Oil Drop -- Quicker Than I Thought

I thought we were getting to $33 oil, I just didn't think it would happen so fast. Oil is trading at $33 and change, down $3.67 as I write this. Traders are blaming a lower demand outlook from OPEC, but I think it's a combination of deflation, demand destruction and too much oil in storage, as I mentioned in yesterday's post.


From the Bloomberg story:

OPEC said that demand for its crude will decline 4.2 percent this year as the recession in the U.S., Europe and Japan curbs fuel use.
Consumption of OPEC supplies will shrink 1.4 million barrels to 29.5 million barrels a day, according to a monthly report released today. U.S. fuel demand fell 6 percent
last year, the biggest drop since 1980, as prices touched records and the economy contracted, the industry-funded American Petroleum Institute said today.

In Other News ...

Oil Collapse Forces Gulf Nations to Run Deficits, Cut Foreign Investment Tumbling oil prices are forcing many of the richest Persian Gulf states to record budget deficits and limit a critical source of foreign investment for poorer Arab countries.

Gold mine production down but costs up 24% world-wide Producers' total cash costs rose by 22% year-on-year to an average of $472/ounce for the nine months of 2008, while total production costs were also up by 22% at $591/ounce. The figures for the third quarter of 2008 alone record an increase of 25% year-on-year in cash costs and a 24% in production costs.


S.Africa gold output falls 8.7 pct yr/yr in Nov. South African gold output has fallen since state-owned power utility Eskom 1/8ESCJ.UL 3/8 suffered a near collapse in the electricity grid last January.


Four Bad Bear Markets Update
When looking at this chart, be aware that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Sean's note: The S&P as of yesterdy was down 45.2% in the current bear market (and up 12% from its November low). I think we're going back to visit the November low.

Food Prices Overcooked Given Corn's Decline, Fuel Group Says: Chart of Day Food prices should be lower, given the decline in commodities such as corn and crude oil the past six months, according to Robert Dinneen, president of the Renewable Fuels Association.


China Passes Germany to Become Third-Biggest Economy Gross domestic product expanded 13 percent from a year earlier, more than a previous estimate of 11.9 percent, to 25.731 trillion yuan ($3.38 trillion), the statistics bureau said on its Web site today. That topped Germany’s 2.424 trillion euros ($3.32 trillion), using average exchange rates for 2007.

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

What I'm Reading Today

Here's what I am reading today ...

ASIA

Japanese Business Confidence Plunges Most in 34 Years as Recession Deepens Sentiment among Japan’s largest manufacturers fell the most in 34 years, signaling companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession.

China Plans to Increase Money Supply in 2009 to Boost Domestic Consumption China aims to increase its money supply 17 percent in 2009 and encourage lending to boost domestic consumption and buoy growth in the world’s fourth-largest economy.

ENERGY
Crude Oil Rises as OPEC's El-Badri Says Sizeable Cut Is Needed at Meeting Crude oil rose, touching $50 a barrel in New York, after OPEC’s Secretary-General Abdalla El-Badri said the group needs to make a “sizable” output cut at this week’s meeting in Algeria.

OPEC Collides With Goldman Over $75 Oil in First Demand Decline Since 1983 The Organization of Petroleum Exporting Countries will probably lower output targets by at least 2 million barrels a day, or 7.3 percent, when its members meet Dec. 17, according to 18 of 33 analysts surveyed by Bloomberg. While Saudi Arabia’s King Abdullah said last month that his country needs oil priced at $75 a barrel to spur development, Goldman Sachs Group Inc. predicts crude may slide to $30 from $46.28 today.

OPEC Is in a Desperate Race Against Falling Oil Prices Oppenheimer & Co. senior oil analyst Fadel Gheit estimates the world oil supply is likely to drop by three million to five million barrels a day in 2009, due to OPEC cuts and smaller companies slashing production, compared with a decline of just one million to two million barrels a day in global oil demand.

COMMODITIES

Australia Cuts Commodity Export Sales Forecast 10% on Global Credit Crisis Australia, the world’s largest shipper of coal, iron ore and wool, cut its commodity exports forecast by 10 percent because of the global financial crisis that may continue to hinder any recovery until the second half next year.

Gold Futures Climb in New York as Dollar Extends Slump; Silver Advances Gold prices rose as the slumping dollar boosted the appeal of the precious metal as an alternative investment. Silver also gained.

China's Soybean Imports May Double This Month as Domestic Prices Advance China, the world’s largest buyer of soybeans, may double its imports this month from a year earlier, after higher prices of domestic beans prompted buyers to increase purchases overseas in the past few weeks.

