Is This A New Commodity Supercycle?

JP Morgan Sees A Super Cycle

The fact that JP Morgan is calling for a commodity supercycle can be seen as bearish or bullish depending on your confidence in the call. You can say the hype has gotten overheated or you can say this is the beginning of a bull run. People need to be slowly convinced that commodities will do well in order for them to increase. That’s how markets work. Don’t get scared when people agree with you. When people first start agreeing with you, that’s not yet a sign of a crowded trade.

The chart below has a lot going on because it has summaries on the catalysts of oil’s movements since 1997.

It’s interesting how investors can get discouraged by weekly price movements and news while ignoring the long and intermediate-term trends. Only a few things matter. A lot of the news is noise. The 12-year up cycle was driven by the weakening dollar, geopolitics, Chinese growth, and financial speculation. The 12-year decline was caused by the oversupply caused by shale, the rising dollar, the battle for market share between OPEC and US shale, and the Chinese slowdown.  

There are some new positives that can boost oil, but it’s not entirely clear if this will be another 12-year upcycle. Luckily, you don’t need to figure that out. Just focus on the potential macro trends. Geopolitics is tough to predict. The potential positives include the economic reopening, reduced energy capex, high shale decline rates, less lending to and investment in fossil fuel companies, and the weakening dollar.  

JP Morgan’s list below gives a summary of their thesis for a commodity supercycle. They include the easy monetary policy, an infrastructure stimulus, demand for commodities that drive green energy, momentum investing, and the end of the trade war.

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