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.
from Summit Notebook:
Rice University's Baker Institute Energy Forum Director Amy Jaffe says, like many other analysts we've spoken to this week at the 2009 Reuters Global Energy Summit in Houston, the supply and demand fundamentals for oil are not in sync. But, will oil investors continue to push prices higher through the end of 2009? Or, will they lose their shirts come December? Check out what she had to say...
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.
The correlation between oil prices and the dollar seen since the third quarter of 2007 has weakened. Investors had sold the dollar as U.S. economic prospects dimmed and bought oil as a hedge against inflation and uncertainties in the supply of raw materials. The relationship eased late last year as fundamental pressure from slumping demand and the slowdown of the overall economy pushed oil lower independent of the actions of the dollar, and analysts said the link might not return in the near term.