World Gold Output to Rise for the First Time in Four Years, Australia Says Global gold production may rise for the first time in four years in 2009 as China and Indonesia increase output, Australia’s commodity forecaster said.

XX Sean's note -- that will be an interesting trick (to raise global producition) the way that the credit crunch is cutting into mine expansion plans, but I guess anything is possible.

US DOLLAR

Dollar Falls to Eight-Week Low Versus Euro on Auto Industry Bailout Costs The dollar fell to an eight-week low versus the euro on speculation a U.S. government rescue for the country’s automakers will leave less money to protect the financial system.

Dollar Staggers as U.S. Unleashes Flood, Deficits Increase, Fed Cuts Rates U.S. policy makers are flooding the world with an extra $8.5 trillion through 23 different plans designed to bail out the financial system and pump up the economy. The decline shows that the increased supply of money may be overwhelming investors just as the government steps up debt sales, the trade and budget deficits grow and de-leveraging by investors slows.

Treasury Benefits From ‘Massive Paranoia’ as Bailout Cost Falls Instead of shunning the U.S., where losses on subprime mortgages in 2007 triggered a global seizure in credit markets that led to the downfall of securities firms Bear Stearns Cos. and Lehman Brothers Holdings Inc., investors can’t get enough Treasuries. Even as estimates of Obama’s stimulus package and the budget deficit rise to a record $1 trillion, demand continues to increase as investors flee risky assets around the world and put their cash into U.S. bonds paying, in some cases, nothing in yield just to ensure the return of their principal.

US ECONOMY

US cost of living probably fell most in six decades
The cost of living in the U.S. probably fell in November by the most in six decades, while slumps in manufacturing and homebuilding worsened, sending the economy deeper into a recession, economists said before reports this week. Consumer prices probably dropped 1.2 percent last month, the most since records began in 1947, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in almost a half century and factory output continued to slide. Costs of oil and other raw materials plummeted last month as the credit crisis caused consumers to slash spending, prompting automakers to plead for a bailout. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve this week to lower its key rate target to its lowest level ever.

GLOBAL WARMING

The glaciologist's worst nightmare Lakes of melted ice form on the surface of the polar ice caps in the summer months, driving cracks down through the ice, creating conduits. In Greenland recently, one such lake, three kilometres wide, emptied like a draining bathtub in just 90 minutes.So much water surging down to the bedrock of the ice sheet could contribute to massive icebergs breaking off and sliding into the sea – causing a sharp rise in sea level. It's the glaciologist's worst nightmare.

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

News and Charts -- TGIF Edition

Dr. Jeff Masters gives us the latest on monster hurricane Ike …

Ike's long-term fate has two main possibilities:

1) Ike may hit eastern Cuba, as forecast by the latest (12Z, 8am EDT) runs of the GFDL and ECMWF models, and a number of ensemble members of the latest 12Z GFS model (Figure 2). A hit on Cuba would severely disrupt the storm, weakening it to a Category 1 or 2. Ike could then move on into the Gulf of Mexico and re-intensify, as forecast by the ECMWF model.

2) Ike may plow through the Bahamas and come very close to South Florida (the consensus of the HWRF, NOGAPS, and GFS models). A trough of low pressure may then pull Ike to north. This turn to the north might occur over Florida, or over the western Bahamas, within 200 miles of the Florida coast. In the latter case, North Carolina might be at risk. The recent model trend has been to depict a weaker trough, resulting in Ike getting stranded, like Fay and Gustav did. Ike would resume a slow motion to the west as ridge of pressure builds in, potentially crossing Florida into the Gulf of Mexico.

XX Sean's note -- I think the potential for Ike to cross into the Gulf of Mexico is not reflected in oil's price right now, which is why I hesitate to add a hedge on oil at this time.

And then there's OPEC. They meet next Tuesday. What the heck are they going to do? ...

OPEC Is Unlikely to Cut Production at Vienna Meet, Goldman's O'Neill Says OPEC is unlikely to cut supply at next week's meeting in Vienna because of the hurricane season, Goldman Sachs Group Inc. Chief Economist Jim O'Neill said.

XX Sean’s note – I disagree. I think OPEC is going to cut either official or unofficial production. Stay tuned.

GOLD

I’m about to show you some bullish fundamentals. The fact that gold keeps falling in the face of bullish fundamentals is quite bearish for the short term.

South Africa gold production falls 10 percent

JOHANNESBURG, South Africa (AP) — Gold production in the world leading supplier South Africa fell more than 10 percent in the second quarter compared to the same period last year, the industry said Thursday, blaming electricity shortages since the beginning of the year.

