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Monday, May 05, 2008

Oil Surge and More

Oil and natural gas faked us out last week by selling off as the U.S. dollar rallied. But the dollar is rallying on an outlook for stronger economic activity in the U.S. The Labor Department reported on Friday that U.S. employers only shed 20,000 jobs, a lot less than expected. And a stronger economy points to stronger demand for oil and natural gas.

Now, personally, I think that jobs number is more cooked than Emeril Lagasse’s kitchen. But psychology rules this market, and the less-bad jobs number, combined with some other news, like an unexpected improvement in the US services sector, is really making investors feel bullish about the economy.

Shorter-term, oil also might be driven higher by supply concerns. In March, global oil supply fell by 100,000 barrels per day, led by lower supplies last month from OPEC, the North Sea and non-OPEC Africa.

Then on Friday, oil soared after Turkish airstrikes on Kurdish rebel bases in Iraq. The civil war in Nigeria (they don’t call it a civil war, but the fighting seems constant) seems to be worsening, and another oil facility has been attacked. Rebels hit a flow station belonging to Shell's joint venture in southern Nigeria and that some oil production shut down.

In Iran, Supreme Leader Ayatollah Ali Khamenei said Sunday that his country will not bend to international pressure and give up its nuclear program. This raises the chances of a U.S. or Israeli air strike against Iran, the second largest producer in the Organization of Petroleum Exporting Countries.

And demand overseas is rising. According to the International Energy Agency – which is lousy at predicting future demand, but very good at tracking existing demand -- China’s demand rose by 7.8% in February from a year earlier, much higher than earlier estimates of a 5.3% gain. Gasoline demand rose by 22.8%!

According to preliminary data from India, oil product sales – a proxy of demand – surged by 10.9% in February compared to a year earlier. That’s the fastest pace of growth in demand since 2006. Transportation fuels – gasoline, jet fuel/kerosene, and gasoil – jumped by 13.4% year on year.

Recently, we are seeing small, incremental drops in demand in Europe and the U.S. But the surging demand in Asia should more than make up for that.

In other news ...


U.S. Service Industries Unexpectedly Accelerated in April, ISM Survey Says Service industries in the U.S. unexpectedly expanded in April, signaling the damage from the housing slump and credit crisis may be dissipating.


Crude Oil Rises on Concern Attacks in Nigeria May Curb Petroleum Supplies Crude oil rose more than $2 a barrel on concern that production disruptions in Nigeria, Africa's biggest producer, will limit supplies.

Saudi Aramco to Lower Oil Prices to U.S., Europe for a Third Month in June Saudi Aramco, the world's largest state oil company, will cut prices of crude oil it exports to customers in the U.S. and Europe for a third month in June.

Nymex Natural Gas Rises on Buying by Traders Who Bet Prices Would Decline Natural gas rose as speculators who had sold contracts in bad bets on falling prices bought the positions back to protect gains or limit losses.

What Uncle Sam Gives in Rebates, OPEC Takes Away, Leaving Economy Stagnant Wal-Mart and OPEC are battling for the tax rebates the U.S. government began handing out last week. The result may be a draw for the economy.


Metals Surge as Power Rationing Turns Out Lights in World's Biggest Mines Chile's worst drought in five decades and power rationing from South Africa to China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest mines.

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