So Far Down It Looks Like Up

This could have applied to almost all commodities at the beginning of the year, but none so more than the crude oil and associated markets. However, with a 50% price appreciation  in Crude since the bottom in early January the question becomes: What has changed in the interim other than a precipitous decline in the dollar? We maintain that not much has fundamentally  changed during this period for commodity markets. However, potential inflection points in markets are often accentuated by a mis-pricing of the current reality. That current “reality” we refer to is framed by the momentum driven consensus view that derives its underpinnings  primarily from the most recent price action.  In other words, as price shifts the new view of reality shifts and a new consensus is formed. The “real reality” however is much different, with price signals taking some time to work through the global marketplace: rigs must be laid down, capex budgets slashed, etc.. Market noise is deafening at present, look through the din and focus instead on the fundamentals which often are not accurately reflected in real time pricing.

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