Friday News Fiesta

First, here's a chart showing the growth in the silver ETF. I included this chart in a special report on silver that I sent to my premium service subscribers this week ...
Here are some other notes, thoughts and links, somewhat scattershot as I am scatterbrained today ...

Programming note: I'll be appearing on DEX.TV at 8:21 on Monday morning. It's based in Canada, eh?

Barry Rithholz is one of the economic bloggers you should be reading every day.

Economist's View is another great site. Here's a good piece, with charts, that this blog did on energy.

The always excellent Jim Jubak says oil stocks are topping. Good! I need a pullback to get long again.

Naked Capitalism expresses doubts about oil demand.

Alltop is a new news aggregation site that has the potential to give Google heartburn. Check out their economic collection and their environmental aggregation.

Here's an update on the scarcity of Silver Eagles, which I covered earlier this week. Now the Silver Institute is involved.

OK Go continues to impress me with their videos ...

I've made my decision. I'm casting my vote for Red State Update ...

Harvey Korman was a genius. I'm going to miss him.



Have a good weekend

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

Gas Lines in China?

That's what this post claims (more photos than words). If so, we may just be seeing the beginning of the next leg up in fuel prices.

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

More Evidence That Peak Oil Crisis Looms

There's an interesting story in the Wall Street Journal today ...

Oil Exporters Are Unable to Keep Up With Demand Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world's top oil exporters fell 2.5% last year, despite a 57% increase in prices, a trend that appears to be holding true this year as well. In all, according to the Energy Department figures, net exports by the world's top 15 suppliers, which account for 45% of all production, fell by nearly a million barrels to 38.7 million barrels a day last year. The drop would have been steeper if not for heightened output in less-developed countries such as Angola and Libya, whose economies have yet to become big energy consumers.

XX This story reinforces a point I made in my peak oil report "Running on Fumes." In fact, I listed it as "Force #5 -- Domestic Need is Squeezing OPEC Oil Exports." So if you bought my report, you were months ahead of the Wall Street Journal in knowing that domestic demand is rising so fast in the oil producing nations that their exports are going to go down, even if they pump more.

Meanwhile, about 2 billion people in China, India and other emerging markets are lined up to buy cars over the next 10 years. Now, I don't think they'll all buy cars -- I think the crisis we're rushing into will prevent that -- but it shows steadily growing demand that should squeeze prices much, much higher.

Next, let's look at this great chart that was on TheOilDrum this morning ...And this brings me to my point. I saw yet another talking head on CNBC saying that if only Congress would let us drill everywhere and increase domestic supply, we could solve this problem.

They. Just. Don't. Get. It.

What we need to solve is not supply but demand. Hell, if we have more oil, and don't stop our demand growth, we'll just use it up and be in the same leaky boat five years out. We need to change how America uses oil and use a lot less of it.

If we can seriously cut back on oil use -- conserve, conserve, conserve -- then I'll be happy to talk about drilling off the Atlantic shelf or whereever you want. My guess is, if we could cut US oil use by a third, we might be able to leave the decision on drilling in ANWR to our kids.

That said, according to the US Energy Information Administration, gasoline demand has fallen 0.6% so far in 2008, as consumers tighten their belts. If there was a lot less driving over the Memorial Day holiday -- and we'll find that out soon -- we could see the beginning of the short-term pullback in oil prices that I've been looking for since oil hit my short-term target of $127 a barrel.

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

Money and Markets -- Silver and More

My latest MoneyandMarkets.com column is up.
Special Dispatch from Mexico: Silver Vein Discovered!
by Sean Brodrick Wednesday, May 28, 2008 7:30 AM

Greetings from Mexico! I'm traveling this mineral-rich country in search of conquistador silver. Yes, mines that the Spanish discovered and worked in the New World are still being worked today ... [More...]

XX -- Sean's comment: While I'm happy with the story and the editing, the title is weird.

More news you can use ...

Crude Oil Is Little Changed as Morgan Stanley Says Brent May Reach $150 Crude oil was little changed after Morgan Stanley said that Brent oil from the North Sea could ``easily'' reach $150 a barrel.

