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Mean Reversion, Ugh…

You are here: Home / Uncategorized / Mean Reversion, Ugh…

January 29, 2016 by Jim Colburn Leave a Comment

Someone actually calculated a mean price for crude oil going back to the 1800’s:

http://www.businessinsider.com/real-adjusted-oil-prices-since-1861-2016-1

Picture1

From the article:

“But Deutsche Bank’s Jim Reid argues that if you look at the long-term trend for real-adjusted prices, then today’s oil price situation isn’t actually as “extreme” as most people think it is.

“A long-term real adjusted chart … shows that the average price (in today’s money) since 1861 is $47/bbl. So current levels are low but not exceptionally low relative to long-term history,” he wrote in a recent note to clients.

And this:

“”Nevertheless,” Reid adds, “in this year’s long-term study if prices stay at similar levels it will be the first time our long-term mean reversion exercise will show positive return expectations for oil since we first started it over a decade ago.”

“Although we don’t claim to be experts on oil markets our long held belief is that commodities that are factors of production are unlikely to outstrip inflation over the long-term as if they do there will be alternatives found. Clearly this can take years if not decades to resolve so even if we’re correct commodity cycles can still last a long time before they eventually mean revert.””

Me:

Trading strategies based on mean reversion are doomed to fail.

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Commodity Research Group (CRG), founded by veteran analyst Edward Meir, is an independent research consultancy specializing in base and precious metals, as well energy products. The Group provides research and general price analysis for these markets, along with advice to companies seeking to construct commodity hedging strategies.

Our associates bring decades of experience to the table, as they seek to help our clients understand the markets. CRG will distill the myriad of pricing variables mentioned above into coherent research that is to-the-point and tailored to a clients hedging or pricing needs. In addition, CRG is available for consulting assignments and speaking engagements. CRG does not manage money or trade for itself.

 


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