Commodity Corner
Views on commodities and energy
Oil Market Contango Widening
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.
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.
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.
from MacroScope:
“Tinny” signs of recovery
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.
A key element was that inventories have been drained across the board, throughout Alcoa's supply chain, among its customers and among its customers' customers. They are unsustainably low, Kleinfeld said.
That is the kind of thing to lift the spirits of anyone seeking signs of future demand in the economy. Not only is it rare these days for an industrial company's CEO to find anything positive to say, it also implies that industrial production is primed for a lift.
Unless, of course, it means that everything is about to come to a grinding halt
With gas & crude prices dissociating, IMO the bet is on refiners who has no or very less crude oil inventory.