A dire fuel shortage caused by poor government planning forced rolling power cuts across the country in the first couple of months of the year. Since February, industries have been limited to 90 percent of their normal power usage.

Weak India Gold Prices Attract More Buyers

Indian gold demand rose on Friday as buyers and sellers kept themselves busy ahead of the peak festive season due to a fall in prices, dealers said.

"The demand is rising significantly as we are heading for a peak festive season," said Rahul Gupta of Delhi-based P P Jewellers.

XX Sean's note -- but this bullish news matters not when the traders are ready to sell.

Gold Heads for First Weekly Drop in Three in London as Dollar Strengthens Gold headed for its first weekly drop in three as the dollar strengthened against the euro, curbing demand for the metal as an alternative investment.

AGRICULTURE

Agriculture Prices to Stay High on China, India Demand Global agricultural prices will probably remain higher than in the previous decade as strong demand from China and other developing nations outstrips gains in production, a U.S. agriculture official said.

Australian Wheat Crop May Be Below Forecast on Dry Weather, JPMorgan Says Australia, the world's sixth-largest wheat exporter, may produce less of the grain than forecast because of dry weather, JPMorgan Chase & Co. said.

US ECONOMY

U.S. Payrolls Fell 84,000 in August; Unemployment Rate Increases to 6.1% The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five-year high, heightening the risk that the economic slowdown will worsen.

U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says

* Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it's not a stretch to think we might exceed that drop this time around.

* There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).

GLOBAL ECONOMY

Global Wealth May Fall 10% This Year Due to Markets, Financial Post Says Global wealth may decline 10 percent this year because of volatility on financial markets, the Financial Post reported, citing a study released by the Boston Consulting Group.

Australia, New Zealand Dollars Decline to Lowest in Two Years Against Yen The Australian and New Zealand dollars slumped to the lowest levels in more than two years against the yen as a decline in U.S. stocks prompted traders to sell higher-yielding assets financed in Japan's currency.

Australia's S&P/ASX Falls to 2-Week Low; James Hardie, BHP Billiton Drop Australia's stocks fell for the fifth day, with the benchmark index heading to its lowest in two weeks, after rising jobs claims in the U.S. and declining metal prices heightened concerns of a global economic slowdown.

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

The Gustav Menace, and Other Stories

I exited a bullish oil position in Red-Hot Commodity ETFs yesterday because of oil’s lackluster response to Hurricane Gustav. It turns out some traders with long ears may have already heard about the bearish product demand that came out after the market closed yesterday. In short, oil product demand dropped 5.6% in June, more than expected. With that news out of the way, oil is up again, but not as much as you might think with a hurricane seeming to take aim at Louisiana.

If you’ve been reading my stuff, you know that I keep saying “Drill-Drill-Drill” isn’t a real answer, because we don’t have enough drill rigs and we don’t have enough crews for those rigs. Now, it turns out the shortage of trained rig workers is even more acute than first thought.

Meanwhile, here’s a story I find interesting …

The winds of change in our energy consumption could still be light years away. Wind accounts for less than 1 per cent of the energy produced in Canada (Ontario is the wind-farm leader). The Canadian Wind Energy Association believes it can be 5 per cent by 2010.

The European Wind Energy Association is predicting that 28 percent of the European Union's electrical consumption will be supplied by wind turbines by 2030; currently, it's about 3 percent. In the U.S., they're talking about a target of 20 percent in 20 years. Now, it's less than 1 percent.

XX Sean’s note -- this sounds daunting, but on the other hand, MIT says we could cut our gasoline/diesel use in half by 2035 by transitioning as quickly as possible to lightweight and plug-in hybrid vehicles.

Another story I'm watching ...

Medvedev: We’re ‘not afraid’ of a new Cold War
XX Sean’s note: Not that anyone’s asking, but I’m not in favor of provoking the Russian bear. We have a weak hand right now because our assets are tied up in that Godforsaken hell-hole called Iraq. The Russians have a strong hand, they know it, and they’re not afraid to play it (as Georgia found out).

In Other News …

Durable-Goods Orders in U.S. Unexpectedly Climbed 1.3% in July on Exports Orders for U.S. durable goods unexpectedly increased in July, indicating growing demand from abroad is still helping companies weather a slump in consumer spending.

Corn, Soybeans, Wheat Advance as Dollar Weakens Against Euro, Crude Gains Corn and soybeans rallied as a drop in the dollar boosted the appeal of U.S. supplies for overseas importers and rising energy costs increased demand prospects for biofuel. Wheat gained for the first time in four days.

