Commodities Bull Market?

By Scott Wright | October 31, 2008 | 1:05 PM | 0 Comments

The face of today's mainstream financial media has gone from meaningful analysis and commentary to constant tub-thumping between undisciplined Main Streeters, overambitious Wall Streeters, and ignorant bureaucrats.  It has turned into a showcase of the blame game, everyone looking for a scapegoat to shoulder the iniquities of the masses.

Though these recent financial-market shenanigans are of historic proportion and have scared stiff nearly every investor on the planet, folks seem to be growing complacent.  And it has been easy to fall into this trap and lose sight of investment strategy considering the indiscriminant selloff of virtually every asset class.  Everything has been hit so hard that even the anti-commodity CNBC commentators have toned down their bubble-bursting rhetoric.

But now more than ever investors need to step back and revisit their strategies.  The markets have changed, and for better or worse we need to know if what has worked in the past will continue to work going forward.  And what has worked in the past is commodities.

Hands down, commodities have been the top-performing asset class of the 21st century.  This powerful commodities bull was driven by strong global fundamentals that saw skyrocketing demand far outpace supply.  Based on simple economic principles this imbalance prompted commodities prices to launch stratospheric.

Regardless of the mainstream financial media's continual disdain for this commodities bull, which has run parallel with a secular bear for their precious stock markets, legendary gains were won for those prudent investors and speculators who saw the writing on the wall.

Now there is certainly a valid argument to be made that exuberant speculators caused many commodities prices to reach overbought territories and perhaps even launch into bubble-type parabolas.  But there is no denying that it was the fundamentals that provided a solid foundation for the run on commodities.

Well with the crumbling financial markets taking their toll on the global economy and launching what is expected to be a recession of historic proportions, is the commodities bull over?  Over the course of the last several years the financial media has proclaimed the end of the commodities bull on countless occasions.  And much to their chagrin they have been wrong every time.

But is it different this time?  Is the commodities bull really over?  In the past it has been easy to defend this bull market using anecdotal evidence of real-time hunger for scarce raw materials.  But this time there seems to be little defense for commodities.  And over the last several months there has been a massive selloff in the commodities realm.  Nothing has been immune to the carnage.

While the dust may not have fully settled yet, fundamental changes in the global marketplace are already beginning to unfold.  And I believe it is prudent to catch our breath and see if and how these interim fundamentals are changing the secular nature of the commodities bull.  But first we need to assess the damage.  To place the commodities bull in strategic context I put together a table that captures its essence.

 

 

Since there is no official date that marks the beginning of the commodities bull, as individual commodities began their bulls at different times, for reference sake I used a date that I believe marked the end of the secular stock bull.  March 24, 2000 was when the flagship S&P 500 (NSDQ: SPX) index reached its apex, and this is as good a point as any to mark the beginning of the commodities bull.

The first column shows the price of each component at the beginning of the commodities bull.  In the preceding 17 or so years that molded these starting values the flow of capital poured into the stock markets and left commodities with reckless abandon.  After years of a grueling bear that ravaged the commodities industry, many of these March 2000 prices neared historic lows.

But after years of neglect in which investment in commodities exploration and infrastructure all but dried up, suppliers would get a rude awakening when there was resurgence in demand.  The supply side of the commodities trade was unprepared for the rapid demand growth that was soon to come.

From these March 2000 lows, commodities prices would soar as suppliers scrambled to meet demand as well as take advantage of the new higher prices.  But unlike a widget factory that can increase supply with the turn of a dial, it is much more difficult to ramp up commodities production.

At the turn of the century much of the commodities supply chains consisted of aging and depleting resources within shoddy and rundown infrastructures.  A lot of work needed to be done in order to materially increase the capacity of natural resources production.  But especially for those resources that are finite, hidden in the bowels of the earth, fresh new operations would only come about after intense exploration, discovery, and development.  And this process is neither quick, easy, nor cheap!

Petroleum and mineral production offer fine examples of this tedious process.  The first phase involves establishing the economic feasibility of a mineral deposit or oilfield, which takes years of intense exploration.  If a project is actually revealed to be economically viable, only then do the directors of the producing company hammer out the details and make the decision to develop operations.

After a positive development decision the project owners must then procure financing for what are usually sizeable capital expenditures.  The development/construction phase then takes several more years, and if all goes well the project will eventually be ready for commercial production.  Ultimately it can take between 5 to 10 years and hundreds of millions of dollars just to commission a medium-size mining or drilling operation.

