Volatility has been rising in the crude oil and feedstocks markets. This is because individual players have completely different strategies. In turn, this makes it difficult for chemical companies to forecast short-term feedstock costs. It also makes it difficult to maintain margins.

Last Monday, crude reached a new high of $111/bbl. Then, as the scale of the Bear Stearns collapse became apparent, it fell over $10/bbl. Currently, it is trading around $100/bbl. A number of different rationales have been put forward to explain this sudden fall:

• Many commentators have taken it as a sign that the US recession will reduce demand, causing prices to weaken. Latest EIA figures show a rare, if minor, 0.1% decline in gasoline demand over the past month.
• Other analysts have pointed out that last week’s wild swings in equity markets caused major losses for many investors, requiring them to meet margin calls by selling out their positions in commodities.
• They have also added that Bear Stearns’ Proprietary Trading Group had been very active in crude oil futures, and it was likely that its positions had been sold quickly once its collapse had been confirmed.
• Equally, others have argued that crude’s recent strength was due to US $ weakness, as investors used commodities as a ‘store of value’. They now expect the US $ to strengthen, reducing their attractiveness.

All of these analyses probably have some element of truth in them. Over the longer-term, prices will be set by the fundamentals of supply and demand, which in turn will be influenced by geo-politics. But last week’s ‘perfect storm’ of events illustrates just how complex it has become to forecast day-to-day market action in crude oil markets.

PREVIOUS POST

US housing weakens again

24/03/2008

The above chart comes from Kevin Swift’s weekly report for the American Chemis...

Learn more
NEXT POST

FT’s subprime jokes page

26/03/2008

Those who liked my earlier posting about Margin calling, might like to look at t...

Learn more
More posts
Financial markets head for (another) train crash as coronavirus starts to impact
17/02/2020

China’s industrial heartland of Hubei (pop 59m) and its capital Wuhan (pop 11m) have now been ...

Read
Coronavirus disruptions make global recession almost certain
11/02/2020

Last month, our Hong Kong-based pH Report colleague, Daniël de Blocq van Scheltinga, warned of the ...

Read
Your A to Z Guide to the Brexit trade negotiations
02/02/2020

A. Article 50 of the Lisbon Treaty set out the rules for leaving the European Union. As with most ne...

Read
Contingency planning is essential in 2020 as “synchronised slowdown” continues
12/01/2020

The IMF has now confirmed that the world economy has moved into the synchronised slowdown that I for...

Read
Will stock markets see a Minsky Moment in 2020?
05/01/2020

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Read
Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis
22/12/2019

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

Read
Boris Johnson will have to disappoint someone in 2020 as the UK finally leaves the EU
15/12/2019

Finally, after three and a half years, the UK has reached “the end of the beginning” wit...

Read
ACS Chemistry & the Economy webinar on Thursday
10/12/2019

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more