It’s Still About Oil. Oh, Also Fertilizer. Er, And Helium.
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Market On Open, Thursday 2 April
by Alex King, CEO, Cestrian Capital Research, Inc.
A spitball estimate of the hit to global oil production from the current Gulf war is - about 20% supply reduction. There is some easement from reduced sanctions on Iranian and Russian oil; there is also some further reduction from the ongoing success of Ukraine’s destruction of Russian oil facilities.
Hit harder is urea, the essential ingredient in fertilizer.
In both cases, a cessation of the war today would not change this picture. Both take time to rebuild supply. You need fertilizer, of course, to grow food and other crops; less fertilizer, lower crop yields, higher prices and less availability.
Now helium. Which you need to make semiconductor chips as everyone now knows, but also to run MRI scanners and anything else that requires supercooling.
Again, helium infrastructure would take months to reconstruct even if it started today.
Now, this is the reality of the world today and it is against this reality we must invest and trade. The real world rarely corresponds to securities prices; usually, securities prices are forward-looking, because large price-setting accounts have a lot more insight into future real world developments than do journalists or Twitter postoors.
Here is what forward-looking securities markets are saying about oil, wheat, corn and soybeans. This is % change YTD.
When the war ends, we can expect securities prices in these things to drop quick-smart, faster than real-world commodity prices will fall. So we have to be ready. But for now, as usual, securities markets have led the way. Better to watch prices than to watch the news.
How To Prosper In This Environment
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Alex King
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