The Biggest Punt Of All-Time?

With crude oil skidding below $40/barrel last night, despite OPEC's best efforts, I thought it would be an interesting exercise this morning to run off a fresh chart plotting the relationship between crude oil and CBOT grains.

Certainly, the grains and crude appear to have been very closely linked during oil's meteoric rise to all-time highs during the first half of 2008.

As the chart shows, however, despite crude having fallen 60% in the last six months, CBOT grains have had a more modest price decrease. Indeed, since early October, soybeans, corn & wheat have moved further and further apart from crude.

Crude vs CBOT Corn, Soybean & Wheat - Click Image To Enlarge

I guess that this is maybe no great surprise. With crude at $40/barrel grains are being viewed as grains again, not a fuel raw material. With crude over £100/barrel things looked a little different.

Will crude ever get back to those levels? I think so & more. In fact I think $100/barrel will be cheap sometime in the not too distant future. It has to be a long-term cause for concern that the current financial melt-down sees plans for the development of new oil fields being shelved. Why bother looking for more oil when it's only $40/barrel?

I think this will come back to bite us on the bum sometime in the future. When? Who knows, how long is a piece of string? Three/five years down the line maybe? You can buy futures as far forward as 2013 below $70/barrel at the moment. That could be the biggest punt of all-time.