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

Charts and News for Monday -- Stormy Weather Edition

Oil Rises From a Six-Week Low on Tropical Storm, Iran's Nuclear Standoff Crude oil rose from a six-week low as a tropical storm headed toward the Gulf of Mexico and Iran, the world's fourth-biggest producer, resisted demands to suspend nuclear research.

Trouble at Fannie Mae and Freddie Mac Stirs Concern Abroad

About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States.

Now that the two companies are at risk, how their rescue is handled will ultimately test the world’s faith in American markets. It could also influence the level of interest rates and weigh on the strength of the dollar for years to come, analysts say.

“No less than the international perception of the credit quality of the U.S. government is at stake,” said Richard Hofmann, an analyst with CreditSights, an independent research house with offices in London and New York."

Also at stake is Americans’ future ability to gain access to credit. If foreign companies and governments abandon United States investments, home, auto and credit card loans will be much more difficult to come by.

Never Have So Many Short Sellers Made So Much Money With Stocks Worldwide Investors worldwide are betting more than $1 trillion on a collapse in stock prices.

Economist’s View on Why The Economy Is as GOOD as It Is (and not worse … yet)

Perhaps most importantly, however, is the massive liquidity injections from the rest of the world, or what Brad Setser calls “the quiet bailout.” In the first half of this, global central banks accumulated $283.5 billion of Treasuries and Agencies, something around $1,000 per capita. This is real money – I outlined the likely implications in January. Foreign CBs are happily financing the first US stimulus package; will they be happy to finance a second? Do they have a choice? Their accumulation of Agency debt is also keeping the US mortgage market afloat. Do not underestimate the impact of these foreign capital inflows. If the rest of the world treated the US like we treated emerging Asia in 1997-1998, the US economy would experience a slowdown commensurate with the magnitude of the financial market crisis. The accumulation of US assets is also forcing an expansion of foreign CB’s balance sheets, creating global monetary stimulus that allows the rest of the world to decouple from the US economy, supporting continued US export growth

Commercial bankruptcies soar, reflecting widening economic woes.

Commercial filings for the first half of 2008 are up 45 percent from last year, as the national climate for commerce continues to deteriorate amid rising energy and food costs, mounting job losses, tighter credit and a reticence among consumers to part with discretionary income.

From April through June, 15,471 U.S. businesses called it quits, according to data from Automated Access to Court Electronic Records, an Oklahoma City bankruptcy management and data company.

The Coming Systemic Bust of the U.S. Banking System: “Dead Stocks Rallying”

This past week started with concerns about another systemic meltdown of the U.S. financial system as the insolvency of Fannie and Freddie was revealed and as IndyMac went bust (this third largest bank collapse in U.S. history). But the week ended with a remarkable rally of financial stocks as better than expected results from Wells Fargo, JP Morgan and Citi soothed the fears that major financial institutions were in even more distress than already predicted by market analysts.

Unfortunately, this massive rally of financial stocks in the latter part of the week is just another temporary bear market rally that will fizzle away once the onslaught of bad financial and macro news builds up again.

Paulson braces public for months of tough times

Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound, while also bracing people for more troubled times ahead.

The 2008 oil shock

This calculation assumes that the oil exporters will export about 45 million barrels a day of oil.
Each $5 increase in the average price of oil increases the oil exporters’ revenues by about $80 billion, so if oil ends up averaging $125 a barrel this year rather than $120 a barrel, the increase in the oil exporters revenues would be close to a trillion dollars.

Beijing orders half its cars off roads to clear air for Olympics

Authorities forecast that the sweeping traffic restrictions, and measures to shut down polluting factories, would help clear smog over Beijing in time for the Games, which begin Aug. 8.

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

Weekend Charts to Ponder

The oil market makes no sense right now. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 7.4 million barrels from the previous week. At 319.2 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year.

Yes, refinery utilization is down. But so is gasoline demand – 3% year over year. And if refiners are running at lower rates, why would they need more feedstock? Why are oil prices going up?

