“The day of steadily rising commodity prices is over. A lot of the demand for commodities has been speculation, and now that demand is falling away because of fear taking hold in the market.” -Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi

Commodities R.I.P. as Leverage Vanishes, Growth Slows (Update1): “Commodities markets are heading for the biggest annual decline since 2001 as investors exit leveraged bets and slowing economic growth erodes demand for raw materials.

The value of the 19 commodities in the Reuters-Jefferies CRB Index fell $280.6 billion, or 43 percent, from its July 3 peak, a loss larger than their total worth two years ago, data compiled by Bloomberg show. UBS AG, the Zurich-based bank that bought Enron Corp.'s energy unit in 2002, plans to exit most commodity trading. About 15 percent of investors in Boone Pickens's BP Capital LLC hedge fund may want their money back.

The same credit-market seizure that led to last month's bankruptcy of New York-based Lehman Brothers Holdings Inc. and the forced sale of Merrill Lynch & Co. is squeezing speculators who drove commodities to record highs. Slower expansion in the U.S., China and India is also undermining prices of crude oil, which fell 36 percent, and corn, down 43 percent.”

The obvious has come to pass.

“A global slowdown may cause crude oil to plunge another 47 percent to $50 a barrel next year, New York-based Merrill Lynch said in an Oct. 2 report. Goldman Sachs Group Inc. cut its forecast for copper next year by 12 percent to $8,265 a metric ton and aluminum by 18 percent to $2,920 a ton.”

In Smashing the ‘Perpetually’ Growing Oil Myth I said, “If you believe that demand from India and China will send the price of oil and commodities to “infinity and beyond” you’ll end up losing your shirt and your sanity.”

I argued that demand destruction will move the oil price significantly below $100 per barrel:

“Even at $100 a barrel, prices have the effect of crowding out the marginal consumer.