That’s what analysts at Barclays Capital say – in fact, they argue in a weekly note, the effect of the weak dollar on all commodities markets is not as great as it might seem.
Firstly, they write, the movement of different commodities markets in recent weeks are divergent enough to undermine the view that the dollar is the “main driver” of price moves.
Second, a simple analysis of dollar moves against daily returns shows a wide range of correlations:
Unsurprisingly, gold has the strongest rolling 30-day correlation at 65%, but for others, correlations are lower at 57%, 34% and 22%, respectively, for oil, copper and corn. All of these correlations are at present somewhat above their five-year averages (which are 51.7% for gold, 25.4% for oil, 19.5% for corn and 17.8% for copper), but not massively so and there are clearly other things going on.
Still, we note that correlation for oil is over 50 per cent, and more than double its five-year average.
Their third point is that recent positive macroeconomic data is at least as important as dollar moves:
On the macroeconomic front, so far the path of recovery has surprised to the upside, while the second and associated key parameter change has been a gradual turning around in the global oil demand data.: for instance, the key sources of weakness in oil demand so far, the US and Japan, have shown steady improvements over the past few weeks.
BarCap analysts believe that crude oil has decisively broken out of the $65-$75 range and into the $70 – $80 range. But areas of weakness remain – particularly in distillates inventories and US natural gas:
In this we would highlight the growing disparity between distillates and gasoline fundamentals, with the overhang of distillates still extremely large, and there is no sign as yet of any boost to demand from OECD inventory rebuilding. However, we do not think the recent crack movements have fully reflected this inequality, and we retain a negative bias on distillate cracks. We remain bearish on European carbon and on US natural gas prices, as we forecast gas in storage will hit all-time highs by the end of the injection season.
Related links:
Crude interpretations of stock data (FT Energy Source, 22/10/09)
Fears grow over storage and product overhang (FT Energy Source, 21/09/09)
Natural gas comeback not exactly what it seems (FT Alphaville, 14/09/09)