XX Sean's comment -- way to go out there on a limb, Morgan Stanley. Ha!

Gold futures fall below $900 as dollar firms
Gold futures slid for a second day on Wednesday, pushing prices below $900 an ounce as a less-than-expected decline in new orders for U.S.-made durable goods helped provide support for the U.S. dollar.

Durable-Goods Orders Ex-Transportation Unexpectedly Jumped 2.5% in April Orders for U.S. durable goods excluding cars and planes unexpectedly rose in April, signaling that international customers are helping factories ride out the economic slowdown.

Wheat Falls as Condition of U.S. Crop Improves, Easing Concern for Supply Wheat fell for the first time in three sessions after a government report showed the condition of the U.S. winter-wheat crop, which growers are harvesting now, improved last week.

XTO Agrees to Buy Bakken Shale Assets for $1.85 Billion From Headington XTO Energy Inc., the oil and natural- gas producer that has spent more than $2 billion on acquisitions this year, agreed to buy properties in the Bakken Shale in Montana and North Dakota from closely held Headington Oil Co. for $1.85 billion.

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

Are You Ready for $15 Gasoline?

Riverwired points to an interview on CNBC with "Management Information Services Senior Energy Advisor" Robert Hirsch, who warns that gasoline could hit $12 to $15 a gallon.

He based his prediction on an interview given by Charles T. Maxwell in February. Maxwell, who is apparently known as "The Dean of Oil Analysts," said the crisis will start sometime between 2010 and 2015 and will last for at least ten years.

Maxwell’s original $12-15-a-gallon prediction came in a February 5 interview with Energytechstocks.com, a Web site run by two former Wall Street Journal staffers.

If this guy is right, you better buy a good bicycle.

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

Travel Day

I'm going home today -- hooray! Mexico was very interesting, but I'll be happy to be home with my wife and kids, who I've missed terribly.

Blogger has decided I can't post pictures today ("Take that, skinsack," says the evil machine). So here are some things that might interest you ...

Gold plunges as dollar strengthens; oil off record high

XX My take -- what's this mean? Buying opportunity ahead!

U.S. Consumer Confidence Falls as Home-Price Drop Shows No Sign of Abating Confidence among American consumers fell in May to the lowest level since 1992 as the two-year housing slump showed no sign of bottoming.

Oil Falls More Than $2 a Barrel as Record Energy Prices Limit U.S. Demand Crude oil fell more than $2 a barrel in New York on signs that U.S. fuel consumption is dropping because of a slowing economy and record energy prices.

Corn Signals Biggest Beef Price Surge Since '03 as Cattle Supplies Dwindle Enjoy your next steak, because prices from Shanghai to San Francisco are only going up.

Even though it's a short week, it could be interesting. There's more to come. Tune in tomorrow!

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

Mine Exploring -- Do You See What I Guanacevi?

Sunday, we flew across the Sierra Madres to Guanacevi, where Endeavour Silver has a mine project. I've been to Guanacevi before (the stock is in our Red-Hot Canadian Small-Caps portfolio).
While there have been many changes, one thing that hasn't changed is Guanacevi International Airport. We still land in a horse pasture. Last time, we had to chase the horses out of the way to take off, but this time the local equine population was more under control (and probably snickering at the foolish gringos under their breath).

Then we hop in trucks and drive to a spot where we can look out over the town.
Those lonely chimneys you see are chimneys left over from Cornish tin miners. This area has been mined by a lot of people -- the natives, the Spanish, the cornish, now the Canadians -- and there is STILL plenty left.

From this same vantage point, you can also see Endeavour Silver's mill and plant ...

We'll get there eventually, but first, it's time to suit up and head into the mines.And yes, it was pitch dark except for our head lamps. This mine is working so hard that we took a tour of an area that had been blasted out fresh just the day before. Not much to see there. But I thought this was cool ...

It's an ore chute. This is a hole in the "floor." Mine from one level is scooped up and dumped down the hole, to a waiting truck below. It's just an example that you have to watch your step or risk a potentially crippling fall.