Gold Advances in London on Investor Demand for Safe Haven, Falling Dollar Gold rose in London on demand for precious metals as a haven from housing-related financial losses and an alternative investment to the declining dollar.

XX Sean’s note – you mean investors FINALLY noticed that there are severe housing-related financial losses and that that might be a reason to buy gold? Why the heck didn’t that happen LAST month? My timing on this stuff leaves much to be desired.

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

News You Can Use for Tuesday

Waiting for Gustav

Hurricane Gustav grew stronger as it moved on a path projected to take it over Haiti on Tuesday and just south of Cuba on Wednesday, according to the National Hurricane Center.
Forecasters say they believe Gustav will strengthen into a "major hurricane" and move into the central Gulf of Mexico by Sunday, but there is little certainty about where it might go from there.

CRUDE OIL

Oil Companies Win $1 Billion Reimbursement Over Drilling Leases
Devon Energy Corp. and Anadarko Petroleum Corp. were among a dozen oil companies that should be reimbursed more than $1 billion they paid the U.S. for leases to drill off the California coast, an appeals court ruled today.

XX Sean’s note – Anadarko was recommended in my Running on Fumes energy report and Devon was recommended in my Energy Panic of 2008 report. So, if you have those reports, this is a heads-up. Also, a heads-up on Petrobras.

OPEC likely to keep output steady in Sept.
OPEC is likely to keep oil output policy unchanged at its meeting in September as prices remain high despite a sharp fall from July's peak, an OPEC source said on Monday.
U.S. demand fell 800,000 barrels per day (bpd) on the year in the first half of 2008, the steepest fall in 26 years. But in the long-term, fundamentals looked tight, the OPEC source said.

Foreign oil producers have U.S. over barrel
AGRICULTURE

The Grain Markets Are Getting Ready to Rip
Corn just flat isn’t going to make it. “It’ll run headlong into problems with frost. In addition, though, it’s dry not only in the eastern Corn Belt, but the entire Corn Belt. As a result, corn prices will continue to go up. The harvest lows are already over—and we haven’t even gotten to harvest yet!” Woolverton says.

XX Sean’s note: And yet …

Wheat Futures Decline on Dollar Gain, Production Outlook; Soybeans Tumble Wheat declined for a third day as the dollar strengthened, making U.S. grain less attractive to buyers overseas, and on speculation favorable weather in major producing countries will help increase harvests. Soybeans dropped.

WIND POWER

US becomes top producer of wind power
The U.S. wind industry now tops Germany in terms of how much energy is being produced from wind, the American Wind Energy Association (AWEA) said.

Germany still has more installed capacity -- 22,000 megawatts vs. 17,000 in the United States at the end of 2007. But the average wind speed is stronger in the United States, which means more energy is being generated, the group said. This year, Germany will add only about 1,600 megawatts of wind energy, while the United States will add more than 6,000 megawatts, said Randy Swisher, executive director of the association.

Wind, solar projects race to finish before tax credit expires
A congressional stand-off that has blocked extension of federal tax credits for renewable energy projects is setting off a boom in the wind and solar industries. Developers and customers are racing to install systems by year's end to qualify for the credits, which can cut the cost of a large commercial system by 30%.

US DOLLAR

Dollar's `Unprecedented' Gain Has Further to Go, Lehman Says The dollar's rally over the past month is ``close to unprecedented'' in the 35 years since the currency was decoupled from gold and will have room to rise on bets the European Central Bank will begin cutting borrowing costs, according to Lehman Brothers Holdings Inc.

URANIUM

Paladin Energy Says That It Is Set to Expand Uranium Production in Africa Paladin Energy Ltd., the Australian producer of uranium in Africa, said an expansion of its mine in Namibia is due for completion at the end of the year, while a project in Malawi will start operating in January.

MINING

Rio Tinto Earnings Double as Iron-Ore Miner Fights $142 Billion BHP Offer Rio Tinto Group, fighting a $142 billion hostile offer from BHP Billiton Ltd., posted first-half profit that beat analyst estimates on increased aluminum sales and record iron ore prices.

GOLD

U.S. Mint resumes gold coin orders on limited basis
The Mint said that it will equally divide its Eagles inventory available for sale each week into two equal pools, with the first allocated equally among all authorized dealers, and the second pool distributed according to the dealers' past sales performance

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

Monday Charts on Gold, Oil & The Dollar -- and Plenty of News You Can Use

Analysts said this week -- with some U.S. markets closing early on Friday for the Labor Day holiday -- would likely be characterized by volatile prices and low trading volumes.
http://biz.yahoo.com/ap/080825/oil_prices.html

News of Interest

ECONOMY

U.S. and Global Economies Slipping in Unison

Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States. Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007.

