Coming into 3Q’21 it was noted that “while the long copper/short gold pair trade still makes sense thematically, there is an argument to be made that recent shifts in the fundamental backdrop for copper make it a less viable vehicle to express a pure growth view.” The shift in the backdrop? The news out of China regarding Evergrande and the country’s heavily indebted property development sector.
Instead, a purer growth view revolving around crude oil may be the more favorable setup. Historically, crude oil demand tracks global growth with a near-perfect correlation (+0.97 on quarterly basis over the past 30-years), so as long as the bull case for global growth remains, then energy should be in strong demand. Having now broken triangle resistance dating back to its July 2020 (and yearly) high, it looks like crude oil prices are resuming their uptrend and set to rally perhaps has high as 87.21 (23.6% Fibonacci extension of November 2020/July 2021 range).
Instead, a purer growth view revolving around crude oil may be the more favorable setup. Historically, crude oil demand tracks global growth with a near-perfect correlation (+0.97 on quarterly basis over the past 30-years), so as long as the bull case for global growth remains, then energy should be in strong demand. Having now broken triangle resistance dating back to its July 2020 (and yearly) high, it looks like crude oil prices are resuming their uptrend and set to rally perhaps has high as 87.21 (23.6% Fibonacci extension of November 2020/July 2021 range).