But ahh, we're here to have fun. Here, Dan Heard of Williams Financial Group hops behind the wheel of one of the mining tractors.
Don't worry -- the people running the mine aren't dummies. They wouldn't let us drive these massively horsepowered vehicles through tunnels of pitch darkness. At Guanacevi it's safety first.

And here, Godfrey Walton, patient as usual, explains what the heck we're seeing deep inside the Porvenir Mine at the Guanacevi project.


Finally, it came time to leave. We still had to tour the plant, and if we ran any later than 3:00, the winds would shift and we wouldn't be able to take off, so we'd be grounded overnight. Time to go!

That's Bob Moriarty of 321Gold.com on the left, Jeff Clark of Casey Research in the center and me on the right. We're all squinting like Morlocks because we just came up from the mine.

As we stood there, a giant truck went by us, carrying ore from the mine to the plant.
The truck takes the ore to the plant, where the ore is processed and finally put in a furnace so it can be melted into bars ...And here is what the silver looks like when it is poured into a dore bar. A dore bar is a crude silver bar that contains some gold ...

And I get to hoist the silver bar. It weighs a LOT. Some of the people on the tour actually asked our guide if they could take the bar with them. He replied: "Oh, sure. Run as fast as you can. We'll see how far you get before the guard shoots you."

I saw the guard -- he has a black hard hat to match his black uniform and a Big Frakking Gun. No fooling around for that guy.

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

Uh-Oh! Gulf States May End Currency Peg to US Dollar

We hear from Bloomberg that both the United Arab Emirates and Qatar could abandon their currency pegs to the U.S. dollar in favor of a basket of currencies within months, and Saudi Arabia may follow the move late next year. They would all be following the lead of Kuwait, which last year broke from its neighbors and fixed its dinar to a basket of currencies.

Why are the Gulf States doing this? Thanks to surging energy prices, Gulf nations are experiencing an unprecedented boom, and an increasing inflation problem. Yet their currencies are depreciating and their central banks are under pressure to cut their nominal interest rates to match the Fed.

Plainly, the US Fed's easy money policy does not work for them. Even though many investors believe the US interest rate easing cycle is at an end -- futures on the Chicago Board of Trade showed traders saw a 92% likelihood the Fed will keep its target rate for overnight lending between banks at 2% on June 25, up from odds of 88% on May 21 -- it's too little, too late for the Gulf states.

What's more, Forbes quotes Deutsche Bank and others as saying that the Fed may NOT be through cutting rates, and may drop the benchmark from an already low 2%.

Continued cuts in the Fed benchmark rate could grease an already slippery slope for the US dollar. Since the Fed cut rates from 5.25% to 2% since last August, wholesale inflation has increased to 6.5% year over year and the price of oil has soared to over $130 from $70. A global supply/demand squeeze for distillates like diesel gets much of the credit, but the meteoric rise in oil prices wouldn't have happened without the Fed's help. If the value of the US dollar had just held steady since August, the price of oil would be under $90 a barrel.

And as bad as inflation is, it's probably much worse than the government admits. ShadowStats.com is a website that tracks the Consumer Price Index the same way it was before the Clinton administration started monkeying around with it. And according to ShadowStats, consumer price inflation is running at more than 3 full percentage points hotter than the government says. Would the government lie to you? Hahahahaha!

And this is my long-winded way of getting to my subject: Gold and silver prices. It seems that foreign governments, especially those in the Persian Gulf, are losing their faith in the almighty dollar and the policies of the US government. That undercuts the mighty greenback's standing as the world reserve currency. Now, that doesn't mean your dollars become worthless overnight. But the more its reputation gets chipped away, the faster its downward slide can become. I think this has the potential to heat up the fires under gold and silver quite a bit.

If paper money becomes devalued, people will put more faith in hard currencies. More and more Moms and Pops put a few gold and silver coins away "just in case," and the trickle we see in gold and silver coin investing now can become a flood. And thus we learn from the Wall Street Journal that demand is simply overwhelming the supply of US Silver Eagles. Why are so many "early movers" suddenly buying silver coins. What are they afraid of?

As the old saying goes, if you have to ask that question, you haven't been paying attention.

