D End of Commodity Boom?

The year of 2006 and 2007 had seen a dramatic boom in all commodity led prices, led by no other than the dramatic surge in crude oil prices. The boom had led to many investors and commodity producers benefiting immensely from it but to many others (general businesses and ordinary folks) out there, it has caused severe hardship and pain in the pockets as soaring price increases in almost everything from petrol, food, transportation to costs of material!

Such high prices are definitely not sustainable in the long term. It seems the biggest culprit is the crude oil. Surely there must be a limit before the whole world chokes! the As such there were plenty of screams and shouts for the crude oil pricing to be regulated to prevent excess speculation (if such is the case).

Past few weeks seem to offer some ray of light at the end of tunnel, as crude oil prices corrected about 18% from a high of USD147. Correspondingly, global commodity prices have also dipped recently. The key question in everyone's mind next is whether such fall is genuine or just a temporary correction?

According to Credit Suisse's research, oil could fall as low as USD84 per barrel, assuming that demand is fully beaten down. This is based on an analysis of historical elasticity data and global GDP growth, where it found that at USD130 per barrel, global oil demand growth is almost zero, given global GDP growth forecast of 3.7%.

However, many other analysts have a different opinion, such as Goldman Sachs's recent prediction of USD200 per barrel by end of 2008.

On the other hand, just how big an impact speculators have had on prices still remain to be seen. For the matter, US regulators have initiated an investigation into possible rigging of oil futures market, with the Commodity Futures Trading Commission committed to ensuring the market is free from "manipulation and abuse". However, how exactly this is going to be done and time line to legislation also remain unclear.

Besides, the growing demand from global investment fund managers buying into commodity markets is believed to be another contributor to the rise of commodity prices. After all, these fund managers will have to continuously look for the next best "safe heaven" to protect their funds, so commodity could not be overlooked.

Last but not least, a weakening USD is believed to also contribute to the rise of oil prices. So unless USD can stabilize against other major currencies, it is likely going to be a roller coaster ride going forward.

To sum it up, the direction of crude oil and commodity prices are still anybody's guess for now. Truly, there are no "experts" in prediction until the actual event unfolds....so be prepared for a roller coaster ride!