Crude oil hit new multiyear lows last week after the Organization of Petroelum Exporting Countries’ meeting in Vienna last week failed to address a growing supply glut.
Although many people believed that oil prices had found a floor earlier this year, we didn’t subscribe to that view.
The latest decline suggests that further declines might be around the corner. Low oil prices have a double negative effect on commodity prices:
- Oil is not just a commodity, itself, but an asset closely followed by commodity investors. Falling oil prices make investors move away from commodities and, of course, industrial metals.
- Oil is the main benchmark for energy prices. Lower energy prices mean lower transportation costs and lower production costs, especially for those energy-intensive metals like aluminum.
For these reasons, it’s not strange to see that the trend of industrial metals looks very similar to that of oil prices:
What This Means For Metal Buyers
The recent decline in oil prices is just another indicator hinting that metal prices will continue trending lower as we enter 2016.