Copper surges past oil amid talks on £200 billion mining merger

The price of copper and oil have tended to move in lockstep historically as both have been barometers of the health of the global economy. Both commodities, sometimes namechecked as ‘Dr. Copper’ and ‘Dr. Oil’ are pro-cyclical, which means they thrive at times of economic expansion.  

That connection seems to have broken down of late with copper recently forging a new high after breaking through $13,000 per tonne while Brent crude oil prices languish around $60 per barrel, down 22% over the last year.

Indeed, a scramble for copper seems to be one of the drivers behind the talks on a potential £200 billion merger between Rio Tinto and Glencore.

The primary driver of the disconnect between copper and oil is the physical balance of supply and demand in each market with the metal facing a severe supply crunch and oil entering its largest surplus since the pandemic.

Major copper mine disruptions in Grasberg, Indonesia and strikes in Chile have coincided with a lack of new mining projects while geopolitical events including recent US military action in Venezuela have further stoked fears regarding the security of mineral supply chains.

In addition, the rapid expansion of AI data centres has created a new ‘price-insensitive’ buyer in the copper market. Generative AI consumes enormous amounts of copper for distribution and cooling, which is adding to the ‘sticky’ demand from the green energy transition.

Finally, threats of US tariffs on refined copper, slated for 2027 have caused traders to front-run the tax, which has sucked copper into US warehouses to build a stockpile, draining inventories in London and Shanghai.  

Meanwhile, the IEA (International Energy Agency) projects a surplus of roughly four million barrels of oil per day for early 2026. This is partly fuelled by record production in the US and Canada, alongside producer cartel OPEC+’s gradual return of barrels to the market.

The rapid adoption of electric vehicles which exceeds 50% of sales in China is structurally eroding demand for oil.

What are the implications for investors and the economy?

For nearly 50 years falling copper prices have acted as a warning of slowing economic activity, but this signal now seems to be broken due to the role the metal is playing in the AI revolution and energy transition.

The divergence between copper and oil prices reflects a broader geopolitical transition from oil dependence to critical mineral dependence.

Nations with copper reserves such as Chile, China, Peru and the Democratic Republic of Congo, gain strategic importance relative to traditional oil exporters.

The high price of copper could prompt a move by companies to use cheaper alternatives like aluminium in non-essential sectors like consumer electronics.

Researchers are working on improving aluminium’s conductivity through modifications and additives which could significantly increase its broader applications.

However, there appears to be no easy substitute for copper’s use in high-performance AI chips and high voltage power lines, making it a strategic resource over the next decade.

One possible benefit of the breakdown in the relationship between copper and oil is that it could provide new diversification opportunities for investors.

Historically, commodity ETFs have bundled oil, copper and other industrial metals together.