Crude Oil price outlook – the change in trailing correlations – Crude Oil blends and Euro-USD exchange rate

I suspected that this was happening but didn’t want to pass judgment till I saw the data myself. I want you to see it yourself also.

Here is 60 day trailing correlation between the various blends of crude oil and the Euro-USD exchange rate. Can you see the dive starting April 2010? The last time this divergence happened was towards the fall of 2006 and mid year 2007. But what it shows you that while your historical models would be right predicting oil prices will move with the exchange rate, the last 15 days of data says otherwise. The only question is that will this turn and will we see a repeat of the previous dip, or is the magic between the Euro-USD pair and crude oil blend price changes gone forever?

Interesting debate to be had between the risk middle office and the head traders on the commodity trading floor! May we all get a chance to live in such interesting times.

Here is a closer look. Upfront the dive doesn’t look that steep, but it is still a dive. It looks that there is a bit of flattening in the works and we will find out for sure within the next two weeks.

Here is what the data looks like. The dark black line is the Euro-USD exchange rate.

I will also try and get the trends super imposed on the price to see what happened in 2006-2007.