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.
Crude oil hits its lowest level since 2009. Source: @StockCharts.com
Although many people believed that oil prices had found a floor earlier this year, we didn’t subscribe to that view.
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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:
The Industrial Metals ETF is going the same direction as oil. Source: @StockCharts.com.
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.
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