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

Saturday Mine Spelunking -- Going Deep

Man, what a long day Saturday was. I visited two mines and then took a long ride in a small plane (so that today, I can look at another mine). Here are some photos ... First, we tromped into a mine ...Next, I'll show you one of the wider passages of this old mine. Remember, we're in Mexico, and these mines were first opened decades, even centuries ago, so people were smaller. In the SMALL passages, I (BANG!) kept hitting (BANG!) my damned (BANG!) head on the ceiling! Thank heaven for hard hats. Another analyst, Dave, is even taller than me, so I was trying to use him as a judge of when I should duck. But I found out later he was using me for the same purpose, and from the number of headers I took into solid rock, I think he's better at this game than I am. Anyway, you've heard the phrase "dark as a coal mine"? Well, coal mines have nothing on certain silver mines I could name ... In the photo above, we are looking up at galleries that are carved out of the mountain. The chambers seem to go on forever ... And here we get to the prize (below). A vein of silver running through the rock ... Next, we went to an old ruin of a mine that is being explored for potential mining today. It had a certain "Indiana Jones" feel, like we were walking around abandoned temples. Also, vast pits opened all around us, where mining had been done in the past. However, it was important to come here, as the geologist in the picture below was showing us ... ... because here, you can see where the silver vein comes right to the surface. It has been marked with paint.And more paint on the rocks shows us where the vein continues right up the side of the mountain ... When the Spanish came to these mountains, they found these visible veins and would follow the visible silver down into the rock, burrowing out narrow, twisty passages and galleries by lamplight. Eventually, they got down deep. And that's where we went next. Here, a bunch of people cram into an elevator that was even smaller (if possible) than the one from the other day ... And after a noisy, creaking, jerking ride, we arrive at the bottom of the old shaft ... Then it's trudge, trudge, trudge to where the new mining is going on. I took this next shot from one chamber through a hole in the rock into the next chamber where a bunch of miners are working. And in this next photo, you can see the silver vein running right over my head ... Finally, we get to the prize: Core samples rich with silver, and some gold, too. We also took a tour of the very modern plant that my hosts picked up for dirt-cheap.Don't worry, readers. I'll be revealing more about this in future issues of Red-Hot Canadian Smal Caps, Red-Hot Global Small-Caps, and at MoneyandMarkets.com

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

Friday -- Valenciana

On Friday, I went to visit the Valenciana Mine, a mine as rich in history as it was (and maybe is) in Silver.

This is the gate leading into Valenciana. Quite nice, eh?

Looking inside the gate, we see something that looks like a pyramid. Actually, there are similar structures all around the edge of the mine, meant to symbolize the crown of the Spanish Queen (in the 1500s). That’s how old this mine is – they designed it to honor the Spanish Queen.

Then we see the chimneys. The outside of the mine is half a ruin. It will probably be brought back into production, but they’ll have to do it while preserving its historical qualities.


The mine shaft here goes down to 545 feet, but we couldn't get past a barrier, and my camera shots were less than satisfactory.
We were there for a ceremony in which the mining company honored the town and the town honored the mining company. And what would a festival be without mariachis?
Here is another mine (from a great distance). That thing that looks like a prison is the Rayas Mine. Now why do they have high walls around all the mines, do you ask? Because when this mine first opened and for a hundred years afterward, it was the wild, wild west. Bandits would come down and raid -- everybody wanted the silver. So, nice high walls at Valenciana and Rayas made for good neighbors.
Today, I'm going down 2 more mines. It's a long day -- I'll post again tomorow.

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

Down the Mine Shaft We Go

Here are some photos from my trip down the Cata Mine at Guanajuato.

First, an abandoned church broods eerily over the mine. All the mines used to have their own churches ...

Turning from the church, you can see a man in a blue shirt about to lead us into the mine entrance. That's Robert. He was very patient in explaining everything.
This next picture could be clearer, but on the right side, you'll see a pole in a tiny box. Four or 5 people jam around that pole -- it's an elevator -- for the trip to 345 meters below.
Here, I find some drill cores from a deep drilling operation. Rich veins -- argh, I like me silver!

