We should state from the outset that it’s not that energy costs are directly dependent on the oil price — very little electricity generation around the world, Saudi Arabia being an exception, is generated from crude oil.
But with power making up to a third of the electricity cost structure, energy costs in general are taken as either bearish or bullish for the light metal depending on whether they are falling or rising strongly.
So the oil price slide — prices have lost around a quarter of their value since early October — is one of a couple of early indicators that support for aluminum price rises is waning.
Indeed, the corresponding strength in the dollar this year, coupled with recent oil price weakness, goes a long way toward explaining the aluminum price slide since the summer.
Back to oil, according to Reuters, front-month Brent crude oil futures were trading at $65.88 per barrel yesterday, while U.S. West Texas Intermediate (WTI) crude futures were at $55.96 per barrel, both down about 0.5% from their previous close.
The reason isn’t hard to find.