Oil prices have rebounded by $16 a barrel since the low point was reached at $45 a month ago, and investors are already wondering whether the worst is over for the energy sector. The bear market that started in 2011 has seen a peak-to-trough decline in overall commodity prices of 46 per cent, which is almost exactly the same decline experienced in the six previous bear markets, though this one has lasted 3.7 years, compared to an average of 2.3 years (according to JPMorgan). Based on the past chronology of commodity bears, the trough is now overdue.
It will of course be impossible to pick the local bottom with any precision. Last year’s collapse in oil prices was not built into the forward markets. Nor was it predicted, even as an outside possibility, by economists and oil analysts. Few macro investors made any significant money from it, until trend-following funds entered significant short positions towards the end of the year.
The inability of economists to forecast such an important event, not just for commodity markets but for bonds and equities as well, is certainly sobering. But almost without pausing for breath, we are faced with another urgent and unavoidable question: does the bounce in oil prices in the past month herald the end of the crash?
