Technical & Fundamental Oil Reports Specialists

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Futurisation, fracking and inflation

Published Friday, May 15th, 2015

Theories as to the cause(s) behind the bond market price collapse abound. It is yet another tremor that has set off yet more alarm bells, even as we are still being told a recovery is in progress albeit rather weak and patchy. Explanations include:- bonds were clearly overvalued and a correction long overdue; doubts have crept in about the longevity and size of the ECB QE put; investors are more confident about economic recovery especially in the eurozone; deflation has been beaten and inflation expectations have moved higher; value at risk models assuming low volatility rapidly changed message when volatility appeared; regulatory changes have destroyed liquidity and created air pockets; the QE environment has led to crowded trades with narrow exits.

What happens in the bond and stock markets impacts on oil prices because commodities are now one of four mainstream asset classes that hot money flies in and out of as sentiment swings. The result is that oil price forecasting is more difficult than ever, to the point of being foolhardy whilst giving the impression that there is something scientific in the process which is grounded in fundamentals. All commentators like ourselves can do is to try and assess where fundamentals should lead the price and warn when prices seem out of line with the physical oil balance. The presumption is that eventually fundamentals win out but the reality is that ‘distortions’ can last for a long time.

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Posted by David Hufton