How to stop the next bubble

"The financial crisis has shown that markets are bubble-prone and that laissez-faire regulation doesn’t work. The authorities need to get a grip if we are to avoid a mega-bubble. But we may need an even deeper crisis for that to happen."

BANKS

Columbian Bank and Trust Company, of Topeka, Kansas, is the latest bank to fail. Can things get worse? Heck, yeah! Check out the following chart from Calculated Risk …

From Calculated Risk: even with the failure of almost 3,000 banks and thrifts during the S&L crisis, the overall economy stayed fairly healthy with only a mild-to-moderate recession starting in July 1990.

Libor Signals Credit Seizing Up as Banks Balk at Lending in Money Markets Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen.

CURRENCIES

Organized Crime Groups Dump Weak US Dollar For Euro

The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores, a Canadian government report said Friday.

PAKISTAN -- THE NEXT CRISIS?

Pakistani Government On Brink Of Collapse

Pakistan's ruling coalition was at risk of collapsing Monday if its junior partner carries out a threat to quit unless judges ousted by ex-President Pervez Musharraf are restored immediately.

Taleban winning war (in Pakistan), says Zardari

The Pakistani Taleban have "the upper hand" and should be put on the list of banned organisations in Pakistan, Benazir Bhutto's widower has said.

CHINA

Olympics disappoint China business owners

Many owners of small restaurants, hotels and shops in Beijing are wearing long faces this summer, especially those who poured their life savings into buying businesses or sprucing up their shops ahead of the Games. About half a million foreign visitors were expected in Beijing this month. But many businesspeople think that because of stricter visa rules and other hassles, there are no more here now than there were last August, when 420,000 visitors from abroad came to the capital. In July, Air China, the nation's flagship carrier, saw its international passenger traffic fall by 19% from a year earlier.

China's Economic Gains Give Way to Hazy Future

In the next few years, China will cross the threshold to a majority-urban society. China's urbanization rate is about 40% to 45% now, well below levels of about 75% in most of Western Europe and Latin America, but statistics show that growth in China's urban population is already slowing.

China's 1.3 billion people each consumed the equivalent of 1.4 tons of oil in energy last year, a relatively low figure. If each Chinese was to consume the same amount of energy as each person in the U.S. does -- the equivalent of 7.82 tons of oil -- then China alone would consume nearly as much energy as the entire world does now.

So far, China's government is falling behind in its drive to cut the amount of energy required to produce each yuan of economic output. It managed a reduction of just 2.9% in the first half, less than last year's 3.7%

MINING & RESOURCES

Mining Industry Shifts on Bad News

Weaker commodity prices and higher costs are starting to take a toll on the global mining industry as the billions of dollars being spent on new projects could take years to recoup.

…

Demand for resources by China and other emerging markets still is expected to soar in the years ahead.

Some analysts view the recent mine closures as bullish for commodity prices in the long run, because the moves suggest companies are imposing more financial discipline than in past booms. As miners curb output, it could help prop up prices.

Still, the economics of mining have shifted drastically in recent years. The cost of energy to run mining trucks and other equipment has skyrocketed, while steel and other building materials also are more expensive.

Commodities Hint of Bottom as Mines Close, Crop Supplies at Five-Year Lows Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

Corn, Soybeans Jump as Midwest Crop Tour Forecasts Smaller U.S. Harvests Corn and soybeans gained after Professional Farmers of America said harvests in the U.S. will be smaller than forecast by the government as dry weather in August hurt Midwest crops already stunted by flooding in June.

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

Commodities Glass Half Empty or Half Full?

The Wall Street Journal has a story today about the commodities pullback. They see it as a reason to stop worrying about inflation (not in so many words, but that's the gist of the story). I think it shows a set-up for the next move higher. History will show who's right. In the meantime, here's a great chart of the pullback in some leading commodities ...In other news from the Journal this morning ...

Global demand for grains is rising rapidly enough to sustain high prices. That kinda puts a crimp in their other argument about falling commodity prices, don't ya think?

Remember "Mr. Fusion" from the "Back to the Future" movies? Well, amateur "fusioneers" are working on building working nuclear fusion reactors in their garages and basements. Cue the Earth-shattering KA-BOOM! Just kidding on that last part.

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

TGIF -- Charts and News

Man, this has been such a wild week, Friday couldn't come soon enough. Let's look at some charts, starting with one we've been following all week -- the US dollar.

The US dollar has definitely broken above that weekly downtrend. A pullback and test of that support wouldn't surprise me. This breakout opens the door for a rally in the dollar to the 80+ level.

