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Crude Oil Price - 6 month scale - 2015-2016

Crude Oil prices over last 6 month – graph from Nasdaq

The market continues its rollercoaster performance, leaving investors and their advisers dizzy from the predictions and actualities. A case in point is the performance of crude oil. When prices dropped to $27 per barrel, the conventional wisdom coalesced in pessimism and that this trend was heading only in one direction—downward. Combined with gloomy reports about faltering economies around the world, especially China’s slowdown and the abundance of crude oil on the market, it seemed to be the perfect time to invest in shorts, which many hedge fund managers did. However, in late January, crude oil prices rebounded, by as much as 52%, with prices leaping from $27 per barrel to $41. Hedge funds scrambled to cover their shorts. A slingshot effect ensued, pushing crude oil prices even higher. This scenario played out in other commodity markets as well, such as copper, iron ore and aluminum. Investors raced to catch up with the new momentum, only to find themselves facing falling prices once again guaranteeing that the only certainty is that nothing about the market these days is anywhere near certain.

The current scenario seems a bit brighter. Brent prices are at $55 per barrel. Zinc, aluminum and copper prices are currently on the upper part of the curve, with miners Shell, Glencore and Anglo American all enjoying significant bounces in prices. This improved situation is giving cause for most experts, other than Goldman Sachs, to believe that we have survived the bottom of the cycle and the upward trend will continue.

But there is still a somewhat dark cloud hanging over the entire marketplace. While Chinese steel mills have returned to their normal business schedule, and iron imports are surging, most analysts see this as temporary, especially in light of the anticipated 6-month ‘curtailment’ of steel production, slated to begin in April. An IMF prediction of an ‘economic derailment’, coupled with China’s prior export performance, which hit its lowest level since February 2009, tempers enthusiasm for optimism.

If we look at crude oil, we see a similar picture. OPEC and non-OPEC producers, such as Russia, hit their production output peak in January. Iran, though, has plenty with which to flood the market, and everyone expects it to take advantage of the situation as soon as possible. Once Iraq regains solid footing and is able to do a better job of protecting its oil distribution lines, it is expected that it will also flood the market with crude oil.

In the same boat, so to speak, is the shipping industry. Industry analysts are having an equally difficult time attempting to assess and predict. The Baltic Dry Index has been riding the same rollercoaster, reaching 1,222 on August 5, 2015 and dropping to 290 on the 16th of this past February. It has recovered somewhat, rising by 32%, but not for capesizes. The Baltic Dirty Tanker Index has experienced similar volatility.