Rally In Commodities Doesn’t Last
A month long rally in the commodities market started to fade last week and that downward momentum has continued to start off the new week. Commodity investors appeared to be overly optimistic over a few signs that the economy may have started to turn around.
Lead by the rise in the price of oil which started to rally in preparation for the summer driving season, however reports have shown that demand is down from a year ago and gasoline stocks have continued to build. The oil market has been highly volatile over the two years and has seen large movements in both directions.
Some analysts have commented that investors have been overreacting to partial economic data and have remarked that we may be seeing the start of another overreaction in the downward direction in response to the blunted rally. There are no real signs that fuel demand will recover anytime soon so any sharp rise would likely be blamed on speculation.
The government is also seeking to find ways to restrict speculation in the commodities market by possible requiring larger margins for the placement of orders. Despite opposition from many traders most people would like to avoid a repeat when oil rose to the ridiculous price of $145 a barrel.
Granted the price fell all the way back down to around $35 at one point, which had oil producers threatening to cut supply drastically but they would also prefer a more stable price. Most producers agree that a fair price is around the $55-$60 range and that appears to be where it’s heading for the time being.
