Why do you suppose oil is going down even during this Russian-Georgian conflict?

MNSL answered 3 months ago …

As Warren said higher dollar has affected for the commodity market.

Please see following answer that I wrote sometimes back for another commodity market question. I also have added some other information. I hope you will get some useful information.

Ongoing global economic turmoil would dent demand for commodities, analysts said.
At the same time, however, traders are very worried that the global credit squeeze, which erupted last August and has yet to run its course, could have a considerable negative impact on commodity demand going forward.

There will be strong correction for commodities especially for oil, Gold, corn, sugar and wheat in next 12 months. Sellers such as investment funds who invested 4 years before will dispose their holding time to time whenever there is a rally. One example is: it is reported sudden drop in oil and gold this week is due to selling oil and gold holding by investment funds and hedge funds.

History teaches us some speculators can corner market such as corn and cotton market creating artificial demand. I do not know whether we have that type of things now. Anyway, it is better to make profit now rather than getting burn later on.

We can see lower commodity market during next 12 months due to following:
Speculative trading in commodities rather than demand oriented including futures trading (now Banks also speculating in commodities)
Ongoing global economic turmoil will reduce demand for commodities
Currently commodity market is too hot.
Global credit squeeze has yet to run its course
We are in final stage of current bull market for all type of assets
Too many new players and funds into commodities
Weaker outlook for the US economy
Too much publicity about commodity market
Structural similarity to the real estate and technology as great investments theme. We all know what happens.
Trading commodity instruments rather than investing

There are three short-term certainties about a commodity crash:

1. Speculators will lose a great deal of money
2. Commodity exporting nations will suffer mightily
3. Last, but by no means least, those BANKS which have been speculating in commodities will suffer further capital implosion, with potential for worsening seriously the already severe credit contraction in this country

A lot of money has piled into commodities, much of it coming in AFTER prices have exploded and reached stratospheric levels.

Therefore, we must invest carefully to take above average return in the long run by identifying neglected sectors with long-term potential and investing stars of tomorrow. I think it is time to leave hot stocks and sectors now.

According to http://www.msnbc.msn.com/id/22572867/ website Oil prices are likely to decline gradually this year and next as record crude prices weaken demand, the World Bank projected Wednesday. The forecasts are based an average of three benchmark oil prices: Dubai, Brent and West Texas Intermediate. On the demand side, what you are seeing is that the high oil prices start having an impact, in the sense that it slows down demand for oil," Timmer said. "You see that in high income countries, there's actually no growth any more in oil demand."

However, some energy investors including top investor in oil expect oil prices to go up to $150 a barrel next five year while there are corrections by 10% to 50% on the way to this two-decade commodity bull market. Therefore, some investors’ strategy is to buy oil when it comes down by 50%. My conclusion is there will be demand for oil but you can see volatility in oil prices like shares in the stock market. Please give your comment.

Longer-term projections for the direction of oil prices remain bearish, however. On Wednesday, the World Bank became the latest institution to predict that prices will likely decline gradually this year and next as crude demand weakens in the face of record prices.

"If you look at the fundamentals, there is scope for lower oil prices," said Hans Timmer, co-author of the bank's annual "Global Economic Prospects" report, at its launch in Singapore. "We forecast more or less a sustained, gradual decline."

The World Bank's report predicts that a barrel of crude oil will cost $84.10 on average this year and fall by 6.8 percent to $78.40 a barrel in 2009. It estimates that the average price of crude oil last year was $71.20 a barrel.

The forecasts are based an average of three benchmark oil prices: Dubai, Brent and West Texas Intermediate.