It's pitch dark where it isn't lit by lamps, so this mine worker looks like he's exploding. That's just the reflective tape on his uniform overwhelming my Canon camera.
The worker is runnning this drilling rig ...
Then trudge, trudge, trudge down to the 430 meter level. This pillar supports a grand chamber where silver has been extracted. That pillar itself is worth about a quarter million dollars.

Here, I use a hammer to whack at a vein of rock. Lots of fun, 430 meters below.

And here's the prize. The black stuff is silver (flecks of pyrite sparkle in the sunlight) and the white and purple stuff is quartz.

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

Guanajuato Day 1

If you were playing along at home yesterday, and trying to guess the town I'm visiting on the first leg of my trip to Mexico, that town is Guanajuato.

Guanajuato is an important city in Mexico both historically and mineralogically. Here is the view from the airport. See those mountains? They're stuffed with silver.

Guanajuato comes from the name the indigenous tribes had for the area -- Quanax-juato - "Place of Frogs." I haven't seen any frogs so far (it's only my first day).

The Valenciana silver mine located near the City of Guanajuato was one of the richest silver finds in all history. In the 18th century this mine alone accounted for 60% of the world's total silver production. Guanajuato is very proud of its mining heritage.

There are statues of miners, like this one, along the roads. But mining isn't just a heritage in Guanajuato. There are ongoing silver mines, and potentially much, much more to find. That's what I'm going to go check out today.

Yesterday I spent most of my time trying to get squared at the hotel (more on that later) and sightseeing. This being Mexico, you can't walk down the block without tripping over a church ...

So, that's not unusual. But how about a castle, or Castillo, eh? This is the view outside the window at the end of the hallway ...

Guanajuato is a mix of new and old -- and downright ancient like this castle. There are brand new buildings next to ramshackle structures that look like they haven't been painted since my grandfather's day.

Not everyone lives in the Ritz, of course. In fact, this being a mountain town, neighborhoods are a series of buildings clinging tenaciously to the hillside.

Man, I'd hate to get to the bottom of that hill, then realized I'd forgotten something.

Guanajuato is famous for a lot of things. Me being me, and this being my first day, I had to check out the mummies!

People buried here can end up naturally mummified, but no one knows how the process works. If you're too poor to pay for a burial, after 5 years they'll dig you back up and put you in the mummy museum.

Today I'm on to more serious stuff -- checking out a local miner with enormous potential.

Oh, wait, I forgot my hotel. Well, the elevators don't work, and they don't believe in washcloths or clocks (they do believe in nice towels and comfy beds). And the Internet access didn't work in my first room so I had to switch to another one. I repacked in such a hurry that I forgot my hairbrush in my first room, so now I get to spend the rest of the trip looking like the wild man of Mazatlan.

Why not just ask the staff to find the brush? The staff, while very pleasant, has about 10 words of English between them. It's their country, so I can't complain about that, but obviously I can't recommend the hotel to English-speaking tourists, either. There are other hotels around here if folks from the USA want to come see this beautiful town.

What can I recommend about the hotel? Well, it's new and very clean and very energy efficient. The lights won't work in my room unless I stick my key-card in a slot in the wall -- so when I'm out of the room, the electricity isn't running. That's a huge energy savings. First time I've seen that.

Also, the food is excellent. Dinner was so good I'm really looking forward to breakfast.

Good food, a place to sleep, and internet access -- that's all I need. Anyway, who cares much about the hotel when I have a historic city and incredible mines to explore.

I'll be writing more about it, so stay tuned.

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

$134 Oil -- What the Heck?

Man, I just step out for one minute and you kids send the price of oil up to $134 per barrel. This is why we can't have nice things!

I've found some interesting stories on the subject. Robert Scheer's story "Paying for War at the Pump," is a must-read.

Mish Shedlock has a great opinion piece on the latest slapstick plan from Congress -- sue OPEC!

Meanwhile, Big Oil says: "Don't look at us!"

And a couple of farmers have had enough. They're switching back to mule power!

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

News You Can Use for Wednesday -- Crude, Gold and Silver

Have I mentioned that I hate flying? I SO wish there was a train to Mexico, LOL.

Anyway, here's what I'm reading to keep my jangly nerves from exploding ...