As a result of this slow response time on the supply side, supply growth was nowhere near meeting demand growth.  And when supply can't meet demand, the only thing capable of quelling demand is rising prices.  As you can see in the second column, prices responded with sharp ascents.

These bull highs returned the massive gains we see in the third column.  And keep in mind these gains are measured from a common point of reference.  Many of these commodities launched into their respective bulls from prices that were even lower than those in March 2000.

For example the HUI (AMEX: $HUI) gold-stock index didn't achieve its low of 35.99 until later in 2000, giving it a trough-to-peak gain of 1331%.  Many of the base metals didn't hit their lows until years later.  From trough to peak aluminum, copper, nickel, zinc, and lead had respective gains of 165%, 581%, 1124%, 537%, and 896%.  And oil's low of $10.73 was actually achieved in late 1998, giving it a trough-to-peak gain of 1259%.

Regardless of their exact lows, these bulls were secular in nature.  And as you can see in the fourth column most commodities achieved their interim tops at some point in 2008.  And with oil being the largest and most influential commodity, when its bull ran out of steam in summer 2008 so marked the top of the venerable CCI.

As you can see in the next two columns the recent global selloff of anything and everything has hit commodities hard.  Prices are vastly lower than their highs achieved not too long ago.  And these price declines are massive.  Many of these commodities have seen their prices lopped in half, or more, in short order.

Oil is off by a whopping 53% since its July high.  Measured by global consumption this translates into a staggering $6.5b swing to the downside in daily capital flows in just three short months.  Copper, which is the highest-profile base metal, is down 49% off its July high.  And the grains are also suffering, with corn and wheat off 41% and 61% from their 2008 highs.

So with this across-the-board slaughter does it mean that the commodities bull is over?  I don't think so!  And I know this stance is of extreme contrarian nature right now but hear me out.  The commodities bull is not over for one simple reason, and this is Asia.

I understand that many folks are getting tired of the constant beating of the Asian drums, but these drums have been loud for a reason.  And while the thumping sound may not be as audible in these chaotic markets, it is not going away.  Led by China, Asia's developing economies will continue to thrive for decades to come.

One way to look at Asia's growth prospects is through the eyes of its massive population.  Using China as an example, we know that its government is hell-bent on growing its economy to become the decisive world powerhouse.  And as part of this growth its people will prosper.

The 1.3b+ people in China and even the 2.7b+ people in the rest of Asia combine for a massive consumer base that has never been party to past commodities bulls or economic prosperity.  The Western economies, US and Europe, have long been the sole drivers of market cycles until now.

With an infrastructure build-out that is still in its early stages mixed with wealth and discretionary capital in the hands of folks that long to live the Western lifestyle, commodities consumption should continue to rise in the years to come.  Measured by per-capita commodities consumption the Westerners have been through a growth cycle that has likely seen its peak.  But in Asia per-capita commodities consumption is expected to rapidly rise as people improve their lifestyles.

And this per-capita commodities consumption growth should not be too affected by the stock market travails.  A lot of the funds pulling out of the Asian markets are sovereign and speculative, and were held by a limited number of hands with large positions.  I don't expect these losses will impact the average Asian citizen in the same way they will the average Westerner.

Now I'm not saying that we aren't experiencing a period of contraction on the commodities front, even in Asia.  A global recession will reach far and wide.  In fact we are likely in the midst of an extended cyclical bear on the commodities front.  But I don't believe this bearish cycle has the moxie to put an end to the secular bull.  And neither does China.

Just recently the Chinese government commented that while economic growth will slow a bit during this turmoil, the unfavorable international factors and even serious natural disasters at home won't change its core economic growth strategy.  China made it emphatically clear that its economic growth machine has the ability to repel whatever external risks are thrown at it.

And when you consider that China hosts well over 50% of the world's construction, that coal-fired power plants are going up at a rate of one per week, and that oil demand is expected to increase by 50% in the next 10 or so years, it is apparent that China has some clout in the global commodities markets.

But regardless of this China rhetoric, many still ask how I can possibly believe that this commodities bull is still alive in the face of such rapidly declining commodities prices.  For many folks "correction" is an understatement.  As you are likely aware analysts of all walks of faith are using "crash" with impunity.  And depending on whose definition you go by some commodities prices may have indeed experienced a crash from their tops.

