Editor's Note: It's the middle of 2008, and the first half of the year has been a wild ride for the commodities market. To capture where we are so far this year - and where we are going - we've asked some of our leading correspondents to provide a midyear update on the five major sectors of the commodities marketplace: Energy, Base Metals, Precious Metals, Agricultural Commodities and Alternative. The goal is to review where we've been, and just as importantly, where we are going.

The first installment focuses on the Energy patch, the hottest corner of the market right now. A new research piece will be published each day this week.

We covered the year in ETFs (so far) last week here at HardAssetsInvestor.com with unsurprising results: eight of the top 10 ETFs were in energy, and the other two were broad commodities indexes with big fat oil exposure. The logic here is pretty simple. Check out the basket:

Price Changes: January 1 - June 30, 2008

CRUDE OIL

Let's start with the obvious: Oil.

Charts can be a little misleading at first glance, because how you scale the Y-axis makes all the difference in the world. The first curve doesn't look that steep, but the truth is that crude oil rose 40% between January 2 and June 30 of this year. Here's how, oh, let's say, USA Today would show the same chart:

The year started with a brief foray to a high of $100 a barrel - brief because it seemed like the market just wanted to show everyone that oil could, in fact, break the magical $100/barrel barrier, as opposed to any real fundamental reason for that price.

The next few weeks proved that the market was not yet ready to support oil at that level. Ahh, the halcyon days of winter! It wasn't until late February that oil broke the $100 barrier again - this time spending some time getting to know the number before moving on to higher highs. A new high of $120 was achieved in April, then $130 in May and finally $140 was hit and surpassed at the end of June. The high price is having some effect - demand for the first half of 2008 was down 3%, which is the largest drop in 17 years.

Why the meteoric rise in these few short months? The reasons most commonly cited in the media (which we'll include ourselves in) are supply constraints (give us more oil, OPEC!); unrest in the Middle East (quarrels between the U.S., Iran, Iraq and Israel - in various combos); other "minor" supply interruptions (strikes and militant attacks in Nigeria); and the role of speculators.

Just a few of the headlines:

In April, the IEA reported that Russian oil production had declined for the first time in 10 years. The decline was only 1% for the first quarter of 2008, but it was significant because Russia has historically been a source of new production. Things don't seem to be getting better (at least according to this recent report) and Russia may be out of the new-oil club for the first time in over a decade. Russia's woes are just symptomatic of what's happening almost everywhere: Aging oil fields and slow development of new projects.

In May, the IEA warned that it would be revising its oil-supply forecast down. This was a blow, because the IEA has just been getting into the business of really digging into supply. This just created further evidence that yes, Virginia, there's a bit of an oil shortage looming.

Also in May, we had a tiny and truly insignificant event in the U.S., which was the U.S. Congress' vote to suspend filling the strategic oil reserve (signed by the president May 19). File under "lots of headlines, zero impact."

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