from Reuters:
NEW YORK (Reuters) - A rush of investors betting signs of an economic rebound will spark demand for oil and other raw materials has driven prices to levels that may belie fundamentals and created the specter of another commodities bubble.
Oil prices have jumped nearly 30 percent over the past month to seven-month highs near $70 a barrel and tin prices are up 40 percent since March. Corn, soybean and wheat futures hit eight-month highs over the past weeks amid heavy fund buying.
The gains come despite forecasts that fuel demand will fall by the steepest rate since 1981 this year, and despite strong supplies in some agricultural markets.
That sets the stage for creation of a bubble similar to the one seen last year, analysts say, and raises questions about the sustainability of the recent price rise.
"Right now the price of crude oil is really not supported by fundamentals," said Rob Kurzatkowski, futures analyst with optionsXpress in Chicago.
"The market is looking so far forward it is reacting to inflation news and expectations that supply and demand fundamentals will support prices some time in the future."
Commodity prices are rebounding after the global economic crisis clipped demand as consumers reined in spending and halted a six-year rally that peaked last summer when oil tipped $147 a barrel.
Many analysts say last year's record run was in part fueled by an influx of speculators using oil and other commodities as a hedge against inflation.
Hedge-fund manager Michael Masters last week appeared before the U.S. Senate Agriculture Committee arguing another bubble may be growing and that prices again were being determined by trading desks of large Wall Street firms -- and not by supply and demand.
Analysts said investors were instead eyeing broader economic data, indicating the crisis may be easing to make a bullish case for commodities, and piling into exchange traded funds and long-only indexes to get exposure to commodities.
"This bull market is being manufactured by a bunch of guys trying to get their marks, not on the fundamentals," said Stephen Schork, editor of The Schork Report energy newsletter.
"Momentum and high prices have become the justification for buying, not the real fundamentals of this market."
Delays in corn and soybean planting have accounted for some of the bullish attitudes about agriculture futures during the past few weeks. But the crops were generally in better shape in most areas than they were a year ago.
In 2008, Midwest farmers managed to produce bumper crops of both corn and soybeans despite severe flooding that left millions of acres of key production areas underwater.
"Eventually there has to be some pressure on prices but it has not happened yet," said Darrell Jobman, senior analyst for TraderPlanet.com.
"I think that there is a lot of money ... speculative money that is anticipating inflation. There might be some more inclination to go into agricultural commodities."
Gains in industrial metals such as copper and aluminum over the past few months are more tied to fundamentals, according to some analysts.
"The rally in aluminum, for instance, is a longer term bet on economic recovery while copper has been rising and falling in tandem with Chinese demand and inventory levels," said Catherine Virga, senior analyst at New York's CPM Group.
Despite weak oil demand and strong inventory levels, Goldman Sachs (GS.N) this week raised its end-2009 oil price forecast to $85 a barrel, predicting tighter fundamentals in the second half due to economic recovery and lower supply due to cutbacks by producer group OPEC.
Analysts said the rise in fuel prices following the gains in oil could eventually threaten the very recovery fueling the uptick in prices.
"The market is still more than amply supplied, if anything this is going to be a barrier to growth," Kurzatkowski said.
