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The Bear Case
12 Mar 2012 EDT - CNBC.com
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With commodities enjoying a robust start to 2012, some traders are concerned that crude oil and other hard assets are ripe for a fall.

“There is $15 to $20 of a geopolitical-risk premium built into the price of oil,’’ says Spencer Patton of Steel Vine Investments.

He cites trading on March 1, which was marked by a $3 spike in crude prices on rumors of a Saudi pipeline explosion.

Shares of United States Oil Fund, an exchange traded fund tracking futures contracts of WTI crude, jumped by a similar amount, as most ETFs in this category are designed to closely track the price of the commodity or commodities they target.

Patton says conciliatory remarks out of Iran is all it would take to see prices drop $10 in a single trading session. He adds that a worldwide oil glut and a multi-decade low in U.S. travel demand don’t support prices at current levels. He pegs the fair value of WTI crude at $90 per barrel.

A rapid spike in oil prices above the 2008 high of $145 could also have long-term negative effects by destroying demand.

Meanwhile, receding fears of financial Armageddon in the Eurozone are taking the shine offgoldas a safe haven.

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