If one wished to summarize May's financial market trading in one word, that would be the one. Crude's stunning rise has befuddled many, including regular posters D and Mr. Prop, as well as Macro Man himself. Anatole Kaletsky blames the speculators; unfortunately, the quality of the CFTC data on specs is insufficient to reach an accurate judgment of the matter, as index "investors" show up as commercials. One of Macro Man's favourite analysts, Goldman's Jeff Currie, suggests that oil's been dragged up by the back end of the curve, which has needed to rise to attract appropriate levels of investment into the industry. Perhaps, but that doesn't explain why Dec 2015 oil has risen 34% (!) so far this month; surely the seven-year fundamentals of the industry haven't changed that much in three week! And unfortunately for Mr. Kaletsky's theory, volume in this Dec '15 contract, pictured below, hasn't been that much higher than in March, when the contract traded sideways to lower.

Frankly, Macro Man doesn't know what's going on here, and from what he can make out, neither does anyone else. Crude certainly looks to be a bubble at the moment, similar to wheat in February; that Icarus crashed to earth with a resounding "thud." Perhaps oil will trace out the same pattern as wheat, but Macro Man remains wary of Keynes' maxim when it comes to calling the top in a bubble. Perhaps Cassandra's suggestion of higher margin requirements is what's required to stop the madness; at the very least, it would be interesting the impact from an intellectual perspective.

Intriguingly, the Jeff Currie perspective on the world suggests that oil is already entering a cyclical bear market, buried deep within the secular bull. The chart below shows the percentage difference between 24th Nymex crude contract and the front contract. Observe how how it is moving into contango- , with the ratio turning negative. Equally interesting is the fact that on a percentage basis, the backwardation since the 2006 bear market has been very, very modest in comparison with previous secular bulls; perhaps the energy market has been pricing in slower US/world growth, even as the nominal price has risen.