Is there an index that would predict the evolution of the price of a barrel of oil? Given the complexity of mechanisms that can be swung supply and demand of crude, this seems unlikely. Usually a few weeks of timing delay, an index followed by relatively few investors play this role of leading indicator: the Baltic Dry Index.
In fact, the BDI is a index ultra-sensitive ... it is the price index for sea transport of solids. It was created in its current form quite recently, in 1998 by the British company Baltic Exchange. That's an average of prices of 26 routes in the world of minerals, grains, and metals in particular.
What the BDI says: Its calculation is relatively simple. The very respectable Baltic Exchange in London, already in 1744, calls on brokers in the world to give them every working day, for a price ranging from a cargo XY port A to port B. For example, "What is the price negotiated for 100,000 tons of iron ore between San Francisco and Shanghai."
This makes it possible to quantify now a real demand for future production. Indeed, unlike conventional indices advanced production (building construction, new car sales, etc. ...), the BDI is a true pioneer of the machine of global production.
This indicator is also the happiness of many economists who want to assess the economic activity the next three to six months and well before even the oil, which is often useful for industry, as oil and turn the machine (already underway). An increase in the Baltic Dry thus allows to predict, several months ahead, increasing the price of a barrel of crude.
One law is that of application: It is sometimes purists say that the BDI depends on both the demand and supply. This is true. A boat under the ocean will necessarily enhance the importance of remaining cargo (if, of course, demand remains the same). This is also the case also for oil, whose price does not hesitate to burn as soon as information from an Emir who decides to cut the tap.
However, the offer on the BDI can be speculative (because they are actual orders) and is found to be extremely inelastic (the construction of a cargo of merchandise takes roughly two years and its cost is so high it would be laughable to put it into inactivity).
So indeed demand that pushed up the index. Including, and especially that from the Middle Kingdom. According to the latest official statistics, China imported 515.1 million because of metric tons of iron ore during the first 10 months of the year, already 16% more than the whole of 2008 (Including the first few months, remember, had already reached a record).
Responding to an explosion of demand, this frenzy of new carriers inevitably push forward global production, and before that, the price of a barrel of oil. For proof, compare the evolution since the beginning of 2007 the Baltic Dry Index, the West Texas Intermediate (WTI crude oil benchmark U.S.)
Visually, the evolution of the two indices imply a significant correlation, but with a slight delay. Indeed, the coefficient of determination (the experts call the R2, the sum in square of correlation coefficient) reached 0.61 and 0.74 in real time by introducing a period of six weeks between the BDI and WTI.
A very impressive figure, and the same coefficient reached 0.76 between the two indices are highly correlated in nature: WTI and OSX (the famous Philadelphia index which include the titles of 15 of the largest oil service companies).
Given the resumption of economic activity, particularly through the engine and the various Chinese stimulus plans, the Baltic Dry Index has surged more than 45% since the beginning of the year. It is currently being bullish. This leaves imply that oil has a bright future ahead of him, with a year 2010 probably marked by a new crossing over the $ 100 a barrel.
What has been observed, the reliability in predicting oil prices: + or-75% accuracy
The estimated time to observe the reaction of oil prices to fluctuations in the Baltic Dry Index: approximately six (6) weeks.
In summary, it is a valuable indication of the health of world trade, and intensity of economic exchange. Thus, it increases significantly during periods of growth when countries like China recently, import raw materials, mining, like cereal. On the contrary, in times of economic crisis, when imports fall as in 2008, he corrected sharply. It is a very volatile index, which has emerged in recent years as a leading indicator of activity, and by extension the financial markets.
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