But they are going up. And it’s a truth of the market that when a commodity or stock rises in the face of bad news, that is a BULLISH INDICATOR.
My friends in Chicago and New York say traders are buying crude because of the action in the US dollar. The dollar is slumping because of recession fears. But you’d think a recession would send oil use plummeting … so why is crude rising again?

Like I said, when something rises despite bad news, it’s bullish.

Let’s look at the dollar next …

Oil industry stocks are leading the way higher. Let’s look at the XLE …

Technically speaking …

-- The 10 day SMA has just crossed above the 20, which is above the 50 -- a bullish orientation.

-- The 10 and 50 day SMAs are all moving higher, and the 20 is about to.

-- Prices are above all the SMAs

The XLE is now at overhead resistance from February. We’ll see if it breaks out here.
And what about gold?

Turkish gold imports have fallen to a record low … but if the dollar is going to crap out, people are going to buy gold.

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

News and Charts for Wednesday

In sum, we may have a little more downside, but the big trend remains in place. And where is the money going (in the short-term, anyway?) ...

The iShares Financials ETF is looking bullish. Of course, in these volatile markets, you always have to add the words "for now."

And now to the news ...

IMF Cuts World Economic Growth Forecast on Worst Crisis Since Depression The International Monetary Fund cut its forecast for global growth this year and said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.

XX My take -- if the global economy is really in that bad a shape, why are oil prices so strong? Check out this next story ...

Oil Prices Rise Before US Inventory Data
Analysts expected this week's data to show crude oil inventories grew 2.3 million barrels for the week ended March 28, according to a Dow Jones Newswires survey. Gasoline inventories were forecast to have fallen 2 million barrels, while distillate stocks, which include heating oil and diesel fuel, were expected to fall 1.7 million barrels, the survey showed.

XX Obviously, that's a disconnect that has to be corrected one way or another.

And here's another oil story for you ...

Output to fall 1.8Mb/d at existing fields by 2021 - Mexico

The prolific Cantarell field, which accounts for roughly half of Mexico's crude output, will make up 1.01Mb/d of the decline by 2021, according to the diagnosis. The Ku-Maloob-Zaap asset will decline by 295,000b/d by 2021, with remaining fields accounting for 492,000b/d. Cantarell will decline by 565,000b/d by 2012, with other fields accounting for a 212,000b/d fall in production.

Worldwide food catastrophe not very far off; 'Solutions' are fueling shortage
In Thailand, farmers are sleeping in their fields after reports that thieves are stealing the rice, now worth $600 a tonne, straight out of the fields. Four people have died in Egypt in clashes over subsidized flour that was being sold for profit on the black market. There have been food riots in Morocco, Senegal and Cameroon. Last year it became clear that the era of cheap food was over: Food costs world-wide rose by 23 per cent between 2006 and 2007. This year, what is becoming clear is the impact of this change on ordinary people's lives.

Gold Gains for First Time in Five Days in London on Dollar, Growth Outlook Gold gained for the first time in five days in London as investors bought the metal to hedge against a weaker dollar and to diversify on concern that slower economic growth may curb gains in equities.

Wheat Rises in Chicago on Concern Planting May Miss Government Forecasts Wheat futures rose for the first time in six days on speculation that planting by U.S. farmers may fall short of an increase forecast by the Department of Agriculture.

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

Wednesday News Bump

Taxpayers May Be Liable for Billions in Fed, Treasury Mortgage-Rescue Bid Even as the Bush administration insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.

Oil Rises a Second Day on Iraqi Clashes, Lower Gasoline Supplies Forecast Crude oil rose for a second day on speculation U.S. gasoline stockpiles declined last weak and concern that fighting in southern Iraq may disrupt supplies.

Soybeans Climb on Farmer Protests in Argentina; Gold, Oil Rally on Dollar Soybeans jumped by the daily limit in Chicago, leading a commodity rally, as farmers in Argentina blocked ports and threatened to plant fewer crops to protest rising export taxes.

