Commodity Markets

This is a summary of an article published by Bloomberg on the current high commodity prices;

1) Speculators are doing a favor for commodity consumers in the long term. The world, like during the 1950-70s industrialization boom, needs a massive change in the way it uses raw materials. Politicians had been too timid to bring that about (still heavily relying on subsidies as they are worried about the political backlash). Hence, the markets are now doing the job for them, and if it takes a bubble to change people’s energy consumption, then so be it.
2) While it is widely regarded by speculators had been blamed for the increasing volatility in commodity markets, the results speculators caused may not be a bad thing and here is one reason: Oil production needs to expand! The IEA estimates global daily oil consumption to rise by 16% by 2015 and 38% by 2030 (from 2006). To get that out of the ground and into the pumps is going to involve more exploration, production refining and distribution and that costs $$$. There is only one way that scale of investment will be mobilized: by causing a price increase that starts a buying frenzy in oil assets => Thanks to the speculators
3) Also, developed nations also need to start making themselves more fuel efficient. If China and India begin using as much oil as Europe and US in decades to come, we need more, much more supply and also lower consumption in rich countries. And if we are to combat climate change, we will need to cut down on pollution as well. All interlinked right? And => thanks to the speculators again for waking us up
4) In summary, the mother earth is telling us human needs to change our behavior. Our houses have to be re-designed to use less energy, and more of it should come from solar and wind power. Agricultural policies also need to change to cater to the obviously rising and non-reversible uptrend of demand of agricultural products if we were to head down the lane of bio-fuels. This is not going to happen unless a massive price increase forces it. And => thanks to the speculators again for helping up accept the fact we need to change our behavior
It always takes a big shock to the system to change behavior. That is just what the speculative bubble in commodity prices is delivering. It is not pretty or comfortable, but it is the FREE MARKETS doing the job for the timid politicians – which is why we should celebrate the bubble, and not to condemn it.