sammyg123

Why Commodities Are Likely to Struggle in 2008

Correction: In order to stimulate demand more supply is required. Oops. In order to meet rising demand - more supply is required to keep prices stable. My bad.

Why Commodities Are Likely to Struggle in 2008

Part of the Fed's job is to fight inflation, which should register in costs of production. The rise in commodities prices, including oil, which is like oxygen to industrial production, will contribute recessionary pressure. Decreased consumer demand due to higher prices is additional recessionary pressure. In order to stimulate demand, more commodity supply is required. The oil situation, when it comes to supply, looks pretty bleak. OPEC is a monopoly with little interest in lower prices, by definition. While the price of oil will fluctuate, it's not really a free market. Higher oil price is with us, and that stifles growth. Further, the price of oil affects prices throughout most supply chains, including the production of soft commodities, such as wheat, corn and soy, etc. This supports higher prices in these markets. I think the price of oil is of the primary oil here, and we are heading into summer. I expect commodities will fluctuate, but the overall trend seems fundamentally supported. I think bulls and bears will fight it out over an overall rising trend.