Thai Rice Exports Soar on Scarce Supplies as Chicago Prices Reach Record Rice exports from Thailand, the world's biggest exporter of the commodity, jumped 72 percent this year as prices rose to records on scarce global supplies.

Japan's Export Growth Quickens to 8.7% as Asian Markets Cushion U.S. Slump Japan's export growth unexpectedly accelerated in February as demand from emerging markets helped automakers ride out the U.S. slump.

Floridians Forgo Beer, Long Hair, Take $200 Vacations as Home Prices Fall Miami-area homeowner Richard Welch is spending $70 less on groceries a week after his house lost $145,000 in value. Rita Roland cut off 11 inches of hair to save on salon trips, and Victor Parris stopped drinking his favorite brands of dark ale.

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

News You Can Use

Ouch!

US Home Prices Drop 11.4 Pct. in January
The broader 20-city composite index is also down, falling 10.7 percent in January from a year ago. That is the first time both indexes dropped by double-digit percentages.

In other news ...

World Markets Rally on Easing US Worries
European and Asian markets surged Tuesday as investors returned from the Easter holiday in a mood to buy, encouraged by upbeat U.S. housing numbers and overnight gains on Wall Street.

Crude Rises, Snapping Three-Day Decline Crude oil rose, snapping a three- day decline, amid escalating violence near one of Iraq's main oil producing regions.

Gold Climbs in London Trading as Dollar Declines; Silver, Platinum Rise Gold rose the most in more than two weeks in London after the dollar fell before a U.S. consumer confidence report that may indicate slower economic growth, spurring demand for precious metals as an alternative to stocks.

Copper Rebounds From Worst Weekly Slide in 10 Months Copper gained the most in three weeks in London, rebounding from the worst drop in 10 months, on expectations stockpiles of the metal will decline and production costs will rise. Aluminum and zinc gained.

White Sugar Climbs Most in Six Weeks in London After India Cuts Forecast White sugar climbed the most in six weeks in London on speculation less Indian supply will erode a forecast global glut. Robusta coffee also advanced.

Soybeans, Corn Increase as Rising Food Prices Boost Demand From Importers Soybeans in Chicago rose for a second day on speculation declines in prices of agricultural commodities may attract buyers as governments seek to boost imports to curb food prices.

Morgan Stanley Raises Corn, Soybean Forecasts by 20% on Food, Fuel Demand Morgan Stanley, the second-biggest U.S. securities firm, raised its price forecasts for corn and soybeans by 20 percent on higher demand for food and ethanol.

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

Charts and News, TGIF Edition

Here's a great chart from the Chart of the Day, showing how the US dollar and gold are both in strong (and opposite) trends. The US dollar is testing support and gold is testing overhead resistance.Here's an interesting factoid: There is 147 metric tonnes of gold in Fort Knox. Meanwhile, the StreetTRACKS Gold Shares (GLD), the largest exchange-traded fund that holds physical gold, has 647.56 metric tonnes in its vaults. So GLD has 4.4 times as much gold as Fort Knox. Wow! But then, GLD has more gold than many central banks of the world, including the European Central Bank and China.

One more thing -- we just saw oil catch up to its inflation-adjusted high. For gold to do the same thing, it would have to hit $2,200 an ounce.

Now, here is some more news you can use ...

Calpers to Boost Commodity Investments Through 2010
The California Public Employees' Retirement System, the largest U.S. pension fund, may increase its commodities investments 16-fold to $7.2 billion through 2010 as raw materials prices surge to records.

UPDATE: So much for that rumor. Calpers dismisses talk of commodities buying spree

Oil Futures May Surge to $130 a Barrel This Year, BlueGold's Andurand Says Crude oil may reach a record $130 a barrel this year because pension funds are investing more in commodities, said Pierre Andurand, the chief investment officer of BlueGold Capital Management LLP, a hedge fund.

China Corn Harvest May Be Smaller Than Estimated After Drought China, the world's second-largest corn producer, harvested 5.5 percent less than previously forecast because of a drought from May to July in northeastern provinces, the U.S. Foreign Agricultural Service said.

