Lessons from the recent oil flash crash

Posted on 01. Oct, 2012 by Jean Jacques Ohana in Weekly Focus

The commodities price action of the past week has been particularly revealing on the current markets dysfunctioning. On Monday, on no news, the Brent dropped by almost 3% in a few seconds, just a few moments after grains collapsed by approximately the same amount, probably on improved soybean supply outlook in South America (see Figures [...]

Does the oil complex get bullish?

Posted on 23. Nov, 2011 by Riskelia in Weekly Focus

One of the main differences between the present state of financial markets and the 2008 situation is the supportive oil supply / demand outlook. In 2008, the global commodities one year curve sharply shifted to record contango whereas it is hardly positive today. The commodities curve reflects the inventory level. Whereas a trend towards backwardation [...]

Not yet the time for re-risking

Posted on 15. Nov, 2011 by Riskelia in Weekly Focus

For sure, the trends of some cyclical assets have notably improved over the recent weeks. This improvement is noticeable at the US sectors levels (Nasdaq 100, Utilities, Consumer Staples and Health Care) in Figure 1 and in the oil complex (Brent, products and even WTI) in Figure 2. The dynamics of the oil curves [...]

Are commodities capitulating?

Posted on 04. Oct, 2011 by Riskelia in Weekly Focus

The main event of the last two weeks is undoubtedly the shift of commodities trends into negative territory. The precious metals fell sharply two weeks ago whereas the grains tumbled last week. This broad base correction is closely related to the deterioration of the Chinese growth outlook as perceived in the Shanghai equities’ poor performance [...]

Will the sell-off spiral be short-lived?

Posted on 10. May, 2011 by Jean Jacques Ohana in Weekly Focus

We emphasized last week the risk of a sharp deleveraging in the commodities complex, noticing the offhand proliferation of overheated bubbles (8 in the complex). A massive joint move such as the one observed over the past week was hence to be expected, though the timing of the fall was not predictable. Notwithstanding these recent [...]

Will commodities rise defy European solvency issues?

Posted on 29. Dec, 2010 by Jean Jacques Ohana in Weekly Focus

As presented in the following charts, the average 1 year curve on a diversified basket of 17 commodities has dropped to record levels. This curve evolution to backwardation reflects depletion in global commodities inventories and supply tensions among various materials. Cotton and Sugar show the most significant 1 year backwardation to 40% and 30% respectively, [...]

Does oil respond to speculation or fundamentals?

Posted on 17. Mar, 2010 by Steve Ohana in Weekly Focus

The energy complex seems to go through a highly interesting new period accumulating several bullish signs. From the beginning of 2009 onwards, the oil curve has been flattening consistently, meaning that the harm inflicted by the contango to long investors has considerably decreased over time as exhibited in the chart below:

Sources : Bloomberg, Riskelia’s estimates, the [...]

Do commodities represent an asset class?

Posted on 28. Feb, 2010 by Steve Ohana in Weekly Focus

Commodities imposed themselves in the investment arena in 2004, when emerging countries and specifically China started deeply changing commodities’ long run fundamentals.
An annual consumption growth of more than 6% on many depletable commodities (energy and base metals markets) fostered a major bull run on commodities. The fundamentals are indeed preoccupying: China alone will consume 9 [...]

Why commodity prices rise together with inventories?

Posted on 18. Feb, 2010 by Jean Jacques Ohana in Weekly Focus

In traditional commodity cycles, commodities prices tend to rise when inventories decrease and conversely drop when inventories increase. This mechanism is highly intuitive since when inventories are rising (resp. declining), we can infer that the supply is large (resp. low) in face of demand, which translates into a downward (resp. upward) pressure on prices.
The traditional [...]