The Brightest Stars in the Commodities Boom, Part I

Thursday saw the market's kneejerk reaction of oil dropping of $4 a barrel, in response to China's announcement of gasoline and diesel price boost of 16%. Most traders perceived higher price will suppress Chinese demand on oil. They know nothing about what's going on in China.

After the price boost, gasoline still costs only US$3 a gallon, far cheaper than prices in the US and Europe. It will not supress demand at all; consider that only wealthest 3% of households in China own a vehicle. The Chinese transportation fuel market is in severe short supply. Refineries are unwilling to increase production because the crude prices are high, while the refinery product must be sold at government controled low prices, well below cost. The government hopes the price boost will encourage refineries to INCREASE fuel supply to ease the shortage. It actually will boost oil demand. Consider buying the U.S. Oil Fund ETF (USO) for a quick rebounce once the market realize they got it totally wrong!

Commodity guru Jim Rogers is my hero not only because he correctly predicted the commodity boom as early as 1999, but because the way he does market research and due diligence study is very inspiring to me. His millenium adventure around the world, which I recommend everyone to read in his bestselling books, was not a safari, but a real adventure with real danger to his life. I do not think I can be as brave. I wish I knew him and read his books earlier.