Oil markets pressured by copper price falls

Oil markets


Brent Mar14Whisper it quietly to your friends in the oil business.  But oil prices are looking very vulnerable.  Producers and the central banks have done a great job in creating the myth of imminent shortages – these have always been ‘just about to happen’ as a result of supply disruptions or the long-promised recovery in global growth.

But whilst the blog tips its hat to them for creativity and persistence, frankly the story is wearing a little thin.

The facts of the matter are that prices have hardly moved since the blog suggested last September that the bulls seemed to be running out of ideas to help keep prices at the $100/bbl level:

  • The maximum weekly average price has been no higher than $112/bbl
  • $105/bbl has been the minimum weekly average – creating a very narrow trading range

And the fundamental rule of purchasing is that when prices are not rising, they are on the way down.  No wonder the normally bullish analysts and traders in the investment banks have gone rather quiet.  They will face job cuts rather than bonuses if this calm continues.

Most likely, however, this is the calm before the storm.  The market has traced out, as the chart shows, probably the most extended triangle shape of all time.  And triangle shapes normally end with a bang, not a whimper.  Either the bears give up, and allow prices to rocket higher.  Or the reverse happens, and prices collapse.

Copper markets may provide a guide to what may happen next.  Nicknamed ‘Dr Copper’ for its ability to act as a leading indicator for the global economy:

  • Copper prices trebled from $1.4/lb in December 2008 to peak at $4.50/lb in February 2011
  • They then collapsed to $3.60/lb in October before stabilising
  • But in recent weeks, they have begun another collapse, falling to $3.0/lb last week

There are many reasons for copper’s fall, and most of them also apply to oil.  Players have been happy to build inventory in the belief that prices would always recover.  Whilst central banks have maintained the flow of easy money at low interest rates.  In the absence of real growth, this money had to go into speculation instead.

Copper prices are now at their lowest levels for 4 years, and its decline has been followed by other metals including aluminium, lead, nickel and zinc.

So oil prices may be about to follow.  Certainly it seems one major support for them may be about to disappear.  As the blog noted last June, Brent has been a broken benchmark for many years.  It trades only 1mb/d, yet sets the price for 2/3rds of the market.

Of course, this has been very convenient for everyone involved.  But now the ICE futures exchange is starting to discuss adding more grades to the benchmark.  And Vitol CEO Ian Taylor has argued it should include oil from W Africa, Kazakhstan and Algeria, as well as Russia and the US.

The key to the short-term outlook is probably China.  The market still expects another stimulus package, and is holding on to its cargoes in hope.  But if the new leadership continues with its current policies, then in the absence of major global hostilities, prices probably have only one way to go.


Surprise! Economists suddenly wake up to reality about China


“Forget the Crimea annexation or a U.S.-Russia standoff. The biggest inter...

Learn more

China's lending problems begin to worry wider world - too late


Suddenly, people are starting to talk about China and the risks it creates for ...

Learn more
More posts
Oil markets enter the endgame as car companies rush to electrify

Almost every day now sees a car company rushing to announce its plans to boost Electric Vehicle (EV)...

Friends of the Earth v Royal Dutch Shell – what did the Dutch Court rule, and what does it mean for Shell’s business?

My Dutch colleague, Daniël de Blocq van Scheltinga, is a graduate of Leiden University in the Nethe...

Oil markets, OPEC, enter the endgame for the Age of Oil

2 major events shocked oil markets last week. They marked the start of (a) the endgame for the Age o...

Iran highlights OPEC’s dilemma on output cuts

Saying you “won’t do something” may stop you digging a bigger hole for yourself. B...

Oil prices start to reconnect with coal and gas

Oil prices are finally starting to reconnect with other fossil fuel prices, as the chart shows.  It...

Oil markets hit perfect storm as coronavirus cuts demand

Former Saudi Oil Minister Sheikh Yamani’s warning in 2000 looks increasingly prophetic today: ...

Oil markets hold their ‘flag shape’ for the moment, as recession risks mount

Oil markets can’t quite make up their mind as to what they want to do, as the chart confirms. ...

Oil market weakness suggests recession now more likely than Middle East war

Oil markets remain poised between fear of recession and fear of a US attack on Iran. But gradually i...


Market Intelligence

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

Learn more


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