3 Reasons For The Drop In Crude Oil From Sarhan Capital CEO

Adam Sarhan, founder and CEO of Sarhan Capital, says that the entire energy complex has shifted considerably over the past six to eight weeks.

His company is short in crude, and he joined Benzinga’s #PreMarket Prep to talk about the recent dip in crude oil futures markets.

Geopolitical Tensions

Sarhan said there was a big run-up at the beginning of the summer based on geopolitical tensions in Ukraine and Israel. That’s normal, he said, because escalating conflicts could have disrupted supplies.

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“Thankfully, none of those situations really escalated. Cooler heads prevailed, for now. That could change," he said.

The crude oil futures markets went all the way up to $107, he explained, but then started selling off quickly when it seemed like the geopolitical action wouldn’t spiral out of control.

The Dollar Factor

But Sarhan said the bigger story within commodities right now is the U.S. dollar.

“The U.S. dollar is tremendously important because every single week for the past 12 weeks, the dollar has been up,” he said.

Sarhan also said that because commodities are priced in dollars, there’s typically an inverse relationship between the U.S. dollar and commodity prices.

At the same time, he said, a lot of other currencies are going down.

“A lot of these commodity-centric areas like Canada or Australia, their currencies have gotten whacked as well,” he said. “So the U.S. dollar has been one driver.”

Simple Economics

Another reason for the price drop is slowing demand is slowing demand, Sarhan said.

“If you look at the components of any price, it’s supply versus demand,” he said.

Because demand in the global economy is slowing, Sarhan said, the demand component of the supply/demand relationship is weakening and the prices are coming down.

Sarhan also talked about silver, gold and corn. Check out his full interview here:

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