Ultimately however you define the shellacking that commodities have endured, I don't believe this activity is bull-ending.  This extraordinary selling pressure is likely a combination of commodities prices perhaps getting too high for their own good mixed with extreme and unprecedented market fear.

Looking at the last column on this table we can see that even though commodities prices have seemingly fallen off a cliff, most are still way above their lows.  And I included the SPX in this table to offer some perspective.  If there is any challenge to the ironclad reality of the secular bear in the general stock markets and the secular bull in commodities this table ought to clear things up.

Investors who've had their money in the SPX since 2000 have had a tumultuous and unrewarding journey.  A brutal 2000 to 2002 cyclical bear that shed 49% was followed by an impressive 2003 to 2007 cyclical bull that doubled-down, bringing investors just back to par.  But when you throw inflation in the mix, flat performance after 7+ years is devastating to one's portfolio.

After the SPX peaked nearly a year ago, which was only 2% higher than its March 2000 high, it has spiraled down by 41%.  Investors in commodities over this 8-year span have fared much better.  As you can see even after the commodities carnage of late, the gains are excellent.

From March 2000 to current most commodities and the stocks involved in their trade are still sporting impressive gains.  The ride has certainly been wild, and traders have had to befriend volatility, but it has been very rewarding for those who got in early.

As for calling a bottom my inner contrarian tells me it is here now.  I believe commodities and commodities stocks are vastly oversold and represent incredible bargains.  But it is also prudent to consider how much farther the trepidation that is driving these markets mixed with a broken financial system can drag prices to the downside.

Right now we are going through a period where leveraged speculative positions are being unwound and the economic landscape is being rebalanced.  Commodities demand has definitely slowed, but it has not disappeared.  Unfortunately the financial media is currently using the careless phrase "demand destruction" far too loosely when describing the commodities markets.

In reality the only thing being destroyed is commodities prices.  Demand is not being destroyed.  My business partner Adam Hamilton has an alternate view of this demand-destruction paradox.  In the 10/21/08 issue of our Zeal Speculator weekly newsletter he wrote:

"...traders are acting as if a recession means demand Armageddon, but that is silly and irrational.  If a normal year is given a baseline of 100, a recession with 2% economic shrinkage still comes in at 98.  An unthinkable 5% annual decline in US GDP is 95% of the normal baseline year.  Oil demand will contract modestly in a recession, but not implode totally.  We Americans will still eagerly consume vast quantities of raw materials."

"Similarly, Chinese and Indian demand aren't going to fall off a cliff either.  Growth may slow, but demand will still be immense from an absolute perspective.  China just reported that its Q3 GDP came in at 9.0% growth, which hammered commodities.  Yet this wasn't down from 30%, just 10.6% in Q1 and 10.1% in Q2.  Chinese demand for oil and most key commodities is still growing rapidly..."

Adam goes on to explain that even in slow economic times there is still a lot of demand for raw materials.  Recessions don't wipe out demand, they are slight reductions in overall aggregate consumption levels.  It is fear and panic that is driving this massive commodities selloff.  And these price levels are unsustainable over the long run.

In fact, these depressed prices are likely to snowball into yet another severe supply pinch.  We are already seeing widespread production cuts not only in the oil industry but the mining industry.  Many operating mines cannot profitably produce their metals at today's prices, causing production stoppages.  And many development projects are being put on hold not only due to these low commodities prices but the dried-up credit markets and lack of investor interest in equity offerings.

Shifting gears, while weakness may persist for a spell as most commodities prices seek to stabilize and find their balances, especially the industrials, the precious metals should really thrive in today's environment.  In the table above you can see that gold has not given up its ghost, and has retained most of its gains.

This strength is a result of rock-solid and unchanging fundamentals.  Gold's commoditized nature is unique in that it acts as a safe haven and store of wealth.  And in these uncertain times when even cash is risky, gold offers investors true value.  The economic balance of gold is also unique compared to other commodities.  Gold mine production continues to fall in the face of rising demand.

These are just a handful of gold's stellar fundamentals.  And this global financial crisis should be a great boon to gold's desirability.  When these gargantuan government bailouts start to filter through the system the world will experience a huge inflationary period as the printing presses are stressed to their limits.  And this is where the demand for gold will really flourish as investors diversify out of the fiat mess.

