Why Crude Oil prices are so Dependent on Geopolitics

Your firm has launched a new Substack blog dedicated to commodities investing with insights, strategy breakdowns, and market commentary. There was a recent insightful post about the dynamics behind what influences crude oil prices. Can you talk about that or anything else you find interesting on the blog?

Crude oil is driven by global factors. Geopolitics plays a part, and overall supply and demand plays a part. Over the last 15 years, there's been this tension between OPEC's actions and US development. We've become the world's number one oil-producing nation, but OPEC still has tremendous power as a cartel.

They have supported prices for the last five years by keeping their production capped. But they have recently introduced crude oil production back into the market. They're taking off voluntary quotas and cuts, and that probably will put some pressure on prices for a while. The various energy agencies are expecting a glut of crude relative to demand next year.

If more demand than expected materializes, that could be beneficial for crude. Geopolitical events, if they get worse, can be beneficial for crude. On the flip side, you have the global economy. Crude tends to be a little more synchronized than some commodities with the business cycle. If you have a recession, people are buying less, and so less is being shipped and used for the production of goods and services.

Those are some of the things that drive energy. When it comes to crude oil, it's a single commodity, so you have the potential for more volatility than you have with a broad commodity basket. I'd view that as a more tactical tool and view broad commodities as something that can benefit investors for diversification.