Petrobras to Order $30 Billion Worth of Drill Ships, Rigs for Tupi Site Petroleo Brasileiro SA, owner of the Western Hemisphere's largest oil discovery in three decades, plans to order 40 drilling ships and platforms worth about $30 billion for delivery by 2017.

Soybeans Decline After Argentine Farmers Announce Plan to Suspend Strike Soybean futures fell for a third day in Chicago as Argentine farmers planned to suspend a national strike that has disrupted grain exports in a bid to revive talks with the government over tax increases.

Crude Oil Rises Above $130 a Barrel for First Time as Banks Up Forecasts Oil rose above $130 a barrel for the first time after at least five banks raised price forecasts in the past week on expectations supply constraints will persist.

Kazakhstan bans export of oil products amid soaring fuel costs
Kazakhstan on Monday banned the export of all refined oil products, news agencies reported, as the energy-rich Central Asian nation grapples with soaring fuel costs. The announcement, made by Prime Minister Karim Masimov at a government meeting, comes just days after opposition parties called on his government to resign amid what they call a worsening economic climate.

Gold Gains for Fifth Day as Record Crude Oil Fans Inflationary Concerns Gold gained for a fifth day to trade near a one-month high in Asia as crude oil held close to a record, stoking inflationary expectations, and the dollar fell.

En route through unknown Mexico: Silver State Zacatas
The Mexican state of Zacatecas is marked by desert and half-desert in the foothills of the Sierra Madre Occidente. Precious metals like silver and gold have always attracted people to the area. Indeed, without gold and silver even state capital Zacatecas, some 600 kilometres north of Mexico City, would probably not exist.

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

Where in the World Is Sean Brodrick?

I’m waiting for my plane in Ft. Lauderdale. Then, after a stop in Texas, it’s off to Mexico.

My first stop is an amazing city. Let me tell you about it ...

The city was founded on silver. A large silver vein found in the 16^th Century sparked a silver rush. As the number of miners grew, the mines became larger and the mountains of ore became mountains of silver.

The city was originally built over a river, which flowed through tunnels underneath the city. However, after years of raising buildings due to floods, engineers built a dam and redirected the river into underground caverns. The tunnels were lit and paved with cobblestones for traffic, and this underground road network carries the majority of cars driving through the city today.

The city played a major part in the Mexican War of Independence.

To the west of the city is a famous cemetery noted for the natural mummies produced by means unknown. About 1 in 100 bodies buried there experience natural mummification.

The dead don’t necessarily rest easy here. In the late 1800s the town instituted a "burial tax.” When poor families can’t pay the tax, their relatives are dug up and placed on public view in a purpose-built museum, which still adds corpses to this day.

Places that were silver mines of old are now under this city. Only visible silver was mined, which means there is plenty left in place. This presents the cityfolk with a interesting quandary: Do they want to dig up parts of the city to get the silver?

Can you guess what city this is?

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

Chart of the Freaking Day -- Oil Price Surge Then and Now

I found this chart on AngryBear.blogspot.com. It compares the run-up in crude oil recently with what happened in the 1970s.

Have some things changed since then? Yes!

1) We import much more of our oil now.

2) China and India are both growing rapidly, providing oil demand outside the U.S. In fact, this year is the first year that emerging markets will use more oil than the U.S.

3) That price shock was caused by OPEC turning off the tap. This time around, OPEC is pumping flat out.

4) The only new oil being discovered now is expensive oil.

Still, it's a pretty eerie similarity, eh?

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

Which Way Will Oil Prices Go?

Saudi Arabia said on Friday that it would raise its daily output by 300,000 barrels per day … Angola is scheduled to start shipping a new blend of crude oil in July, boosting production by about 90,000 barrels a day… Iraqi oil production rose to more than 2.5 million barrels a day last week, the highest this year…

... and yet crude oil shrugged off all this “bad news,” threw back its soot-black face and laughed, and kept on climbing to higher prices on Monday.

