In the last few weeks, the market has taken another dive.
Commodity futures, a type of derivatives traded on the secondary markets, have fallen in value by nearly 80% since the start of 2017.
That’s not a coincidence.
The commodity market is now in a downward spiral.
According to Bloomberg, the median price of a barrel of oil, the most commonly traded commodity, has fallen to $115 a barrel, from $126.
That’s up from $95 in the last six months.
According an article published in the Wall Street Journal, the boom in oil prices came to a sudden halt when the US government put forward a rule mandating a cap on oil prices in 2017.
That rule was rescinded the following day.
There’s no way to know for sure what the rule’s effect was.
However, it’s safe to say that the US regulator’s move created a market in fear and uncertainty that has only worsened.
“It’s like when you’re a kid who thinks you’ve got to wear pink because it’s summer and your mom thinks it’s bad,” one analyst told the WSJ.
As the price of oil falls, so does the demand for commodities.
In addition to slowing demand, the supply of commodities has also been cut.
Global supply has dropped from 3.8 million tonnes per day in January to 2.4 million tonnes, according to Bloomberg.
To add to the pressure, the World Bank said last week that global supply growth has slowed to just 1.5% per annum from a high of 9.1% in 2013.
This has made it even harder for the US economy to stay afloat.
If we look at the number of people working in the oil and gas sector, we can see that there is no clear pattern to the decline in the number or the rate of job creation.
While the jobless rate has dropped, it has been driven by an increase in oil and natural gas extraction.
For example, the number working in oil- and gas extraction rose from 7.5 million in 2014 to 12.1 million in 2015.
Another important indicator of the oil market’s collapse is the decline of the value of the dollar.
A decline in oil demand and an increase of oil prices have led to an overall decline in global reserves of about 2.5%.
“The fact that oil has been down is just the beginning,” a veteran oil analyst told Bloomberg.
“This is a major problem.”
If the commodities market has shown any signs of a correction, it could mean that the economic recovery is now a little further away than many economists are predicting.
Experts are also concerned that the downturn could slow growth in the US.
Economists at the Brookings Institution have argued that a decline in US energy production could reduce growth by 1.8% in 2020.
Some economists think the drop in oil production could have a more damaging impact than just a decline.
When oil prices plunged, they could have forced the US Federal Reserve to cut interest rates in order to stimulate the economy.
But analysts say that this could be just a temporary stop-gap measure and that the Fed should be focusing on increasing the supply and demand for money and on increasing spending.
At the same time, many analysts are also saying that a recovery in the energy sector is in the cards.
We’ll know for certain if the commodity market’s plunge is real by next month, when the Commodity Futures Trading Commission releases its final report on the market.
It will be a difficult time for the economy, but if you want to know more about the current situation in the world of oil and energy, then read our Oil and Gas Industry Insider article.