Overall I believe the greater commodities bull market is not over.  Throughout history commodities bulls have run for an average of about 17 years, and I have no reason to believe this one will be any different.  As you can see in the table above commodities have been the strongest asset class over the last 8 years, and I believe they will continue to be the strongest for at least the next 8 years.

At Zeal we are students of the markets and constantly seek to better understand and trade them.  We've been performing cutting-edge market analysis and research since this commodities bull began in 2000 and have been using this knowledge to execute high-potential trades in our acclaimed Zeal Intelligence monthly newsletter.

We also put this research to work in the form of supplemental reports on a variety of sectors in the commodities realm.  Our most recent report profiles the most promising commodities ETFs and ETNs, which are all dirt-cheap today.  To purchase this report and/or join our many subscribers who seek guidance, experience, and fortitude in these wild markets, visit Zeal today!

The bottom line is it is fundamentals that ultimately drive the secular nature of any bull market.  And the long-term prospects for commodities remain very strong.  China will continue to be the stalwart of the world's developing countries, and it is these countries that have and will continue to drive this commodities bull.

The interim growth trends may recede for a while, but they will not grind to a halt.  And we may even find that the chain reactions caused by today's extreme fear will quickly pinch supply and cause an even sharper run on commodities as soon as this recession runs its course.  Investors who haven't given up on the commodities bull should again be in line for legendary gains.

Scott Wright

October 31, 2008

 

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Thoughts, comments, or flames?  Fire away at scottq@zealllc.com.  Depending on the volume of feedback I may not have time to respond personally, but I will read all messages.  Thanks!

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SEC Plan Overhauls Oil and Natural Gas Reporting Rules

By David Enke | September 04, 2008 | 11:45 PM | 0 Comments

A new proposed SEC plan will overhaul oil and gas reporting rules that have existed since the 1970. The new rules will boost the proven reserves reported by oil companies, and in the process boost their shares and potentially increase interest in takeovers (see Financial Week article). The plans will essentially allow companies to book reserves from “unconventional” oil and gas sources, including oil sands and coal-bed methane. Some deep-water projects that to date have not been allowed to be described as “proven” will also now be included. Furthermore, firms will be able to publish data on what are called “probable” and “possible” reserves, where recovery is not as certain. The new rules obviously don't change the amount of oil and gas that is available worldwide, but they will help investors better calculate future cash flows and thereby place a proper valuation on a company. Needless to say, the oil companies are in favor of the new rules.

The plan will affect both U.S. and international companies that report under SEC rules, which often includes most of the larger international firms. Those with the largest non-traditional sources of future production are most likely to benefit. Analysts expect that Royal Dutch Shell is likely to benefit the most among the oil majors given that they are investing capital to retrieve crude from bitumen-soaked soil in Canada, as well as extract natural gas in coal beds in Australia and China, both of which can now be included as reported proven reserves. ConocoPhillips (NYSE: COP), Exxon (NYSE: XOM), and British Petroleum (NYSE: BP) have also invested in non-conventional sources of oil. The reporting of non-traditional proven reserves could also have an impact on acquisitions and takeovers. As mentioned by Neil McMahon, analyst from Bernstein:

“We believe that these rule changes could be the catalyst for a wave of acquisitions, with those companies with the largest unproved resource bases making juicy takeover targets for some of the larger cash-rich majors.”

McMahon feels that Marathon Oil (NYSE: MRO), with investments in oil sands and shale, and British gas producer BG, with its stakes in the deep-water Brazilian fields and a new 25% stake in Chesapeake Energy (NYSE: CHK) and the Fayetteville shale, are potential targets. In fact, given that the changes will make the SEC rules more in line with European rules, the impact on UK-listed firms, among others, is expected to be positive.

The rule changes are likely to apply to 2009, and not 2008 year-end reporting since the SEC is still in a consultation period and has not committed to a time line for implementation. Given that the market is forward looking, share prices may nonetheless begin to see the impact of the proposed changes which are expected to be approved and put into place quickly.

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Spreading Oil And Natural Gas

By Brad Zigler | August 29, 2008 | 3:18 PM | 1 Comment

For workaday stiffs like me, Labor Day picnics and barbecues are a coda for the lazy, hazy days season and signal the approach of cooler weather and heating bills. Lest that thought put a chill into your holiday plans, let me offer a trade idea with wallet-warming potential. A recent Wall Street Journal article reported that natural gas prices are cheap relative to crude oil. The article's expert sources claim, in fact, that natural gas futures are trading at some of the steepest discounts seen in several years.

