Monday Is Chart Day

I'm focused on oil after my trip last week, but let's look at gold as well ...

This chart comes from OPEC’s Monthly Oil Market Report for October 2007, and shows how crude oil prices tapered off in September of 2005 and 2006 (the green and black lines) along with seasonal demand. Not this year. The red line shows that global demand this September was strong and getting stronger . As the report says: “In recent years, oil prices have tended to ease with the end of the driving season and the start of the autumn refinery maintenance. This year, however, prices have exhibited unusual strength and high volatility even beyond the end of the driving season.”

The OPEC report goes on to say: “Over the last few years, product markets experienced a sharp downward correction in September, adversely affecting the entire petroleum complex. However, this trend has been significantly diminished this year … With the approaching winter season, the momentum of the product markets may improve further, providing support for refinery economics and crude prices. However, the major wild cards continue to be weather conditions, particularly in Atlantic Basin, and the refinery operation level in the US.”

In other words, OPEC says prices are strong and getting stronger. That sure sounds like a recipe for triple-digit oil to me.

Discovery of new fields peaked in 1965 and production has outpaced new discoveries every year since the mid 1980s. Production is falling hard in the North Sea, Mexico … and Saudi Arabia.

Oil has a negative correlation to the US dollar of over 80%. We’re already seeing this effect on oil and the dollar. You can see it when you look at oil in other currencies. While US oil prices have surged 50% since the start of the year, the price rise in euros is up just 38%. Meanwhile, the once-mighty greenback recently fell to its lowest level versus the 13-nation common currency – ever – since the euro was introduced in 1999.
Gold is also negatively correlated to the US dollar. I'm more bullish on gold than I am on oil right now (my target on gold remains $872), but Tropical Storm Noel could change that in a hurry. Strap on your safety belts, it's going to be a wild ride!

Check out my new gold and energy blog at MoneyAndMarkets.com