Oil prices slump: Commodity market in a 'very rare' glut

Crude oil (CL=F, BZ=F) prices tumble lower and erased any gains the oil market saw in 2024. Julie Hyman and Josh Lipton welcome The Energy Word Founder Dan Dicker to Market Domination to talk more about the "commodity glut" that has dragged oil prices with that

"We're not seeing anywhere near the kind of demand growth here in the United States that would offset the kind of supply increases that we've been seeing, both domestically in the United States and globally with OPEC+," Decker explains. "This is not unusual for any of the commodities. I mean, you can see copper, lithium, iron... everything in the commodity space is going down while the stock market (^DJI, ^IXIC, ^GSPC) has been going up. And it's really one of those moments that's very rare."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

Video transcript

Let's also talk about what's going on with oil prices, shall we?

Because we've got a tough day in the oil market with crude prices sliding on renewed concerns about energy demand from China.

Now, both Brent and wt I have actually erased their gains for the year.

Wt I cling at its lowest level since December 12th.

Joining us now is Dan Dicker the energy word founder Dan, always a pleasure to see you.

So just give us sort of broad strokes.

What is behind this latest leg downward in oil prices?

It's been exactly what you said.

I mean, there's been uh for the most part, Julie, it's been a, a lack of demand and supply that keeps on coming onto the market despite the fact that rig counts keep going down domestically.

I mean, the production in the United States continues to rise and OPEC Plus has gotten tired of cutting production for the marketplace and now there have been promising uh increases in production that are supposed to start next month and there's no indication that we're gonna back away from those.

So uh more oil coming in again, the end of the Labor Day weekend.

And it didn't seem like demand was very big.

Gas prices are low as that.

They've been in three years.

Uh just in general, there's been a commodity kind of glut out there and oil has been leading the way down.

Let me ask you, ask you, Danny, you know, we talk on the demand side, we talk about weakness in, in China and, and obviously for, for good reason.

I'm just curious what, what is the demand picture like here in the US?

Again, the same thing we're not seeing anywhere near the kind of demand growth here in the United States that would offset the kind of supply increases that we've been seeing both domestically in the United States and globally with OPEC Plus.

Again, this is not unusual for any of the commodities.

I mean, you can see copper, lithium iron, uh I mean, everything is in the commodity space is going down while the stock market has been going up.

And uh it's really one of those moments.

It's very rare.

The last time we saw, we saw commodities beaten up this badly was uh right before the pandemic in, in 2019 and before that in 2015.

So not very often that we see this kind of disconnect between commodity prices and stock prices.

Uh in general, from a trader's point of view, usually wrong when they get this pessimistic about commodities.

But I guess that's another story for today.

Uh bad news for commodities all across the board.

Well, I guess will this go beyond today is the big question now?

Right?

We, you know, you also, we even talked about China but China demand remains maybe not what the market was hoping for these other dynamics you're talking about on the supply and demand side.

Is there gonna be any change in those dynamics in the coming weeks?

Look, it takes a while for these gluts to clear themselves, Julie and, and they're there, they're real gluts.

But I do see, like I say, I see two kind of very important symbols of when this market might turn around.

Number one obviously is the fed and their ability to uh lower rates and how far they will go over the next couple of months to lower rates does inspire the kind of investment that these kind of commodities need to generate a little more demand.

That's number one, number two is the traders themselves.

I'm a big believer that when all the traders get on one side of a trade, it's normally wrong and they are as short as they've ever been in the commodity basket, like I say, since before 2019.

And usually when they get this much this deeply on one side of a trade, the market has a tendency to bounce the other way and pretty hard.

So I've been talking to some of my, uh my, my, my subscribers and telling them any time to wait in get a little bit of the copper miners, get a little bit of the oil companies that are cheapest, get a little bit of lithium and Cobalt, some rare earths that have really gotten beaten up.

And uh you know, you might have to sit on it for a little bit.

But um they're pretty cheap right now and they represent some decent value.

Dan.

When I back to oil on the supply side, there were some, some headlines say Dan that talked about maybe an end to this dispute that halted uh Libyan production.

How, how big a deal is that?

Not very much?

I mean, again, we're talking lithium production is under a million barrels a day.

And in the global, you know, effect of 100 and 6, 100 and 7 million barrels a day, the things that we're really looking at is what Saudi Arabia is going to do with their spare capacity, what the United States is doing with their spare capacity and what the Russians are doing with their spare spare capacity.

So on the margins, it might matter if we were at a, at a place where the balance was really kind of paper thin.

It's not, there's, there's a lot more supply out there than there is demand and you've kind of seen it in this slow kind of bleed away of prices of oil over the course of 2024 basically the entire year.

And it sounds like from what you're saying that that the glut is going to be maybe slow to reverse as well or kind of it happens gradually?

But are there any sort of upcoming catalysts either to the up or downside that investors should be watching for?

You know, it's not, it's not what you see beforehand.

It's sort of like the positioning you do as a trader kind of Julie.

I don't know what the turnaround is going to be, but like I said, these signals that I see that could spur a change in the demand picture.

Definitely the fed lowering interest rates has a big impact on that kind of investment into a new production that uh moves prices higher.

So it's not something that happens overnight.

It's a slow train, it's turning around, you know, an aircraft carrier in a canal, but when it turns around, it starts to move, you're best to be in it beforehand because you don't generally catch it on the way up.

Dan.

Uh let's end here with what you see with gas prices and then near to kind of intermediate term here.

Prices at the, at the pump.

Dan.

When you're talking to subscribers, they asked you bring out the crystal ball.

What do you tell them?

No, I think we're, we're, we're pretty much there.

I mean, another 2030 cents in gasoline, maybe we'll slip slightly under $3 a gallon.

That would be really nice.

I mean, for a lot of people who are driving.

I don't know, there's, there's a limit now to how low oil can go.

I think those days of seeing $2 gasoline are completely over.

Of course, you never say never in this world.

But I think those days are kind of over again once these markets get to a point where, um, folks have to shut down supply because they just don't make a profit by pumping it.

That's when you see those turnarounds and, and you're getting really close.

I don't see, um, prices of oil going, you know, into the fifties for sure.

And, and, you know, mid sixties, I would really start to be looking at oil companies to buy just for the fact that, uh, it just gets too cheap to believe.

Dan.

Great to have you on the show.

Thanks for helping us kick it off.

I appreciate it.