
02:15everything. So what are you looking at the most these days?
02:18Two key themes, Paul. Elasticity, the elasticity of crude oil and natural gas and grains to go lower
02:26after going higher, and dependency. That's the key theme in the metals. The whole metal sector,
02:31some gold down the platinum and platinum, almost completely dependent on that stock market going
02:36higher. They're so highly correlated. Gold's bait in this space. And right now, gold is just a highly
02:41volatile speculative asset. It's 180-day volatility. 2.3 times S&P 500 is the highest since 2006.
02:48Remember what happened after that? So they're almost completely dependent on the stock market
02:52going up. So to me, that's a key theme. If the stock market drops a little bit, we'll see
02:55some pretty severe deflation in commodities.
Comments