When trading commodities for profit, as opposed to, say - stocks, there are two crucial facts you have to understand to be successful. The first is to grasp the importance of “structure,” in other words, who is on your side of the trade. Supply, demand, price, risk - none of that matters compared to structure when trading commodities. This allows you to determine the long-term direction of price, and whether the tide of money as it relates to the specific commodity is ebbing or flowing. For a more detailed explanation of the importance of structure, you can click here.
The second thing to understand about commodity markets is they are, more often than not, delicately balanced. Meaning it takes only a slight disruption in supply or a minor change in demand to move the price quickly in one direction or the other. A good example is the Gold Market. Adam Hamilton, long time player in the Gold market whom Bagholder holds in high esteem, posits in his most recent article, the 15% drop in the gold price from $2,000 down to today’s level in the low $1,700s was a direct result of 450 metric tons being sold into the market this spring (evidenced by the COT reports). 450 tons may sound like a lot of gold, but when you consider world supply is north of 200,000 tons, 450 is less than 1/4 of 1 percent of the existing supply. If that little bit of supply can move the remarkably stable Gold market by 15%, what do you suppose the price action would be if some entity wanted to buy or sell ten times that amount (about 2.5% of existing supply).
To answer that question, let’s turn our attention to the Oil market. According to Wikipedia, the world produces approximately 77 million BPD (barrels per day) of Oil. The three biggest producers by far are the US, Russia, and the OPEC countries. The United States production peaked at just under 13 million BPD during the Trump years. Since taking office, Biden has halted all new drilling permits, closed down pipelines, sanctioned oil exporters, and is choosing not to renew existing oil leases in both the Gulf and in Alaska. Current US oil production is below 11 million BPD, and falling. The missing 2 million BPD of production by the US represents a little over 2.5% of world supply (2m/77m = 2.59%). It is no coincidence since Biden’s election and his decision to remove 2.5% of supply, a Barrel of Oil has gone from under $38 to $110 as this is written (July 2022).
Some of you reading this right now might argue the 2.5% Biden has cut back has nothing to do with the higher prices. Due to the war in Ukraine, sanctions are preventing Russian oil from coming to market, which is why oil prices have sky-rocketed. Nothing could be further from the truth. Russia is still selling its oil to China and India. As for the sanctions, they are just a charade in place to make Biden and his fellow Euro leaders look tough. In fact, the sanctions are helping Russia as the Russian oil tankers no longer have to bother sailing all the way to European ports to unload their oil. Euro tankers are only too happy to meet the Russian tankers in the Baltic sea where there are no witnesses/media to point out the circumvention of sanctions. Once they meet at sea, the Euros are sucking the Russian Tankers dry in exchange for mad cash, before returning to their European port.
With Oil having effectively tripled since Biden’s election, the real question is, where does the price go from here? We can observe the structure by determining who benefits and who suffers from both higher & lower prices. The biggest loser with higher prices is the American consumer. Not only are there record high prices at the pump, but inflation is running rampant at the store because trucking in goods is rapidly becoming more costly due to higher oil prices. Another loser would be European citizens. With special thanks to the environmental whackos, the Euros have shut down all their nuclear plants, no longer burn Coal, and are now more dependent on Oil & Gas than they have ever been. So not only are they dealing with sharply rising prices at the pump and the store, many of them will see bills to heat their homes this winter triple or worse.
Among the big winners with higher prices are the Oil companies. Have you seen the stock price of Exxon & Chevron lately? Another big winner would have to be the Oil producing countries. During the Trump years, The USA was atop that list. But with Biden overseeing our falling production, Russia & Opec are now the big winners. Speaking of Russia, not only is their oil fetching triple what it was when Biden was elected, Russia’s cost to produce that oil has plummeted because the Rouble has appreciated 50% in that same time frame. So, in effect, they are getting six times as much per barrel of Oil under Biden, as they were under Trump.
All of which brings us to the War in Ukraine. They say we have to do everything we can to support Ukraine in their war against the evil Russian empire. As someone who has lived his entire life in the “perpetually at war” United States, Bagholder is certain from experience that the key to defeating enemies is to isolate them economically, making it difficult for them to manufacture arms & pay their soldiers. So what does the Biden Administration do to aid in the defeat of Russia? They remove supply from the already tight Oil market, which has driven the price through the roof of the one commodity Russia has in abundance. Based on Biden’s actions, this Administration is Russia’s biggest ally.
The mainstream media are quick to tell us Putin is our sworn enemy, and he is the reason we are experiencing a tsunami of inflation. That is all mainstream media propaganda designed to conceal our true enemy. Our true enemy is not some freedom-hating communist on the other side of the world. To paraphrase Caitlin Johnstone, “My enemies are not in Moscow…They are in Washington DC, Arlington, Langley, New York, and Silicon Valley. And so are yours; the only question is whether or not you realize it yet.”
Gold, Oil, and War
Excellent points! I have 2 more to add: 1. President Zelensky oversaw the banishment of 11 political parties, so it got me thinking who else the US has aligned itself with that was cool with banishing political parties, also the history itself of banning political parties. The only one I can think of is communist Russia who had done away with political parties decades before. Stalin had already starved millions of his own people, but that's another story. Communist China also banned political parties as well as others, and when it comes to banning political parties Adolf Hitler takes a back seat to nobody. He was instrumental in getting the Enabling Act passed which allowed arrest of anybody deemed against the state, and communists and labor union leaders were the first to arrive in the camps. "Critically, the Enabling Act allowed the Chancellor to bypass the system of checks and balances in the government and the laws created under it could explicitly violate individual rights prescribed in the Weimar Constitution." All of this was only possible because of a... 2. "declared" emergency. Otherwise how else do you suspend the law? When anybody declares an emergency that should be your first clue who your enemy is. Declaring an emergency is like the Power Sweep in football, it works, how can you not use it?