The Bullish Take
Commodity cycles are prone to severe market corrections. Investors should realize that the surging global demand and the geopolitical tensions are here to stay. Moreover, you can be sure there will be winter storms and hurricanes, which disrupt electricity grids, oil and gas production and agriculture too. Some reports suggest that OPEC oil producers have been exaggerating their oil reserves on purpose, and continuing threats to oil supplies in Africa, Venezuela and the Middle East are quite frequent. For the past 6 months, commodity markets have been characterized by extreme volatility, making investing quite cumbersome (unless you're a hybrid investor, like myself, who trades and invests at the same time)
The Bearish Take (Note it has to do with oil mostly. Why? As Oil is a major commodity component. 40% of GSCI is Oil and it's a major dent in consumer spending)
"The world has only consumed about 18% of its conventional potential," Abdallah S. Jummah, president and CEO of state-owned Saudi Arabian Oil Co., Aramco for short, told an audience of oil ministers and petroleum executives at the OPEC conference in Vienna. So much for the talk that Hubbert’s peak has been reached. (Hubbert's peak is the point at which half of the world’s oil has been discovered and supplies begin to diminish.) Jummah estimates that the world’s potential oil reserves are 4.5 trillion barrels. That’s enough to power the world for another 140 years, give or take, at current consumption rates. The AP notes that most experts believe the world's oil resources are at least 3 trillion barrels and maybe more than 4 trillion barrels. But experts assume a 2% growth rate in consumption, and estimate that oil could only last until 2070. Jummah encouraged his audience to increase their oil exploration efforts. He told them to "leave the minimum amount of oil in the ground," reports the AP. Jummah believes that new technology will make it possible to add 1 trillion barrels to world reserves over the next 25 years. Jummah pointed to the recent discovery of an oil field in the Gulf of Mexico, saying that the discovery has the potential to increase U.S. oil reserves by 50 percent. Saudi Arabia recently pledged $70 billion to improve its oil and gas infrastructure. The country hopes to increase production capacity and raise oil output to 12.5 million barrels a day by 2009, says Bloomberg News. Iran's oil minister on Wednesday said suggestions that his country might use oil as an economic weapon are baseless, reaffirming Tehran's commitment to supplying crude markets despite its standoff with the West over its nuclear program. Kazem Vaziri Hamaneh told the OPEC conference in Vienna that Iran had kept its crude exports flowing even during its long war with Iraq in the 1980s and would not use its oil as a political lever now. "OPEC and Iran are committed to ensuring oil supplies," he said during a panel discussion. Iran, the world's fourth-largest producer, pumps approximately 4 million barrels a day. Concerns that Iran's showdown with Western powers over its nuclear activities would lead to oil disruptions from the oil producer helped drive crude prices to record heights this past summer. Since July, prices have fallen by nearly 20 percent amid expectations that Tehran could reach a diplomatic solution and avoid the potential of punishing U.N. sanctions. Hamaneh described Iran's aim to develop its nuclear sector as a natural step toward meeting the energy needs. "The country has no choice but to utilize all of its energy resources, including nuclear," he said. Iran insists its nuclear ambitions are peaceful and geared solely toward generating electricity. The US and others contend it is covertly trying to build a nuclear weapon. Oil revenue drive Iran's economy. Hamaneh has stressed in recent months that Iran would not reduce exports.
You must be saying, so much for geopolitical tensions (eyes-rolling) but ask yourself, can Iran really be trusted? Or that frequent attacks in Nigeria would cease? At least I don't think so. Not so easily.
In either case, I'm still bullish on oil as we need to see actual production come on and not just "discoveries." The recent discoveries will be a coup only when the necessary capital spending is in place (the bills run up in billions easily), otherwise forget about it.
P.S. I would strongly recommend you read this Commodity analysis by Stock Timing, you will find it of tremendous value.