Commodity ETF Alert June 2011 Portfolio Update

| June 28, 2011 | 0 Comments

June 28, 2011

Big news is rocking the oil market…

The US Department of Energy (DOE), in conjunction with the International Energy Agency (IEA), is releasing 30 million barrels of crude oil from the US Strategic Petroleum Reserve (SPR).

The release is part of a coordinated effort by IEA member countries to drive down crude prices.  In total, member countries will be releasing 60 million barrels of oil from their SPRs in coming weeks.

Why is the IEA doing this?

Governments want lower oil prices to ease the burden on cash strapped consumers.  It’s understandable as high gas prices hinder consumer spending, a key contributor to economic growth.

But don’t be fooled, the move by the IEA is purely psychological…

Anybody with a simple understanding of global supply/demand knows 60 million barrels covers less than a day of global consumption.  And the 30 million barrels to be released in the US is enough to cover about a day and half of usage.

In this light, you can see the IEA’s move is a ploy to ‘bluff’ the oil market lower.  Adding two million barrels per day to the global oil market will no doubt ease some short-term price pressure.

But the oil market will eventually call the IEA’s bluff…

Governments can’t supply the global market through releases from their SPR’s for very long.  Eventually, the oil market will demand higher production out of OPEC.  And that means Saudi Arabia will have to step up to the plate soon.  Something they couldn’t do in a recent OPEC meeting.

What does all this mean?

Oil prices have fallen to the $90 area in recent trading.  The short-term effect of the SPR release appears to be working.

But a global oil supply crunch is unavoidable unless the Saudi’s raise production soon.  And even if they do, oil prices will likely remain well above the $85-$90 a barrel mark.

Now’s clearly a good time to get long oil…

Position Updates

. . . . iShares Gold Trust (IAU) – HOLD

Gold prices are showing some weakness lately.  Prices fell from $1,550 an ounce to $1,500 over the past few days.

What’s the reason for the drop?

The recent weakness across the commodity complex is likely forcing gold investors to lighten up on their positions.  We may see a few more weeks of weakness, but gold prices are likely to rush to new highs by the end of 2011.

Keep holding IAU for higher prices…

. . . . United States 12 Month Natural Gas (UNL) – HOLD

Natural gas fell along with other energy commodities last week.

Remember, our position in UNL is a long-term investment requiring patience.  We’re probably going to see some volatility in this market in coming months.

But our long-term view remains the same…

Natural gas prices have much more upside potential than downside risk.  And since we bought UNL near the 52-week lows of $31, we’re well positioned in natural gas.

Keep holding this ETF for higher prices down the road…

. . . . iPath Dow Jones-UBS Energy ETN (JJE) – HOLD

It’s easy to understand why JJE has fallen in recent trading.  Both oil and natural gas have pulled back over the past two weeks.

But like I said earlier, our bullish view on energy commodities hasn’t changed… regardless of what the IEA does in the short term.

Keep holding JJE…

. . . . iPath Dow Jones-UBS Copper ETN (JJC) – HOLD

Copper is still bouncing around the $4 a pound level…

The fact that copper hasn’t broken below $4 in recent trading is bullish in itself.  It shows copper bulls aren’t willing to give up even though some data suggests the global economy is softening.

And we’re not giving up either…

Recent signs of slowing growth may actually be a temporary “soft patch”.  The nuclear disaster in Japan may have had a bigger effect on the global economy than economists first expected.

We’ll likely see some strengthening of conditions in the near future.  If so, copper should move higher in the near future.

Keep holding your position in JJC…

. . . . iPath DJ-UBS Platinum ETN (PGM) – HOLD

Platinum took a dive last week.  But most of the selling was probably related to the weakness in gold and silver.

We don’t expect the weakness to last too long however.  The fundamentals for platinum haven’t changed a bit.  Buyers should step into the market in the near future.

We’re still sitting on a 7% gain in our PGM position.  Keep holding for higher prices…

. . . . iPath Dow Jones-UBS Grains ETN (JJG) – SELL

Grains took any ugly dive over the past two weeks…

What set off the selling spree?

First of all, the US Senate voted to end ethanol industry subsidies.  The decision took a nasty bite out of corn prices since corn is the base commodity for ethanol here in the US.

Clearly, the corn market was factoring ethanol usage into the recent record high prices. And now that industry subsidies are going away, ethanol usage will likely slow.

Corn prices may ease further due to this recent development…

What’s more, farmers are now getting into the fields to plant.  The planting season is still behind schedule, but farmers are catching up quickly.  Spring planting uncertainties are now priced into the grains market.

Unfortunately it’s time to exit our trade in JJG.  The downside risks in grains now outweigh the upside potential.  We’ll be revisiting grains in the future, but for now let’s put our money into better opportunities.

. . . . ETFS Physical Palladium Shares (PALL) – HOLD

After running to a multi-month high of over $800, palladium is pulling back along with other precious/industrial metals.  As with platinum, we don’t expect the weakness in palladium to last long.

Keep holding your position in PALL for a return to recent highs…

. . . . iPath Dow Jones-UBS Sugar (SGG) – HOLD

Our recent entry into SGG at $81.54 is proving to be very rewarding.

Sugar is one of the only commodities showing solid strength in the past two weeks. Concerns over Brazilian sugar harvests continue to mount and that has sugar traders becoming decidedly bullish.

As I write, SGG is trading at $90.64… an 11% jump from our entry!

Remember, we’re looking for SGG to get to the $95 area.  If it does, consider taking some profits.

For now, keep holding SGG for higher prices…

Action To Take

  • Sell iPath Dow Jones-UBS Grains ETN (JJG)


Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.