One of the key themes that seems to pervade the entire
commodities complex is the significant shortage of power
generation throughout the world that has either curtailed
production, as in metals, or has increased the demand for
substitutes, as in oil and gas
Power generation shortages provide fuel to commodity prices
The power generation problem started with significant infrastructure
problems in South Africa and Latin America, but was soon extended to
Australia, China and other parts of the world as a series of “perfect
storms” substantially disrupted feedstock supplies such as coal, or
knocked out generation capacity directly. The immediate impact was loss
of metals production, particularly in South Africa and China, but the
secondary effects are still being felt, particularly in diesel demand, which is
the fuel of last resort to produce power and has been the primary driver of
the oil market recently.
Although we remain positive on both agriculture and natural gas, we
maintain our view for a modest pull back in oil prices to around $100/bbl
between now and the end of the second quarter, viewing it as a buying
opportunity as we have also raised our end of year target to $115/bbl and
have revised our 2008 average WTI price forecast to $105/bbl. Amongst the
industrial metals, while we believe that copper still provides upside from
here, we are more neutral on the rest of the base metals complex. Finally,
while we remain positive on precious metals in the near term, we believe
that the US dollar is near its lows and as a result see some modest
downside risk to gold in the coming months. Net, we are maintaining our
overweight recommendation for commodities and have modestly changed
our 12-month return expectation from 12.4% to 12.9%.

Table of contents
Current trading recommendations 3
Price actions, volatilities, and forecasts 4
Powering up the commodity markets 5
Sector overviews 6
Commodities in a nutshell 16
Energy market forward curves and market fundamentals 18
Industrial metals forward curves and market fundamentals 21
Precious metals forward curves and key exchange rates 22
Agriculture forward curves and market fundamentals 23
Livestock forward curves and market fundamentals 25
Macroeconomic indicators 27
S&P GSCITM total returns by commodity and financial asset total returns 28
Disclosures