John Kilduff
CNBC Contributor

The commodity sector appears to have taken a roman candle shot to the head over the Fourth of July Holiday weekend. The spikes in crude oil, gasoline, heating oil, corn, copper, cocoa, too name several, have been largely erased.

The malaise being exhibited by the equity markets and the deteriorating economic outlook appear to have affected the psyche of market participants. A major component of the macro commodity bull run has centered on unyielding demand. So far, we have only seen energy demand destruction of any significance in the United States.

For the traditional agricultural commodities, the weather in the Midwest has turned relatively favorable, easing some of the abject concerns over crop yield forecasts.

The question for today, then, is: does the recent move represent a correction or is it the start of something larger?

Focusing on energy, specifically, we have seen corrections of large magnitudes previously, and they have previously represented buying opportunities. This pullback is likely a buying opportunity, as well.

There is one key distinction to this decline: it’s being accompanied by an equity market that is in bear market territory. This is a compelling backdrop and a strong argument for commodity losses extending themselves. For some time, I have remarked that energy prices could drop significantly, but it was always a good news/bad news proposition. The good news being that energy prices are considerably lower; the bad news is that the drop is due to a poor economic environment.

Energy prices reached their recent record levels on renewed concerns over Iran’s nuclear ambitions, and concomitant remarks by Israel about the prospects for an attack on Iranian nuclear facilities. As I warned last week, a diplomatic climb down was possible, if not likely, and the result could be a relinquishing of the gains associated with supply disruption fears.

There has been no shortage of elements to the rise in energy prices over the past several years, and I am reluctant to declare the energy bull market over. The Iran situation could flare up, again, at any moment. Nigerian rebels could strike oil infrastructure, also, at any moment. The terrible news relating to Mexico’s declining oil output seems to have been virtually ignored by the market, but it will be figured in, at some point.

Bottom line: the demand strains on the global supply chain remain. This decline, more likely than not, represents a buying opportunity. However, for the sake of the U.S. consumer, I would not mind being wrong on this call in the least.

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John P. Kilduff Senior Vice President Of Energy at MF Global Ltd. He's also a CNBC contributor.

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