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US economy can be transformed by realising the 'promise of natural gas'

Date: Friday, July 15, 2011
Author: Wendy.Chothia, Hedgeweek.com

The US has just begun to “realise the promise of natural gas” and it “should seize the moment to transform the American economy,” according to one of the industry’s leading energy analysts said today at the 10th annual Dow Jones Indexes Mid-Year Commodity Review and Outlook media event.

In addition to PFG Best Research’s energy analyst, Phil Flynn, journalists also heard from panelists including David Krein, Dow Jones Indexes’ Senior Director, Product Development and Analytics; Jack Scoville, Vice President, Price Futures Group; Patricia Cauley, Director, Metals Products at CME Group; and John Kowalik, an Executive Director with UBS’ Commodities Investor Group.

Event moderator John Prestbo, Editor and Executive Director of Dow Jones Indexes, noted the Dow Jones-UBS Commodity Index finished down 2.62% over the first half of 2011. Precious metals was the best-performing sector within the index, gaining 6.82%, while grains was the worst-performing sector, sliding 9.72%, Prestbo added.

On the performance of the commodity markets through the first half of 2011, Krein said: “With the notable exception of silver and wheat, the performance of individual commodity indexes in the first half was rather muted. Silver reached a spectacular intra-period of gain of 57% by late April, ending the first half up 12%. Wheat, generally a weak performer over the last six months, closed the month of June down 32%.”

In addition to his comments above, Flynn, discussed the outlook for the energy market: “We have gone through a historical change in the energy patch from the ‘Arab Spring’ to the end of quantitative easing – this could create some surprises as we go into the end of this year.” Flynn added that “if China cannot engineer a soft landing then oil will come crashing down hard. The only thing we have to fear may be regulation itself.”

On the outlook for grains, Scoville said: “Prices for grains will remain extremely volatile, but should hold to high levels overall as demand stays strong from developing countries and as production potential in the US and abroad remains uncertain due to weather extremes.”

On the outlook for metals, Cauley said: “The flight to safety continues as investors maintain interest in gold and dual-purpose metals platinum and silver in response to Europe’s debt crisis and slowing global economic growth. On the industrial side, continued uncertainty in global growth could result in additional volatility in copper and steel.”

On the subject of trends in commodity-index investing, Kowalik said: "Commodity investing into broad-based commodity products continues its steady growth as commodities have expanded beyond a stand-alone asset class and have become an important component of new-investment strategies such as inflation protection and absolute-return products. In addition to pure index-based investing, investors and investment managers continue to seek improved returns through the use of enhanced index strategies, such as forward indexes, and by using commodity subindexes to modify their portfolios' risk exposure."

The Dow Jones-UBS Commodity Index, a diversified and highly liquid benchmark for the commodities markets, is composed of futures contracts on physical commodities. Introduced in 1998, the index series consists of the Dow Jones-UBS Commodity Index, comprising 19 commodities; nine sector subindexes; and 28 single-commodity subindexes for aluminum, Brent crude, cocoa, coffee, copper, corn, cotton, crude oil, feeder cattle, gas oil, gold, heating oil, lead, lean hogs, live cattle, natural gas, nickel, orange juice, platinum, silver, soybeans, soybean meal, soybean oil, sugar, tin, unleaded gasoline, wheat and zinc.