Increases In Natural Gas Production, But What About the Stock Prices?

By David Enke | August 11, 2008 | 4:58 PM | 0 Comments

As a result of high prices, new reserve finds, and better technology, natural gas production in the US is up 8% this year, with growth expected to continue as new wells come on-line in Texas, Oklahoma, and Louisiana, and new reserves are scheduled to be taped in Appalachia and Canada (see WSJ article). Unfortunately for the natural gas companies, demand is not growing as fast, up only 5.5% - the Pickens Plan notwithstanding. US Lodgian (NYSE: LGN) import have already been down given the higher prices paid in Asia and Europe which have caused shipments to be diverted (see previous post). As long as production in the US stays high, with reduced avenues for exports and steady demand at home, prices will be pressured to fall. Then again, we may be getting near a tipping point as prices approach $8 per million (NYSE: BTU), a point that analysts believe producers will cut production, with the tighter supply driving prices back up in a form of a self-correcting mechanism.

Even with short-term corrections, longer-term price pressure will most likely come from new discoveries of shale, the dense rock formations that have been known to hold natural gas, but for which production had been impractical due to the rock not being porous enough for gas flow. However, technology came to the rescue in the form of using pressurized water to crack the shale and release the gas. The technique is working in the Barnett Shale in Texas and can be used in the Haynesville Shale in Louisiana and Texas, as well as the Marcellus Shale in Appalachia. Altogether, US shale could hold as much as 840 trillion cubic feet of natural gas. Astonishingly, this estimate is equivalent to 140 billion barrels of oil, or more than half the proven reserves of Saudi Arabia. While none of this natural gas will be coming on-line overnight, it certainly seems promising for helping supply some of the clean energy needs of the US going forward. Unfortunately, unless the natural gas companies, T. Boone Pickens, and others can convince Congress of this benefit, it may be a while before demand catches up to production. As a result, Chesapeake Energy (NYSE: CHK), XTO Energy (NYSE: XTO), and EOG Resouces (NYSE: EOG) may have to wait for real price appreciation, or to see the benefits of the massive investments each has been making to tap into the shale reserves.

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Environmentalism: The Pious Moralism of the 21st Century

By Kurt Kasun | August 05, 2008 | 1:58 PM | 2 Comments

A Bone to Pick with Boone T. Boone Pickens' energy plan falls short. He has to weave what he views as ‘political realities' into a comprehensive plan from which he can also profit. While, I believe his highest goal is to develop a plan which best serves the longer term economic and energy interest of the country, I think he has not properly factored in some shorter term ‘economic realties' which could short-circuit his scheme, well-intended as it may be.

Chesapeake Peak? The Answer Is Not As Clear Anymore

By David Enke | July 21, 2008 | 12:00 AM | 2 Comments

As crude oil has sold off over $16 (approximately 11%) in the last four days, natural gas, and the natural gas companies have also taken a hit. As of last week, natural gas prices are down over 20% since July 4, and fell over 8% last Thursday alone. Not surprisingly, Chesapeake Energy (NYSE: CHK) sold off with the corrections in both crude oil and natural gas, falling almost $10, or over 15% in the last week.

Earnings Data Could Make for a Rocky Day

By Jim Farrish | July 18, 2008 | 9:35 AM | 0 Comments

Natural gas fell more than 7% yesterday on the continued decline in oil prices. As we discussed on Wednesday’s blog this leave the ETF (AMEX: UNG) at support near the $50 mark. The next support level is $45. I would continue to watch for opportunities at both of these levels for a bounce on this aggressive selling.    

Natural Gas - Up or Down?

By Jim Farrish | July 16, 2008 | 8:49 AM | 0 Comments

Trend – The big question for this energy component is up or down. Looking at the chart, technically the uptrend line was broken last week. The sell off yesterday in crude pushed the price of natural gas lower again. The current price is juggling between $9-10 with many analyst believing the price should be closer to $11. The outlook is for this to be an alternative source of energy. While it will not replace fossil fuels it is seen as a bridge to get us to alternative sources of energy and easing some pressure on crude prices. Supply is plentiful at this point and new finds continue to add to the reserves. With such a bright future why the selling? Emotions or price.

