LONDON, July 26 (Reuters) – Led by University of California Professor James Hamilton and Fed Chairman Ben Bernanke, economists have sought to quantify the impact of oil shocks on economic performance.

The conventional approach treats oil prices as a (partly exogenous) input into forecasts of growth. The causality runs essentially in one direction from oil prices to economic growth.

LONDON, Jul 25 (Reuters) – Is there any rational basis for
UK investors, businesses and households to expect inflation will
average 2 percent over the next five years when it has averaged
much more than that over the last five?

The Bank of England remains publicly committed to achieving
its 2 percent inflation target in the medium term. But the
commitment is increasingly threadbare and investors as well as
wage and price-setters would be unwise to place much faith in
it.

LONDON (Reuters) – In their famous 2004 paper “Facts and Fantasies about Commodity Futures” Gary Gorton and Geert Rouwenhorst outlined the case for treating commodity futures as an asset class offering a similar risk premium to equities as well as diversification benefits and protection against inflation.

But is the indexing approach to investing in commodity futures still valid?

Substantial inflows of capital chasing roll returns in commodity markets have eroded the risk premium Gorton and Rouwenhorst found in the years before 2004. Rising investor participation has also tied returns more closely to those in other asset classes.

LONDON, June 28 (Reuters) – There is no evidence anyone can
successfully predict commodity prices. Most forecasts seem to be
adaptive — reacting to past price changes — rather than
forward-looking, and therefore miss turning points.

There is no evidence any forecasters consistently get it
more right than wrong. Forecasts can never be more than a
baseline for planning and investing surrounded by significant
uncertainty.

LONDON (Reuters) – Coal dominated the energy systems of the 19th century, giving way to petroleum in the first part of the 20th century, but the next few decades could see another huge shift to an era dominated by natural gas.

The International Energy Agency (IEA) recently asked whether the world is entering a “golden age” of gas. Gas has uniquely attractive properties that suggest it will take over from oil as the price-setting form of energy in the next two decades.

LONDON (Reuters) – Forget the spot oil price. The real action Thursday following the International Energy Agency’s decision to order a release of emergency stocks was in the timespreads.

The main effect has been to erase fears about a summer shortage of seaborne light sweet crude, crushing the Brent timespreads and largely eradicating the backwardation in place since the loss of Libyan output in February.

LONDON (Reuters) – The International Energy Agency’s (IEA) decision to release 60 million barrels of crude oil from strategic reserves is intended to drive speculators out of the market and resist the formation of a bubble by breaking expectations about near-term supply shortages, rather than target OPEC.

While the intervention will be intensely controversial, especially in the industry and among hedge funds and others running long positions in crude futures and options, it can be presented as a relatively limited move in response to fears about a shortage of specific grades of crude over a short time window, smoothing the process of adjustment.

LONDON, June 23 (Reuters) – The International Energy
Agency’s (IEA) decision to release 60 million barrels of crude
oil from strategic reserves is intended to drive speculators out
of the market and resist the formation of a bubble by breaking
expectations about near-term supply shortages, rather than
target OPEC.

While the intervention will be intensely controversial,
especially in the industry and among hedge funds and others
running long positions in crude futures and options, it can be
presented as a relatively limited move in response to fears
about a shortage of specific grades of crude over a short time
window, smoothing the process of adjustment.

LONDON (Reuters) – Hedge funds and other money managers continue to liquidate their net long position in WTI-linked futures and options, but the pace of drawdowns has slowed in recent weeks, and the hedge fund community still holds a bigger net long position than at any time before 2011.

In the week to June 14, hedge funds and other money managers cut their net position in WTI-linked futures and options to just 249 million barrels, from 254 million the previous week, and down from a peak of 365 million on April 26, according to data published by the U.S. Commodity Futures Trading Commission (CFTC).

LONDON (Reuters) – Stanford University’s Professor Kenneth Singleton has mounted the most wide-ranging and influential assault so far on the orthodoxy among policymakers and academics that speculation does not affect commodity prices.

Singleton’s paper on “Investor Flows and the 2008 Boom/Bust in Oil Prices” is generating waves across the commodity world because he is a highly respected econometrician whose findings and arguments cannot be easily dismissed as the work of the usual cranks and opponents of free markets (www.stanford.edu/~kenneths/OilPub.pdf).