Crude on sale

July 28, 2015 03:34 PM

A political deal with Iran, weakening industrial demand in China and U.S. shale initiatives continue to provide a poor backdrop for the price of crude oil. You can argue the recent rise in the value of the dollar in either direction. It is either signaling a strengthening domestic economy, but one that won’t definitely suck in crude imports, or else it is reacting as the least dirty shirt in the laundry basket. In the latter case, its value is rising at the expense of global currency units hampered by late-to-the-game asset purchase policies. Either way, the fundamental backdrop is not necessarily conducive to limiting excess supply, or at least the dollar is not the villain in terms of hampering commodity prices this time around. Casting an eye over the situation one year ago reveals just how much the price of crude oil is currently on sale.

At $47.31 per barrel the price is lower by $46.64 according to the accompanying term structure chart. A year ago the least expensive price of oil could be found at the December 2022 expiration at $86.47 per barrel. Twelve months later as the bearish fundamental backdrop inspires the bears to once again flex their muscles, oil at that same expiration is now the most expensive across the curve at $64.56 – some 25% weaker than last year. 

Chart shows nearby crude futures 50% lower than year ago

About the Author

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.