And naturally, the rally in the greenback is kicking gold lower ... Gold could make a stand here. But the bullishness in the dollar tends to tell me that gold will go down to test that weekly uptrend I've marked as (2).

Now, let's look at the CRB Index, a broad commodity index (though it is weighted heavily toward energy) ... It is testing support as well. So, maybe this will bring a rally early next week. I think I've pointed out why that rally could fade quickly.

And sure, energy could lead the rally. But pay attention to agriculture -- that's where I'm seeing some real bullishness right now. IN OTHER NEWS ...

URANIUM

Cameco Cuts Production Target by 1 Million Pounds
Cameco said its share of uranium production for 2008 is now projected to total about 19.6 million pounds of U3O8, down from the previous forecast of 20.6 million pounds of the fuel used to power nuclear generating plants.

XX Sean’s note – good thing Cameco got that sweetheart, hush-hush deal to resell 550 tonnes of Iraqi uranium, or it might have to cut its production target even more, eh? Now, how’s your money bet on Cameco cutting its production target again? Do you feel lucky?

Uranium One Reduces Production Targets Of Dominion Mine
The company said that it expected to produce 320,000 lb of uranium from Dominion this year, compared with a previous forecast of 590,000 lb.

XX Sean’s note – A slew of companies have cut production targets. Keep an eye on the spot market over the next couple weeks and let’s see if utilities are getting nervous.

Raids Suggest Russia Targeted Energy Pipelines
A neat row of large craters in a field in southern Georgia strongly suggests that Russia dropped bombs near oil and gas pipelines bringing fuel to the West.

XX Sean’s note – this story is in the Wall Street Journal, which hands its political reporting over to crackpots and wingnuts, so take it with a grain of salt. Also, while Russia won the war on the ground, Georgia has won the information war hands-down. On the other hand, would you put it past the Russians to bomb Georgian pipelines? I sure wouldn’t – I think Russia is trying to build a new Empire of Energy. The only question in my mind is, if this is true, why didn’t Russia follow through?

US Economy

U.S. Industrial Production Unexpectedly Gains 0.2%, Led by Cars, Metals Industrial production in the U.S. unexpectedly rose in July, helped by gains in automobiles, metals and machinery.

CHINA

China's Factory, Property Spending Growth Quickens on Disaster Rebuilding China's factory and property spending growth accelerated, fueled by rebuilding after the Sichuan earthquake in May and snowstorms in January and February.

COMMODITIES

Silver, Oil, Wheat, Copper Plunge as Dollar's Rebound Saps Commodity Boom Gold plunged below $800 an ounce, platinum posted the biggest drop in almost seven years and oil, corn and copper slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom.

OPEC Leaves 2009 Oil Demand Growth Estimate at Lowest Rate in Seven Years The Organization of Petroleum Exporting Countries, the supplier of more than 40 percent of the world's oil, left its forecast for 2009 oil demand growth unchanged at the lowest rate in seven years and warned that consumption may fall further.

OPEC's 2008 Oil Revenue to Exceed U.S. Income Tax Receipts: Chart of Day OPEC is pulling in more money from oil sales than the U.S. government is raising from individual taxpayers.

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

News You Can Use for Tuesday

Here's what I'm reading today ...

ENERGY

OPEC May Consider Supply Cut as Oil Stockpiles Rise, Iran Says
Oil prices are falling because of an oversupply of crude, and OPEC may consider cutting production at its September meeting to achieve a supply-demand balance while maintaining sufficient excess capacity, Iran's OPEC governor said.

IEA Raises Forecast for 2009 World Oil Demand; China Consumption May Gain
The International Energy Agency, an adviser to 27 nations, raised its forecast for global oil demand next year and said it expects Chinese oil consumption to rise after the Olympic Games. The IEA increased its forecast by 70,000 barrels to 87.8 million barrels a day, the Paris-based agency said today in its monthly report.

AGRICULTURE

Corn-Crop Estimate Raised by USDA, Topping Estimates as Flood Damage Eases The U.S. corn crop will be 4.9 percent larger than forecast a month ago, the government said, after favorable weather helped Midwest crops recover from the worst flooding in 15 years.

US ECONOMY

U.S. Trade Deficit Unexpectedly Narrows as Exports Grow Most in Four Years The U.S. trade deficit unexpectedly narrowed in June as the biggest jump in exports in more than four years overcame record imports of petroleum.

One-Third of U.S. Homeowners Owe More Than Houses Are Worth, Zillow Says Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations.

CHINA AND INDIA

China Inflation Cools for Third Month, Allowing Measures to Boost Economy China's inflation cooled to the slowest pace in 10 months, giving the government more room to restrain the yuan's advance and bolster economic growth.

