Crude Oil Continues To Grind Higher Towards The Sweet Spot

In the world of commodities, there are two that stand out when it comes to their political influence in the world. Wheat and crude oil are perhaps the two politically-driven raw material markets, but they are very different. Wheat is the basic ingredient in bread which is a staple food around the world. Each year wheat production is a function of weather around the world in the regions where climate supports crops that can thrive in fertile soil. Food is a staple for people around the world, and nothing breeds discontent like a hungry citizenry. There are many examples throughout history where political uprisings have led to new leadership because of food shortages. Therefore, wheat is not only the basic ingredient in bread; it is one of the most significant political commodities in the world today and over the course of history.

Crude oil is a fossil fuel that has powered the world for decades. Over half the global reserves of the energy commodity are in the Middle East, the most turbulent political region in the world. Crude oil is an integral part of our daily lives. We drive cars, heat our homes, fly on airplanes, and consume petroleum-based energy in many forms each day. When we buy consumer products, many arrive at our local stores by trucks that are powered by diesel fuel. Many of the stocks we hold in our portfolios have significant exposure to the price of oil and other energy commodities. I remember the gasoline lines in the 1970s when oil shortages disrupted the U.S. economy and lives of many people. The ubiquitous nature of crude oil makes it a highly political commodity.

Political commodities tend to have a more complex set of factors that drive prices. Supply and demand factors are the most important issues when it comes to prices of most raw material markets. The widespread consumption of wheat and oil mean that even when prices fall to very low levels, governments need to make sure that production and inventories do not decline to levels where…

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