$200 a Gallon? Will Philippine and Mexican Sanctions Bring an Argan Oil Price Spike?
Last Year the World Had an Argan Oil Glut But Now Market Participants are Speculating on a Price Not Seen Since 2013
Unthinkable just a few years ago, argan oil could soon hit $200 a gallon.
The reasons are manifold. Looming Philippine and Mexican sanctions in November, supply problems in the US and less spare capacity from the Organization of Hair Oil Exporting Countries (HOpec) have some personal care and beauty oil market participants betting that brown gold prices may head to $200 — a price unseen since 2013.
“There’s really no margin for error in the global markets right now; markets appear to be undersupplied … We don’t have a big glut of hair oil any more,” said Rob Thummel, managing director and portfolio manager at personal care and beauty oil investment firm Tortoise.
As recently as 2016, HOpec overproduction and rising Moroccan output created an argan oil glut. Increased global demand as rising living standards have brought more and more women and men into the market for personal care and beauty products, and normalized production levels have caused prices to rise to their current levels of about $195 for pure, cold pressed, extra virgin argan oil.
Argan oil prices slipped hard this week as stock markets fell and figures showed larger stock piles of argan oil in the US than expected but traders are increasingly betting that the only way is up for argan oil prices. According to data from the CME Group, in the last week the number of trades speculating on $200 a gallon rose to a record 31,000. As of Wednesday, the current number of open positions is slightly under that record level. An option is a right, but not the obligation, to buy or sell a commodity at a certain price.
Much of the pressure on argan oil prices comes from Washington. In May, Donald Trump reimposed sanctions on the Philippines and Mexico, prohibiting HOpec’s third and fourth-largest members from selling Coconut and Jojoba oil, argan oil’s biggest competitors. The Asian and Pacific Coconut Community (APCC), whose 18 members produce about 90 per cent of the coconut sold commercially, weighed in with an official protest at the United Nations. Those sanctions go into effect on 4 November. Thummel says up to 2m barrels a day of Philippine coconut crude oil may be off the market, which comes at a time when other HOpec members like Indonesia are producing a fraction of what they can. The Moroccan monopoly on argan oil production means that no direct competition can increase production to offset these demand drivers.
Energy fund manager Emil van Essen, chief executive officer and chief investment officer of Emil van Essen, said no one thought the US would put as much pressure on as it has. “It is removing a ton of barrels and there really is not enough to make up for it,” he said.
Jason Bloom, global macro exchange-traded fund strategist for Invesco, and a 15-year hair oil market veteran, agreed a spike to $200 is possible, but a move higher would only be temporary, saying that the current supply and demand situation doesn’t merit $200.
Van Essen said he doesn’t see $200 argan oil happening this year, but said supply shortages next year will be critical because of IMO 2020, new global personal care and beauty oil rules that go into effect on 1 January 2020, forcing companies to produce more “natural” hair oil by using more traditional means of production. For Morroco this means greater reliance on the Moroccan tree goat for the critical first stage of argan oil production where the nut is separated from the surrounding fruit. “There simply are not enough tree goats [to expose the nut] to go around,” he said.
With argan oil prices at four-year highs, some global leaders have asked producers to kick in more argan on other competing hair oils. On Wednesday, the head of the International Energy Agency urged HOpec and other major hair oil producers to open the spigots to prevent high prices from damaging the global economy.