Soybeans, Corn Fall After Brazil Increases Crop Forecast; Wheat Declines Corn and soybean futures fell after Brazil forecast bigger crops and on sales by some investors after both commodities reached records this week. Wheat also declined.

Jinchuan to Spend More than $141 million to Buy Overseas Copper, Zinc Mine Jinchuan Group Co., Asia's biggest nickel producer, plans to buy a mine producing copper and zinc for more than 1 billion yuan ($141 million), Vice Chairman Yang Zhiqiang said.

Fed Raises Emergency Auctions to $100 Billion, Citing Liquidity Pressures The Federal Reserve plans to increase its loans to banks this month to offset a deepening credit crisis threatening to tip the U.S. economy into a recession.

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

We Have Ignition

The path to $112 oil seems clearer today ...

Here's the news ...

Oil tops $104 for the first time

In its weekly report, the Energy Information Administration said crude stocks fell by 3.1 million barrels last week. Analysts were looking for a rise of 2.3 million barrels, according to a Dow Jones poll.

OPEC will 'support' Venezuela in Exxon Mobil row

OPEC members have pledged their support to Venezuela in its dispute with US oil giant Exxon Mobil, at today's production meeting in Vienna.

Pemex to boost output in declining Cantarell field

Average output at Mexico's Cantarell oil field will decline by as much as 20% this year as the field matures, a Petroleos Mexicanos executive reported.

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

Today's Oil News

Turns out I may not bullish enough. Here's ANOTHER short-term forecast in oil …

Oil May Rise to $120 in Six Months on Weak Dollar, Tensions, Taqa CEO Says Crude oil may rise to $120 a barrel within six months due to the dollar weakness and global political tensions, the chief executive officer of Abu Dhabi National Energy Co. said.

A 5-year forecast in oil …

Oil Could Reach $300, says Matt Simmons

Former White House energy advisor Matthew Simmons said the current highs of $100 per barrel are "cheap".

Either way you slice it, oil is going up …

Crude Oil Rises on Dollar-Led Buying, OPEC Reluctance to Boost Production Crude oil rose a second day as a lower U.S. dollar spurred commodity investments and OPEC ruled out raising production targets when it meets tomorrow in Vienna.

And here’s why …

OPEC Not Moving to Ease High Oil Prices

On Monday, oil surpassed the all-time record of $103.76 a barrel when adjusted for inflation. The previous record was $38, set in 1980 at the height of the U.S.-Iran hostage crisis.

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

News You Can Use for Thursday

The $3 Trillion War
n 2005, a Nobel prize-winning economist began the painstaking process of calculating the true cost of the Iraq war. In his new book, he reveals how short-sighted budget decisions, cover-ups and a war fought in bad faith will affect us all for decades to come.

Is Greenspan now trying to sink the dollar?
"Bubbles" Greenspan, the man who did more than anyone on the planet to ensure that there would be inflation on a global scale by bringing interest rates down to insanely low levels and flooding the markets with cheap credit is now trying to con Americans one last time by engineering a de facto default by the US on its foreign obligations, via devaluation.

U.S. Economy Grew 0.6% in Fourth Quarter, Less Than Economists Estimated
Payrolls and consumer confidence have dropped and the housing slump has intensified so far in 2008, raising the odds that the world's biggest economy will tip into a recession.

XX As my friend and expert currency trader Boris Schlossberg wrote early this morning: "Today’s US GDP numbers could provide some fireworks in today’s North American session. The market expects an upward revision to 0.8% - still a paltry rate of growth - but slightly better than the initial 0.6% read. If the data surprises to the upside, it may quell some of the doom and gloom forecasts of an imminent recession that dogged the greenback. If, however, the news is even worse than the bears believe, the greenback could come under fresh selling pressure stoking fears that the recession is already here."

