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Friday, July 18, 2008

Friday Charts and News

The short-term trend in oil is now down.

This is probably due to the fact that the US has decided to make peaceful overtures to Iran and the fact that we are seeing demand destruction here in the U.S. and in other Western nations. However ...

* So far, demand destruction is NOT accelerating. Mastercard says U.S. retail gasoline demand plummeted more than 5 percent last week compared to the same week last year. But Mastercard's April 8th figures showed a 6.8% decline from the same point last year. So, according to Mastercard's measure, demand destruction slowed down from April to June.

Keep in mind that Mastercard only tracks credit card sales at the gas pump. Some retailers are now demanding payment in cash or offering discounts for cash payments. So Mastercard is probably undermeasuring gasoline sales. Still, this shows the inelasticity of demand comes in to play and mitigates demand destruction, even as prices go higher.

* Global demand is still rising. If US demand destruction continues at 5% or even 10% per year, but global demand continues to grow, we're in trouble. IRecent figures are cause for alarm: China June auto sales up 15% year on year, India May sales up 14% year on year.

* Global exports are flat to trending down. Take a look at this chart ...


This is because oil producers are using more and more of their own product. Combine this with my first two points, and the longer-term trend for oil is much higher, even though the short-term trend is down.

In Other News

Gold slips on steady dollar, softer oil
Gold eased on Friday as the market responded to this week's big fall in oil prices and a rise in the dollar against the euro, denting bullion's appeal as a currency hedge. However, gold recovered from lows as weakness on the equity markets burnished its appeal as a haven from risk.

Get ready for the last oil war

The now accelerating countdown to Peak Oil marking the ultimate peak of world production – with a faster fall-off in net export supplies than total production under several logical scenarios - can only aggravate existing global and regional tensions, especially in the Mid East. Any decline in global export supply (currently running at about 51 million barrels/day (Mbd)) will be catastrophic for attempts at maintaining flagging credibility in ‘market supply/demand balance’ and open market price setting. The date at which this will happen, without war accelerating the process through destroying oil infrastructures is of course disputed. Several studies indicate likely date could be 2012-2013.

Pakistani investors attack bourses after share collapse

Investors ransacked stock exchanges in Karachi, Lahore and Islamabad yesterday, reacting to a share-price rout that has devastated the life savings of many Pakistanis.

Police and paramilitary officers were drafted in to protect the Karachi Stock Exchange after a mob stoned the building and smashed windows. In Lahore, investors burnt tyres and blockaded the local bourse.

The violence came after a 35 per cent fall in the Karachi index in the past three months on concerns over the stability of Pakistan's fragile coalition Government, soaring inflation, and the weakness of the rupee.

A generational challenge to repower America
by Al Gore
Xx Sean's note -- the man couldn't get to his point quickly if it was at the end of a pencil, but it's worth reading.

Wall Street's Great Deflation
Phil Gramm, the senator-banker who until recently
advised John McCain's campaign, did get it right about a "nation of whiners," but he misidentified the faint-hearted. It's not the people or even the politicians. It is Wall Street--the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events. These folks are in full-flight panic and screaming for mercy from Washington, Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.

When the monied interests whined, they made themselves heard by dumping the stocks of these two quasi-public private corporations, threatening to collapse the two financial firms like the investor "run" that wiped out Bear Stearns in March. The real distress of the banks and brokerages and major investors is that they cannot unload the rotten mortgage securities packaged by Fannie Mae and banks sold worldwide. Wall Street's preferred solution: dump the bad paper on the rest of us, the unwitting American taxpayers.

Xx Sean's note -- read the whole thing.

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