By just about any metric, crude oil is overbought and due for a pullback. However, the Chinese may have something to say about it. The Chinese are hoarding diesel fuel ahead of hosting the Olympics this August. You see, the Chinese don’t trust their power grid, so they’re positioning emergency generators all over the place to keep the lights on if the grid goes snafu.

And since the prices of oil, diesel and gasoline are made on the margins, China’s demand for diesel is having an effect on what you pay at the gas pump.

Americans are the world’s biggest users of gasoline and oil, and Americans are cutting back their demand. So when China’s demand sets global prices, that’s a bit like the tail wagging the dog.

But the fact is, Chinese fuel demand is growing rapidly, buoyed by state subsidies that keep prices low for consumers and keep their magic growth engine humming along. Since we ship China more and more of our money every day in return for lead-painted toys, poisoned dog food and other gee-gaws, the government there isn’t going to run out of money to subsidize fuel anytime soon.

And there are about 2 billion people in China, India, and other emerging markets who want to hop in a car and drive, baby drive like big, fat Americans. In the long-term, they’ll use every gallon we don’t.

But we could still experience a steep, even head-snapping correction in the short term. We just need demand destruction quickly enough in the OECD (Organization for Economic Co-operation and Development) countries. And we may get it.

U.S. jet fuel demand in April dropped to its lowest level in five years – down 6.2% to 1.549 million barrels per day.

Gasoline demand in the U.S. is down slightly, and could drop more. Mastercard, the nation’s second biggest credit card company, said that U.S. gasoline demand fell 5.8% in the week ending May 2 when compared to the same week a year earlier. Demand fell 2.5% from the previous week. If oil prices stay high, U.S. gasoline consumption could fall to 8 million barrels a day by the end of 2009 instead of rising very slightly to 9.33 million barrels a day as the Energy Department’s Energy Information Administration (EIA) predicts.

And we could use a lot less. In a comparison that will surely set George Bush’s teeth on edge, your average Frenchman, for example, uses about 16% of the gasoline per capita that the average American does.

In the short term, we’ve noticed – as you probably have too – that it’s just when things look hottest in commodities that a reversal in one direction or another can happen. Bottom line: Oil could go either way.

Meanwhile, while President Bush was in the Middle East, he told OPEC nations that they're running out of oil. Well, the President already said that America is addicted to oil, so isn't that a little like a junkie telling his pusher that the pusher is running out of smack. Who do you think is really going to suffer here? Thanks for the heads-up, Georgie-boy. And OPEC has nixed the idea of calling an early meeting to boost production.

So crude oil shrugs its shoulders, and keeps climbing. We'll see what happens when the oil inventory numbers come out tomorrow.

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

News You Can Use for Tuesday -- High Gas Prices and More

Here's some news you can use ...

Who's to blame for $4 gas
There is no short answer - many things happened, and together they formed a chain of events from cheap gas to $100 tankfuls.

China Quake May Cause Loss of 60,000 Tons of Zinc Output, Antaike Reports Zinc output in China, the world's largest producer, may drop by 60,000 tons this year because of smelter damage from the May 12 earthquake, Beijing Antaike Information Development Co. said.

Gold Gains on Dollar's Slump, Inflation-Hedge Demand; Palladium Rallies Gold climbed in London, extending this month's rally, on speculation declines in the dollar and rising commodity prices will spur inflation, reviving demand for the metal as a hedge. Platinum, palladium and silver also gained.

Sino Gold to Sell $195 Million Stock to Close Hedge; Gold Fields Ups Stake Sino Gold Mining Ltd., owner of China's second-largest gold mine, plans to sell as much as A$204 million ($196 million) in shares to existing shareholders to close its forward sales contracts for the precious metal.

Wheat Prices Climb for Third Straight Session as Global Grain Demand Gains Wheat rose for a fourth day in Chicago as a government report showed U.S. crop conditions deteriorated and on concern that dry weather will reduce planting in Australia's New South Wales state.

The Repo Man Reapeth
So many people have so many things they can no longer afford. This is an excellent time to be a repo man.

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Climate Change on Google Earth

Google Earth is cool for looking around your world. Now you can find out how climate change is affecting your world on Google Earth. CLICK HERE.

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

Charts for Monday -- gold, crude oil, uranium and more

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