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UN Report Says Oil (NYSEARCA:OIL) (NYSEARCA:DBO) Market Becoming Divorced From Fundamentals

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As financial investment in commodities like oil has snowballed in recent years, oil markets in turn respond to the same signals moving other global markets.

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The United Nations Conference on Trade and Development (UNCTAD) this week issued an eye-catching report into the causes of oil price volatility, concluding that commodity markets in general were increasingly driven by broad trends in financial investment, and not by their own unique supply and demand factors.

This debate has been running for a few years, but UNCTAD's research was remarkable for how clearly it came down on the side of those who argue that the sheer scale of financial investment in commodities has allowed prices in those markets to become divorced from the underlying fundamentals.

As oil has become just another "asset class," it seems to be moving in tandem with equities, the report said, whereas a rational economist might expect supply and demand factors regularly to pull these markets in different directions. [Editor's note: Most retail investors would have exposure to crude oil through a fund, such as PowerShares DB Oil Fund (NYSEARCA:DBO) or iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL).]


Source: UNCTAD
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