Crude oil prices are exhibiting all the signs of an increasingly difficult funding environment. The front end of the futures curve is being bent dramatically in relation to even close maturities just outside the next few months. Such contango is the obvious imprint of finance, though that is not to say that economic expectations are neutral in the curve. Far from it, as the entire curve shifts lower and lower, only with that acceleration of the “dollar” end leading the way.
Having stuck around $40 last week, this week opens with WTI under $38 and almost $3 contango to March 2016. While that represents a steeper front end, the March 2016 contract is itself trading at a new low for the first time since August 24 ($41.21 intraday then vs. $40.54 at last trade). It is the financial/economic meeting point hastened by a worsening “dollar” condition.
In some ways crude oil is just catching up to where other economically-sensitive commodities have traded already. Copper had sunk to just around $2 two weeks ago, along with iron ore and other industrial metals.
From that, the clear outlines of a global recession are visible as metals and commodity prices all across the industrial and economic landscape are trading already now in comparison to the worst parts of the Great Recession. According to the IMF's various indices, that was the case through their latest estimates for October meaning that November updates will show new “cycle” lows in almost every index.
Where crude oil gets most attention, and thus becomes almost an excuse (“it's only in oil”), non-fuel commodity prices are being distinctly sold and financial issues unwound. In other words, these are numerous and widespread indicators that “something” is very wrong in the global economy and certainly not something that should be simply dismissed as “transitory.”
The indications already trading in December are, again, as the “dollar” projects for economic demand – which is why commodity prices so mimic the conditions in “dollar” funding (aside from more direct collateral relationships and issues). Not only does the front end of the WTI curve stand out for funding considerations, other even retail indications denote largely the same difficulty. From junk debt to mortgage REIT's, the uniform interpretation looks like more than renewed financial retreat as one after another market price sets a new low.