India Industrial Output Growth Accelerated to 5.4% India's industrial production growth accelerated in June, before higher interest rates had a chance to crimp consumer spending.

India's Gold Imports May Recover as Price Slump Lures Jewelers India, the world's biggest buyer of bullion, may increase imports for the first time in 11 months as the lowest price this year lures buyers. Purchases may rise as jewelers rebuild inventories before the festival season starts later this month, said Suresh Hundia, president of the Bombay Bullion Association Ltd. Imports more than halved in the 10 months ended July 31 from a year ago as record prices cooled jewelry demand, he said.

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

Commodities Feel The Heat

CRB Index Drops Most in 28 Years as Nickel, Natural Gas Tumble on Dollar Tumbling prices for natural gas, nickel and corn are turning July into the worst month in 28 years for the Reuters/Jefferies CRB Commodity Index.

U.S. Recession May Have Begun in Last Quarter of 2007.

The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated.

``We're in a recession,'' Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. ``It's going to widen, it's going to deepen.''

Crude Oil Declines More Than $2 as Fuel Demand Drops to a Three-Year Low Crude oil fell more than $2 a barrel, capping the biggest one-month decline since December 2004, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years.

Gold Jumps as Dollar Drop Boosts Investor Demand for an Alternative Asset Gold gained the most in three weeks after a report showed weaker-than-expected U.S. growth during the second quarter, sending the dollar tumbling and boosting the appeal of the metal as an alternative investment. Silver rose.

XX Sean's note -- silver did more than rise. It's leading the way ...

And the rally in gold and silver is taking place despite bullish action in the US dollar ...

Electricity Storage Discovery May Be Boon for Solar Power, MIT Study Says A new, cheaper way to store electricity to run air conditioners or vehicles promises to make solar power competitive with traditional generation, Massachusetts Institute of Technology researchers said.

Money for crop research just a drop in the bucket

WASHINGTON — A deadly wheat fungus known as stem rust is shriveling crops from Africa to the Middle East, threatening the breadbasket of Pakistan and India, and could eventually reach the United States.

The potential threat to food supplies and the economy is enormous, yet Congress and the White House during the past several years did not react to urgent pleas from U.S. scientists for millions of dollars to develop wheat varieties resistant to stem rust. Instead, the main federal lab working on the disease fought budget cuts.

Arctic ice bigger than 2007, but thawing long-term

OSLO (Reuters) - Arctic sea ice is unlikely to shrink below a 2007 record low this year in a reprieve from the worst predictions of climate change even though new evidence confirms a long-term thaw is under way, experts said.

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

How Low Can Commodities Go?

Commodities are in retreat (short-term anyway). The longer-term trends are still way up, but the next month or two could see a sizeable pullback if the charts today are any guide.

The problem is charts lie all the time. All it takes is one hot missile in the Middle East to change the whole ballgame. And longer-term, the global commodity supercycle is intact. Heck, the price of iron ore recently went up 97% year over year.

But I thought I'd share three charts with you to show you what I'm looking at. First, weekly oil ...

Now the CCI, a broad index of commodities ...

Bottom line: A pullback is a normal and necessary part of a bull market. And it could hand us the buying opportunity of the next 10 years. A year from now, I expect prices to be higher than they are now, and potentially much higher.

OTHER NEWS YOU CAN USE ...

Here's an interesting take on the energy crisis ...

Americans must diet to save their economy

Want to save the US economy? Go on a diet.

That's the message ecologists are trying to get across this week. They say the apparently looming energy crisis could be averted if US residents cut their calorie intake.

The average American consumes about 3747 kilocalories (kcal) per day compared to the 2000 to 2500 kcal per day recommended by the US Food and Drug Administration.

The 3747 kcal per day figure does not include any junk food consumed.

Producing those daily calories uses the equivalent to 2000 litres of oil per person each year. That accounts for about 19% of US total energy use.

US ECONOMY

Foreclosures Double in Second Quarter as U.S. Home Prices Fall

U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth. One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement.

National Australia Bank Writes Off 90% of Its Investments in U.S. residential mortgages

National Australia Bank Ltd. (NAB) said it has made an additional provision of A$830 million ($802 million) to its portfolio of collateralised debt obligations (CDO) of asset-backed securities. NAB said it now has provisions for nearly 90 percent of its total CDO portfolio.National Australia Bank makes A$830 mln provision to CDO portfolio.

XX Sean’s note – 90% of its CDO portfolio – which is the bad mortgage debt sold by American banks – is worthless? If NAB is right, we have a way to go in the U.S. mortgage crisis.

