Oil Might Be The Clue To The Future Of Base Metals

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The decline in oil prices has come to an end….or has it?

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At this point, I think we can all agree that no one knows what’s going to happen to oil throughout the balance of 2015. Although prices have stabilized since January, calling for a bottom right now would just be a guess. It would be no more reliable than flipping a coin, especially since it’s in a period of extreme volatility where the psychology of market participants is what determines the price. In the chart, the recent rise is still just a bounce that could fall to succeed.

Oil Price since 2013

Oil Price since 2013. Source: MetalMiner.

Oil crashed in 2014 before industrial metals fell significantly. Now, many industrial metals are near key support levels. At the same time that oil is trying to make a comeback. We believe that oil failing to make a comeback could make industrial metals keep on falling for the rest of the year.

Dollar Index since 2013

US dollar Index since 2013. Source: MetalMiner.

Another actor that is playing a key role in this drama is the dollar. We can see in the chart above that the dollar index looks like a mirror image of crude oil. Indeed, the dollar has also stabilized since January and we expect the dollar and crude oil to continue moving in opposite directions through the balance of 2015.

What happens from now is hard to tell. What is clear is that oil and the dollar will play a key role in the performance of industrial metal prices in 2015. At this point, until we get more clues, all we can say is that oil is in a falling market and the dollar is in a rising market.

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