There are two trends that in the commodities sector, particularly on energy, worth noting include the rapid consumption of a middle class in emerging market economies like China and the exploration of oil and gas rising in the global marketplace.
A great deal of the buzz around rising supplies of oil and gas is especially found in the gas fields where new fracking and horizontal drilling techniques are expected to greatly increase supplies of gas and liquified natural gas in the marketplace. To illustrate, shale gas in the US since 2008 has taken off from nearly negligible amounts to a projected outpacing of all other conventional and offshore gas production means in a short few years. It is now expected that the United States will be a net exporter of energy, rather than being a net importer for more than 40 years.
There will be energy substitution from oil to gas that some hope will lower energy prices, and one can expect this in industries like trucking, marine transportation. Interestingly, we are even seeing a number of car producers like Ford's F150 and the Chevrolet Impala come out with options of using natural gas in conjunction or in replacement of oil.
There are structural changes in the energy markets that are going to have a long term impact on prices, beyond the short term cyclical fluctuations in prices that we see in commodity markets. But, don't expect commodity and energy prices to decrease in the long term. Notwithstanding the new discoveries of gas, and of course the political and climate change challenges that spike prices in real time on our hyper-connected financial markets, the long term trend remains a steady climb in commodity prices.
Simply put, the global demand with the shift in the global economy from the west to the populace east will continue to rise and will be outpacing the supply of most commodities, including the important sector of oil and gas. With the rapid rise of purchasing power among emerging market economies and the thirst for energy to fuel for construction, production, consumption, and transportation, the expected demand for commodities will only increase in the long term. Shale gas exploration may be on the rise and bring some short term relief in prices, the expected long term trend in energy prices and commodities more generally will rise.