Thread: Goldman Sees `Explosive' Commodity Rallies, $175 Oil (Update

Goldman Sees `Explosive' Commodity Rallies, $175 Oil (Update1)

By Claudia Carpenter and Alexander Kwiatkowski

March 14 (Bloomberg) -- Commodities may have ``explosive rallies'' in the next couple of years, with crude oil rising to $175 a barrel, according to Goldman Sachs Group Inc.

Political decisions on money flows, labor and technology are ``substantially constraining supply growth'' of commodities, Goldman analysts including Jeffrey Currie in London wrote in a report today. ``This will likely support the ongoing structural bull market in commodities until these policy-driven investment constraints are removed and/or demand is adjusted.''

Commodities are in their seventh year of gains as underinvestment in refineries, mines and land sent prices for oil, gold, platinum and wheat to records. More natural resources are controlled by political entities than at any time since the 17th century, according to the Goldman report.

Oil rose to a record $111 a barrel yesterday as the tumbling value of the dollar attracted investors to the crude market. The U.S. currency yesterday fell below 100 yen for the first time since 1995 and dropped to an all-time low against the euro. A weak dollar draws investors to oil as commodities become cheaper for buyers using other currencies.

Crude at $175 a barrel ``represents the price level required to maintain trend economic growth against our anemic supply growth forecasts, assuming growth in the U.S. re- accelerates early next year,'' Goldman said.

North America

OPEC has cut its production forecast for countries that are not members of the organization, citing lower output from western Europe, North America and Mexico.

Non-OPEC production will run at a rate of 50.37 million barrels a day this year, the Organization of Petroleum Exporting Countries said today in a monthly report, cutting its previous projection by 160,000 barrels a day. OPEC crude production averaged 32.09 million barrels a day in February.

Oil prices, which have risen 15 percent so far in 2008, remain above most analysts' forecasts for the whole year. The front-month West Texas Intermediate futures contract on the New York Mercantile Exchange has averaged $96.53 a barrel so far in 2008, about 17 percent higher than the median price for the whole year forecast by 30 analysts surveyed by Bloomberg of $82.25 a barrel.

Saudi Arabian Oil Minister Ali al-Naimi told reporters earlier this month in Vienna the level of about $60 to $70 a barrel may now act as a floor for oil prices because renewable energy sources have become viable at those levels.

The International Energy Agency, an adviser to 27 industrialized nations, will hold a closed-door ``brainstorming'' session in Paris next week to discuss oil prices. Participants will include representatives from financial, trading, producing, refining and economic institutions.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net. Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

Last Updated: March 14, 2008 10:52 EDT

http://www.bloomberg.com/apps/news?pid= ... mQ3MBOkx_0

Okay, now I'm starting to get it. While shopping I have noticed a trend with products. Potato chips used to come in a 16oz bag, that's one pound, but now they're 13.5oz yet cost the same as before. Ice cream used to be a half gallon, but now the tubs are under a half gallon. Coffee used to come in 1 pound cans, but now those cans are 13oz. What this represents is the dollar buys less than it used to. The BIG secret with oil is that most countries want to trade in Euros, so even when you see a Dollar amount listed, the sellers want to be paid in Euros.

If you convert our Dollar to Euros when you buy gas, you can see how the above scenario is playing out in terms of gas prices and even household goods. Just an observation...

It's only going to get worse.

For review...

http://www.alipac.us/ftopic-41145-days0-orderasc-0.html