Views on commodities and energy
The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4.
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.
One of the most significant comments about the world economy this week may have come from Klaus Kleinfeld, the chief executive officier and president of Alcoa, America's largest aluminium producer. Amid the reporting of pretty horrible earnings -- a $497 million net loss versus a year-earlier gain of $303 million -- Kleinfeld said things may not get much worse.
"There are some signs in many of our end industries for a bottoming out," he said.