The New Oil: Metals

I believe there are some tremendous opportunities out there right now, particularly in metals -- gold and copper -- if other commodities start acting the way oil has for the last six months. I see it most directly benefiting Yamana (AUY - commentary - Cramer's Take) and Southern Copper (PCU - commentary - Cramer's Take).

In my last several columns, I've tried to draw attention to the disconnect between the fundamentals that historically have controlled market prices of oil and the actual price of the commodity. While demand has increased, supply has kept pace for the most part throughout the rise in prices we've seen over the last four years, and particularly the straight-up 70% rise we've seen in the price of the crude oil barrel since January of this year.

No matter how many arguments are put forth describing exponential growth in China and India, geopolitical difficulties in Iraq, Iran and Venezuela and the sinking dollar, it's still not enough to account for the enormous move we've seen in oil. Only one thing ultimately can: speculation. And even the word speculation doesn't adequately describe what's happening here.

What we've seen is a flight into oil as a whole new asset class that's become a necessary part of every good investor's allocation. And while there are about 2,000 companies listed on the NYSE (NYX - commentary - Cramer's Take) alone, giving investors a grand choice of where they want to get exposure to equities, in oil there's only one game in town: listed futures on either the New York Mercantile Exchange (NMX - commentary - Cramer's Take) or the IntercontinentalExchange (ICE - commentary - Cramer's Take). I don't have to talk again about the rise in managed futures accounts to support this, as I did back in July.

You merely need look at this long-term (going back to late 2003) monthly chart of crude oil traded at the Nymex:

Click here for larger image.

Source: CQG, Inc

While the price upmove of the top bar chart is painfully obvious, the underlying line chart, overlaying the open interest, is even more one-sided. Open interest is the number of contracts uncovered at the end of each business day. At the end of 2003, that number was hovering around 500,000 contracts. Today, that figure is closer to 1.5 million contracts.

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At the time of publication, Dicker was long Southern Copper, but positions can change at any time.

Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks. Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years. Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals. Dan obtained a bachelor of arts degrees from the State University of New York at Stony Brook in 1982.