Let me show you a chart of the CRB Index — an oil-heavy index that tracks a basket of commodities – but first, I need to show you five stories to give it some context …

Story #1 — China Commodities rally coming to an end: analysts

Moody’s has changed its outlook to negative for base metals, mining and steel industries in the Asia-Pacific region over the next 12 to 18 months, saying buying has soared ahead of demand.

Story #2 — China Cotton Output May Drop Most in Decade, Noble Cotton Says

Cotton output in China, the world’s biggest consumer of the fiber, may drop 10 percent this year, the steepest decline in a decade, because farmers planted less, according Noble Group Ltd., Asia’s largest commodity trader.

Story #3 — Defiant steel mills hurt China’s ore pact demands

China’s small steel mills, now more profitable than big state-owned rivals, are thumbing their noses at Beijing’s orders to slow output, threatening to defeat its efforts to wring bigger price cuts from iron ore producers.

 

Story #4 – Chinese May Oil Consumption Up 6 Percent Year-on-Year

Reports show Chinese oil consumption in May was up year-on-year.

 

May consumption for the world’s second-largest oil consuming nation is estimated at 33.23 million metric tonnes (mt), up 6% from May 2008 volumes, PRNewswire quoted independent analysis of official data.

 

Story #5 – Chinese Refining of Crude Oil Hits Record High in May

 

China refined a record 31.19 million tonnes of crude oil in May, up 10.7 percent over the same month last year, according to the China Petroleum and Chemical Industry Association (CPCIA).

 

Now let’s look at the chart …

 

The CRB Index looks like it needs to rest a bit.  It can pull back to about the 230 area and still be in an uptrend.  

 

Driving that pullback may be that analysts are suddenly worried about Chinese commodity consumption – that and the fact that the U.S. dollar is strengthening.  However, the second story shows that China demand continues to ramp up and its production in important areas like cotton is going lower (China’s domestic oil production is also falling).

 

I think the rally in the U.S. dollar has a lot more to do with this than people want to admit. I think that oil and commodities in general are going to pull back, but then we’ll see them rally again as the U.S. dollar rally eventually fades.

 

So stay tuned.

 

In Other News … 

Stocks, Copper Fall as World Bank Predicts 2.9% Contraction; Dollar Gains Stocks and commodities fell while the yen, the dollar and Treasuries rose after the World Bank said the global economy will shrink 2.9 percent this year, a deeper recession than it predicted in March.

 

Insiders Exit U.S. Stocks at Fastest Pace in Two Years as Market Rallies Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.

 

Gold Declines as Stronger Dollar and Lower Crude-Oil Prices Erode Demand Gold fell to a one-month low in London as a stronger dollar and lower crude oil diminished the metal’s attraction as a hedge against a weaker U.S. currency and faster inflation.

 

World Aluminum Production Climbs to Highest in Four Months, Led by China Global aluminum output rose 5.1 percent to a four-month high in May as China, the world’s largest producer, made more metal, the International Aluminium Institute said.

 

 

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