Outlook – (AMEX: UNG) the ETF for natural gas has pulled back more than 15% since hitting a high on July 1st. Much of this is due to the volatility in crude oil resulting in guilt by association. The question of demand is also a consideration. That will be answered more over time as natural gas is accepted as an affordable alternative to oil . Winter demand is expected to rise as the price of heating oil has moved higher. Looking at the chart there is support near $50 which was the breakout point off the March low.  This is a key decision point short term, but the future is still bright for natural gas.

Strategy – Use this pullback as an opportunity. The next decision point is at the $50 mark. If we hold support and bounce this would be an opportunity to add to existing positions or add a position. If we break this level $45 would be the next support point and the approach would be much the same. I would be patient in developing a position in the ETF letting the price come to you versus chasing your entry. The target would then become the previous higher of $62.50 and setting a stop would be determined by the entry point and disciplined applied. I like the long term outlook for natural gas and see the recent selling as an opportunity

Chesapeake Peak? - Not Likely

By David Enke | July 11, 2008 | 12:43 AM | 0 Comments

Chesapeake Energy (NYSE: CHK) announced Thursday the price for a new common stock offering, which will include 25 million shares going out at $57.25 per share. The news of the share offering was announced on July 8 and has put some pressure on the stock over the last week. The company expects to issue and deliver the shares on July 15. Chesapeake plans to use the net proceeds to repay outstanding indebtedness under its revolving bank credit facility, which it has been borrowing against to fund new drilling and leasehold initiatives, among other expenses. Underwriters have a 30-day option to purchase another 3.75 million shares (15% over allotment), which given the pop in the stock Thursday (closing at $61.58 and up 6.69% on the day), makes such an allocation likely.

Given the dilution involved, secondary offerings are always worth looking at and worrying about as a shareholder. In general, unless the cash from equity sales is expected to increase ROI, and provide the company the ability to do something it could do not without the cash, or with borrowing, there is always cause for concern. Since the company is stating that they want to pay down debt, one could speculate that the equity financing will provide a cushion of non-debt cash that will allow the company to scale back its current level of hedging. Chesapeake recently got burnt on some oil and natural gas hedges in put in place that ended up costing the company $193 million last quarter (see article). If the company and its CEO suspect that natural gas prices are going to stay high, and possible go higher, this might be one course of action. The extra cash could provide some cushion if prices were to fall.

One reason for the level of optimism in higher natural gas prices may come from current crude oil prices. Natural gas, while having a nice run-up along side crude oil, is still trading at a lower BTU multiple than crude oil. Using historical comparisons and a general rule of crude oil trading at a 7-8 multiple to natural gas (some use a 6 multiple), natural gas still has room to move to the upside, even with the price of crude oil leveling off. If crude reverses its upward trend, this historical multiple may also cushion the fall of natural gas if crude oil was to begin selling off. Given crude oil's recent price around $140 a barrel, even an 8 multiple would give a price of $17.50 per MMBtu for natural gas. The current natural gas price is around $12.40 per MMBTu.

Of course, this assumes crude oil will not fall below $100 per barrel anytime soon, historical multiples stay in place, and demand for natural gas will stay strong. Given that natural gas powered generation sets the marginal prices of electricity in much of the U.S., and that as carbon constraints are imposed, cleaner burning natural gas-fired generation will increase beyond that currently being used for peak generation, maintaining current demand levels seems very realistic. And of course, all of this says nothing of the expected increase in hybrids and electric cars, or other green vehicles expected to run on hydrogen (which requires electricity to separate the hydrogen), or even run on natural gas itself.

But regardless of potential demand, it is important to make sure the company is a believer in the natural gas story, and their position as a company. If the CEO's actions are any indication, the answer is yes. Aubrey McClendon, the co-founder and current CEO of Chesapeake Energy has been recently buying stock in his own company at an astounding rate, and even more astounding level. As he stated a while back on CNBC, on just about every opportunity he gets (when not too close to earnings announcements), he has been purchasing shares in his company, buying over 3.5 million shares (yes, million) in over 25 trades since the first of the year (see insider trades). Given the recent price action, and natural gas demand story, maybe some of us should follow his lead.

Time For Crack Spreads?

By Brad Zigler | June 24, 2008 | 4:27 PM | 4 Comments

Each week, we comment on the U.S. Department of Energy reports of crude oil and fuel inventories (see our last commentary, "Oil Report Stumps Analysts," and each week, we’re asked why we include the "crack spread" in our remarks. Why bother depicting some obscure trading strategy, the queries usually run, when all we really want to know is whether oil's headed up or down?