Chart of the Week

The U.S. position as a net energy exporter has provided some insulation from the immediate global supply shocks. However, markets are interconnected, meaning the U.S. is not immune to the lasting effects of higher global prices and supply disruptions. With strong growth in U.S. production along with lower transportation risks, trade flows have shifted and are starting to pull on U.S. inventories.

As shown above, inventories have been pressured lower by a surge in exports, heightened refining activity, and an emergency 172-million-barrel release from the Strategic Petroleum Reserve earlier this year. In effect, these drawdowns have reduced some of the U.S. supply buffer heading into the summer.

Upcoming seasonal demand could intensify these pressures, as inventories typically decline during the summer. For consumers, this will likely translate into higher gasoline prices over the coming months. In our view, we do not recommend chasing returns in energy with oil prices already elevated. Instead, we believe taking profits in energy and rotating exposure to our favorable areas such as Precious or Industrial Metals, may offer greater upside.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility. Investing in gold, silver or other precious metals involves special risk considerations such as severe price fluctuations and adverse economic and regulatory developments affecting the sector or industry.

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