The Oil Market Signals Trouble for the Future Economy

In the video below, Gammon cites several factors contributing to the recent oil market volatility.

Firstly, OPEC Plus recently announced that they were going to cut production by over 1 million barrels a day. This has caused supply to become restricted.

Secondly, there are geopolitical tensions with Russia and Ukraine which is further reducing supply.

Finally, ESG (Environmental, Social, and Governance) has resulted in very little investment in energy, specifically oil.

Backwardation

Gammon then introduces the concept of backwardation, which is when the futures market predicts that the future price of oil will be lower than the current spot price.

This is unusual because it means that the demand for oil is high right now, but the market predicts that the demand will be much lower.

Gammon suggests that backwardation is telling us that the demand for oil in the future is going to be significantly lower than it is now.

Despite all of these factors that should be pushing the price of oil higher, the price of oil is actually collapsing. This is because the market is predicting that the demand for energy will crash so low that it will exceed our limited supply, causing prices to collapse.

Gammon argues that the most important market on Earth is predicting a recession, if not an economic depression.

Looking at the current price of oil and the futures market, it is clear that the market is predicting that things are going to get a lot worse before they get better. The market is in backwardation, and even with the price of oil plummeting lately and the low supply, it seems that things are going to get worse.

In conclusion, the oil market crash is a clear indication that the economy is heading toward a recession or possibly an economic depression. While many factors contribute to this, the fact that demand for oil is expected to be so low in the future is the most concerning.

The market is predicting that things are going to get worse before they get better, and it is crucial that we pay attention to these signals and take action accordingly.

Watch the full whiteboard breakdown to get a better understanding of what is going on in the oil market right now. 

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