Publications: Notes at the Margin

Points of Transition (May 23, 2016)


Global petroleum markets seem to be entering a period of transition. The world balance between supply and demand has been reversed, at least temporarily. The economic incentive to add to inventories has all but vanished. Meanwhile, the foundation is being laid for increases in US interest rates, an action that will make stock holding even less attractive. Energy financial markets reflect this transition. The market contango is shrinking, and forward prices are increasing. More cash seems to be flowing into financial instruments. Producers are seizing the opportunity created by the price rise to resume drilling, most likely hedging future production. A transition may also be occurring in consumption. The next seven months will be interesting to say the least.


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