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Wednesday, January 30, 2008

The Dog That Didn't Bark

One of the great Sherlock Holmes concepts is about "the dog that didn't bark." In other words, being aware of things that don't happen as much as things that do happen, and what they tell you.

I find it interesting that GDP growth in the fourth quarter was 0.6% -- only half as much as expected. What's more, that's way, way down from the 4.9% pace the previous three months. And yet, oil prices DIDN'T tumble. Indeed, we saw oil prices surge in the fourth quarter.

If a faltering US economy was going to have a real effect on commodity prices, shouldn’t we have seen oil prices go lower? Especially oil prices – we use one-fourth of the world’s oil!

I point you to some factoids I noted in yesterday's blog entry on an oil crisis ...

  1. China’s economy is nearly doubling every five years, and that country’s auto sales are growing at a 20% clip.

  2. Meanwhile, India just introduce a car that costs less than $2,500 – which means millions more people in India will be hitting the road in gasoline-guzzling vehicles.

  3. Here in the US, we continue to see unusually low crude oil inventories, with stockpiles dropping to 293 million barrels from 321 million barrels a year ago, according to the Energy Department.

It will be interesting to see today's oil inventory data.

UPDATE: Today’s inventory data was bearish for crude oil – with crude supplies building by 3.6 million barrels – but the oil market seems to be shrugging it off. I guess if prices don't go down, that's really not bearish. I'm not sure why oil is holding up so well.

Maybe it's because crude oil stockpiles are still at 293 million barrels, way down from 321 million barrels a year ago, according to the Energy Department.

The Fed’s announcement on interest rate cuts at 2:15 today could have more impact. The even BIGGER news for oil is on Friday, when OPEC meets.

UPDATE II: The Fed cuts 50 basis points. This lit a fire under oil prices, and many oil industry stocks are catapulting higher. Let's see where we end the day -- you never want to buy on euphoria.

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