💭 Ray Dalio’s “Bubble indicator”

What’s going on here?

OPEC+ – the group of the world’s biggest oil-producing countries – announced over the weekend that it’s keeping supply cuts stuck in place until the middle of the year, a bid to keep a grasp on the slippery stuff’s price.

What does this mean?

OPEC+ has made a habit of curbing production over the last two years, including a cut of 2.2 million barrels a day that was due to expire at the end of March. But because the US has been cranking out a record-breaking amount of oil over the last few months, OPEC is keeping that limit in place until the end of June. Anticipating the news, traders had pulled international oil prices up 2% last week to $83 a barrel. That won’t cut it, though: Saudi Arabia – the cartel’s de facto leader, shouldering most of the production curbs – needs $100 a barrel to fund its ambitious economic transformation program.

Why should I care?

Zooming in: Too much, too soon.

The International Energy Agency predicts that demand will inch up by 1.2 million barrels a day this year, around half the pace of last year. At the same time, the organization expects supply to pick up by 1.7 million barrels a day to a record high. So unless there’s some unexpected hunger for more, black gold should carry a less luxurious price for some time.

For markets: The US is playing chess.

The US is really cramping OPEC’s style. There might be fewer drilling rigs stateside, but a sharp focus on efficiency means that American oil is basically free-flowing. So not only is the US pumping enough crude to become less dependent on OPEC, but it’s not tied to the in-crowd’s negotiations. That means whenever the group decides to cut supply, the US can make up the difference, keeping oil prices steady and making money at the same time.

What’s going on here?

Data showed that Chinese cobalt producers’ overambition is expected to keep the market down in the dumps until 2028.

What does this mean?

Cobalt producers turned out 17% more of the shiny metal last year than the one before. That would usually be gobbled up by carmakers: cobalt keeps lithium-ion batteries from catching fire, a pretty important consideration when making electric vehicles (EVs). At the moment, though, demand for EVs is on the slide, while Chinese carmakers have started swapping out cobalt and nickel for cheaper battery materials. That meant the far-from-precious metal’s price fell by half to $15.10 last year – the cheapest since 2016.

Why should I care?

Zooming out: China won’t slow down.

China’s cobalt producers are supported financially by the state, so despite the lack of buyers, the country’s stuck to full speed in an effort to win a bigger market share. That also explains why China has bought around 21% of the world’s cobalt supply over the past few years, keeping prices from falling too low. That said, the shrinking price points are still putting pressure on Western producers. Swiss company Glencore, for one, had to trim down production plans for 2024. The same is true in the nickel and lithium markets: Chinese producers have been churning out the metals, and the resulting lower prices have forced Western companies to shut mines, cut production, and ditch expansion ideas.

The bigger picture: Musk versus the world… Well, China.

EV makers have been fighting the slowdown by fiddling with their prices. BYD led by example, slashing the price of its new hybrid SUV model by over 15%. That helped the Chinese carmaker steal the industry’s top spot from Tesla. Musk isn’t one to accept defeat, though, so Tesla rolled out some budget-friendly initiatives like insurance deals last week. Not to be left out, Geely Auto – BYD’s biggest local competitor – brought its own prices down by roughly 15% too.