beegdawg007

Today's Commodity Prices Forecast Tomorrow's Inflation

I think you are right, but very early in your forecast. When this finally occures, I believe the way to play it is Steel and Coal. When things again start to rip, Steel will move first because most of the stumulus plans in the world, particularly in China, are focused on infrastructure building. That means rebar, beams, rail, siding, ships, storage tanks, new cities, power plants..etc.. All will require mega tons of steel. Every ton of steel requires .6 tons of coal in the form of Coke. Cement for concrete is made by heating limestone to 1500 degrees for a long period of time. That is most often done with coal as the heat source. As for electricity, between India and China, there are now 500 new coal powered electric plants in process. This is why I prefer steel and coal over oil or gold.

As for your comment... ""For instance, the downtrend in gasoline futures has been broken and the cheapest gas prices are now behind us. This is largely due to the stabilization of oil prices of late. Oil appears to have found a floor around the $30 to $40 a barrel range.""

The cheapest gas prices may be behind us, but the reason is primarily do to the fact that refiners have finally reduced production. They are now running at about 85% efficiency. There is finally a reasonable crack spread between oil and gas. That is what is now pushing gasoline prices up, and that is why the refiners have recently rallied.

I do not believe that there is a world wide shortage of oil. There were never any supply problems. Oil was up because it bacame a specultive play. Just look at the enormous increase in the number of future constracts written in the last two year vs. earlier years. The volume tripled. In additon, in the next few years, a lot more oil will come to market via the Ukraine, Iraq, Brazil and, believe it or not, North Dakota in the short run. In addition, all the major refiners can now process considerable quantities of Heavy and Sour crude. This opens up an entirel new supply avenue. Bio fuels are now being made everywhere from anything which contains sugar, starch or oil. In California, biofuel is being made from used fry oil and animal fats. In Indonesia, cola nuts are a source of bio fuel. And syn fuel projects (coal to diesel) are springing up everywhere. And, we certainly should not ignore the fact the world is placing a huge amount of emphasis on improving automobile effeciencies. There are now many gasoline powered cars which get over 30 mpg. The new plugin electric cars whic will soon be offered by nearly every major automobile company, will go the first 40 miles on electric power (coming mostly from coal powered electric plants). Since the average driver, on average drives less than 40 miles/day, over their lifetime, these cars will actually use 70 to 80% less gasoline. T Boon Pickens, Mr. Oil himself, thinks the US should swich commercial vehicles with large fleets such as UPS trucks, US Postal trucks, Telephone and Cable companies etc. to Natural Gas. That makes economic sense for the companies to do this when you consider that 1 therm of NG which currently sells for about $4.50 provides the same amount of energy as 7 gallons of gasoline. All that really needs to happen is for these trucks to become available out of the factory with motors that are setup so that they will run on NG. This is a minor cost at the factory but it is a $2000 conversion if put on later.

I think investing in oil is a risky bet right now because the world finally realizes that oil is the source of most of the political friction in the world.