Middle class: 'On the edge'

Adjusted for inflation, median household income dropped by $1,175 between 2000 and 2007, said Elizabeth Warren, professor at Harvard Law School, in written testimony before the Joint Economic Committee.

At the same time, the average family is spending $4,655 more on basic expenses, such as gas, housing, food and health insurance. Gas alone costs $2,195 more for a family making the same commute in May 2008 as it did eight years earlier.

Durable-Goods Orders Rise

Orders for durable goods unexpectedly rose in June, while a barometer of capital spending by businesses increased, a sign of strength for the struggling manufacturing sector.

Billions needed to shore up nation's bridges

It would cost $9.4 billion a year for 20 years to eliminate all bridge deficiencies in the USA, according to the latest estimate, made in 2005, by the American Society of Civil Engineers.

Xx Sean’s note – click through on the link for an incredible map showing unsafe bridges around the country.

ENERGY

As oil price rose, exporters cut shipments

The world's top oil producers are currently proving unable to generate more barrels on demanding world markets, despite surging prices — a shift that defies traditional market logic and looks set to continue.

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 percent in 2007, despite a 57 percent increase in prices, a trend that appears to hold true this year as well.

There are several reasons behind the net-export decline.

Small Car Sales Surge

Ford to retool 3 truck plants for small cars starting in December

Starting in December of this year, three truck plants will be retooled so that they can build cars instead. In addition six new models will be coming over from the European lineup and Mercury will live on. Like other automakers Ford will be consolidating production of large trucks into fewer plants..... The Michigan plant will retool to build to build a vehicle based on the European Focus platform. As previously announced the Cuautitlan Assembly Plant in Mexico will shift from building F-series pickups to the new Fiesta at the end of next year. A second plant in Louisville that currently builds Explorers will switch over to building Focus based vehicles as well.

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

Monday Charts and News -- Breakthrough Oil Technology and More

Buyers of my new oil report will remember Repsol. Here's some good news ...

Repsol Chases Breakthrough Technology as Offshore Oil Politics Heat Up

Spanish-Argentinean oil major Repsol and the Barcelona Supercomputing Center’s Kaleidoscope Project team at the World Petroleum Congress in Madrid on July 1 announced early research results that lead them to believe a major breakthrough in offshore oil exploration is within reach. Working with IBM BladeCenter QS22 supercomputers -- built around IBM’s PowerXCell 8i processor, originally developed for use in Sony video game consoles -- Repsol and BSC researchers believe they now have a methodology, "Reverse Time Migration", and the tools to speed up exploration and development of deep oil and gas fields on- and off-shore up to six times compared to the technology currently employed by the oil and gas industry.

Here are some charts ...


Up, up and away!

From Calculated Risk …

Using the EIA price data, and making a few assumptions (no increase in energy consumption in 2008, and an energy mix of 40% petroleum, 23% coal, 23% natural gas, and 14% nuclear and renewables), we can estimate that energy consumption as a percent of U.S. GDP will set a record in 2008 of over 14%.

Banking Losses to Hit $1.6 Trillion

From Infectious Greed ….

The expected losses from the financial crisis will reach $1600 billion. To-date financial institutions have so far announced only $400 billion. The pessimistic forecast comes from a confidential study by Bridgewater Associates, the second largest hedge fund in the world.

"We are facing an avalanche of bad assets," says the study. The biggest losses were the U.S. credit banks before. "We have big doubts that the financial institutions will be able to have enough new capital in order to cover the losses," the authors write.

Vroom-Vroom!

From Bloomberg …

Mattel's market cap just surpassed that of GM. The maker of Hot Wheels and Matchbox now has a market cap of $6.22B versus the $5.76b cap of the maker of non-toy cars GM.

Oil Trades Near $144 After Falling on Iran's Response on Nuclear Program Crude oil traded near $144 a barrel in New York as Iran said its nuclear program policy remains unchanged a day after responding to an incentives package by world powers to halt uranium enrichment.

XX Sean’s note – 5 gets you 10 that this good news on Iran falls apart in the next couple weeks.

Corn, Soybeans May Rise as Hot Weather Threatens U.S. Crop, Survey Shows Corn and soybeans may rise to records on speculation a shift to hot, dry weather will reduce plant yields after record rains last month in the U.S. Midwest stunted root development, leaving crops vulnerable to heat stress.

Cameco Scoops 550t of Yellowcake in Secret Deal

Saskatoon-based Cameco Corp. purchased the reported 550 tonnes of ''yellowcake'', the seed material for higher-grade nuclear enrichment, in a deal reported to be in the tens of millions of dollars.

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