Commodity Corner
Views on commodities and energy
Correlation Between Oil and Equities Markets
Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.
But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.
NYMEX First to Second Month Crude Spread
The spread between the front month and second month oil futures continues to narrow.
The deep spread seen in earlier this year, caused primarily by slumping fuel demand due to the economic crisis, was heightened by the monthly of passive investment funds, especially the giant United States Oil Fund. On Feb. 6, when the fund last rolled its positions from the first to second month futures conracts, it held movre than 20 percent of the front month.
Analysts said that the move by the exchange traded fund to roll its front month positions to the second month over a four day period — rather than on just one day — may lesson the volatility of the shift.
Open Interest in U.S. Crude Oil Futures
Open interest and trading volumes in commodity futures markets have shown some resilience at the start of 2009 despite the dramatic price slides triggered by the economic downturn.
In the fourth quarter of 2008, open interest in U.S. crude oil futures fell to levels not seen since mid-2006 as the global economic crisis hit fuel demand and sent prices tumbling, before rebounding.
this graph raises a question the number of contracts depends on the level of oil prices or on the level of economic activity ?
With gas & crude prices dissociating, IMO the bet is on refiners who has no or very less crude oil inventory.
We are not at the economic threshold of return yet where we can handle higher prices in energies. If energies run up the economy will be pushed deeper into recession, perhaps even depression. The energy bubble caused a chain reaction of dissent in over-all financial stability. If energies…specifically oil began moving up at this time we will face economic times like we have not experienced for 70 years.