http://www.alhambrapartners.com/2015/05/18/the-basic-economics-of-smaller-economy/
Since hitting it most recent low in mid-March, spot WTI has rebounded about 40% reaching above $61/barrel at one point. The ultimate low, which brought the physical price down under $43, was on the morning of March 18. The FOMC statement later that afternoon has been taken as a removal of any close threat to ZIRP, taking enormous pressure off the “dollar.” But the abatement of such compression is not necessarily the same as initiating its opposite condition; if tremendous “dollar” buying were to scale back it does not mean that everyone has now turned into a “dollar” seller.
There are numerous indications which suggest that funding is only taking a break (if even that) after March 18 and that in between has been more of a listless lack of conviction in any direction. That hasn’t stopped certain downstream markets from running away in the interim. Some of that, especially in credit, may be related to what I think are rising expectations for a renewal in QE (or perhaps some other more creative means for doing very little) but there is also just plain speculation and momentum.
That seems to be where the oil market is, falling somewhere in between raw speculation and being attentive about the “dollar” pause. The front end is seemingly a high beta version of the “dollar” while the back end is stapled into the mid to high $60’s. Interestingly, in recent days the curve has moved away from backwardation as the outer maturities increased somewhat relative to late April. However, for the most part the WTI curve has become rather stale of late as it seems that open space in the “dollar” has been long enough for pure momentum to begin to fade.
That raises the question that if a 40% jump in prices is not enough to achieve the more “natural” backwardation, then maybe fundamental imbalances, of both finance and economics, aren’t yet ready to let go of price dynamics.