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People are starting to notice that it costs less to fill up their car at the gas station, and it’s due to the considerable drop we’ve seen in oil prices. A story line that’s been circulating centers around US fracking and its devastating effects on the price of crude oil. We’ll never know all of the reasons behind any security’s price fluctuation, but we’ve noticed something interesting here at Mullooly Asset Management. On today’s podcast, Tom and Brendan discuss the broad weakness we’ve seen from commodities over the last two years.

Is the decline in oil prices just because of fracking and over supply or is it something more? Here’s some interesting data we’ve collected from our friends at Dorsey Wright.

Commodity Returns 12/31/13 through 12/4/14

Crude Oil: -31%
Heating Oil: -30%

Cotton: -30%
Soybeans: -24%
Corn: -12%

Silver: -15%
Gold: -0.46%
Platinum: -9%
Copper: -15%

Commodity Returns 12/31/12 through 12/4/14

Crude Oil: -26%
Heating Oil: -28%

Cotton: -21%
Soybeans: -30%
Corn: -47%

Silver: -45%
Gold: -28%
Platinum: -19%
Copper: -20%

Perhaps we should be discussing the broad weakness displayed by many commodities over the last two years?

Commodities and their producers have been struggling over the last two years. Areas like Brazil and Russia are displaying very poor relative strength right now. Both are closely linked to their natural resources and the ability to export them. They’re not alone. Internationally, the commodity struggle is being exacerbated by a strong dollar environment.

Even within the US, areas that rely on the production of crops like soybeans, corn, and cotton aren’t doing as well as other areas of the country. We’ve also seen many MLP’s and high yield funds hit hard by the drop in crude oil prices because of their exposure to the exploration and production side of the oil market.

Commodity prices tend to show signs of inflation first, something the Federal Reserve is desperately hoping to see so they can raise short term interest rates. If the trend of commodities continue in this manner, we may be talking about deflation instead of inflation.

Like stated previously, we’ll never completely know what causes a security’s price fluctuation. We’re guided by point and figure charts here that track supply and demand. We leave the guessing game to others, but the drop in oil prices might not only be related to US fracking and over supply. It could be something bigger. Time will tell.