Australian Business Investment Rebounds on Demand From China for Iron Ore Australian business investment rebounded in the fourth quarter, after falling the most in eight years, as mining companies such as Rio Tinto Group expanded to meet Chinese demand for iron ore.

Crude Oil Advances on Reports of Production Disruptions in Nigeria, Iraq Crude oil rose to $100 a barrel on reports of a further production loss in Nigeria and that a technical fault is blocking shipments from northern Iraq.

Rogers Says Agricultural Commodities to `Explode,' Led by Sugar, Cotton Jim Rogers, who predicted the start of the commodities rally in 1999, comments on the outlook for sugar, cotton and other commodities.

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

Monday Is Chart Day

Is gold going higher? Well …

Gold Fields May Eliminate 6,900 Jobs as Power Shortages Reduce Production Gold Fields Ltd., Africa's second- biggest gold producer, will eliminate as many as 6,900 jobs, or 13 percent of its South African workforce, as the state-run utility fails to provide enough power for the company's mines.

As Commodities Soar, How Should Investors Bet on Stagflation? With few exceptions, commodities are rallying again, breaking records and keeping inflation pressures on the boil. For investors, the resurgence in commodity prices has made for excitement and relief from an otherwise gloomy financial market. The Reuters/Jefferies CRB Index, which tracks a broad range of commodities, has surged 11% year to date, pushing through new record highs. By contrast, the S&P 500 Index (SPX), measuring blue-chip stocks, is down 8% in the same period.

Copper Trades Near Two-Year High on LME on Supply Speculation; Tin Rallies Copper traded near a two-year record in London on speculation that supply disruptions will drive prices higher. Tin rose to the highest since at least 1989.

OPEC May Agree to Cut Production Next Month as Demand Slips, Khelil Says Organization of Petroleum Exporting Countries President Chakib Khelil said he expects oil demand to decrease in the second quarter and that the group may agree to cut production at its next meeting.

News You Can Use ...

Bernanke, Bush Fail to Build Stronger Economy With Rate Cut, Stimulus Plan Even if Ben S. Bernanke, George W. Bush and Congress win the battle to avert a recession this year, they risk losing the war to strengthen the economy for the long term.

Auction-Rate Bond Failures Saddle States, Cities With `Predatory' Yields U.S. municipal borrowers from Camden, New Jersey, to Sacramento, California, may face a third week of higher interest costs as failures in the auction-rate bond market persist.

Honda Aims to Boost India Sales 32% Next Year on Plant Expansion, Economy India's passenger car market has doubled in the past five years and may further triple to 3 million vehicles a year by 2015, according to government estimates.

Northern China's Dry Winter May Harm Spring Grain Planting, Xinhua Reports China's northern grain-growing regions have received little snow and rain this winter, and the reduced soil moisture may harm the planting of crops in the spring, the official Xinhua News Agency reported.

Soybeans, Soybean Oil Rise to Records in Chicago on Demand; Corn, Wheat Up Soybean and soybean oil prices in Chicago surged on speculation that global demand for food, animal feed and biofuels will exceed production this year. Corn also reached its highest ever, and wheat surged.

2 New Commodity ETFs Debut Last week, Lehman Brothers listed Opta Lehman Brothers Commodity Index Pure Beta Total Return ETN (RAW) and Opta LBCI Pure Beta Agriculture Total Return ETN (EOH) the broad commodities ETN provides exposure to energy, metals, agriculture and livestock. The agriculture note follows grains such as corn, soybeans and wheat, as well as "soft" commodities like coffee, cotton and sugar.

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

Stock #3 -- Exxon Mobil

ExxonMobil

Macro Picture

This is the year that the world starts using crude oil at a rate of more than 1,000 barrels per second. The International Energy Agency Feb. 13 forecast global oil use may gain by 1.7 million barrels a day in 2008 to 87.6 million bpd. What’s more, IEA, the adviser to 27 oil-consuming nations, predicts that Chinese and Indian oil imports will almost quadruple by 2030, creating a supply crunch as soon as 2015.

It may come sooner than that. Consider …

• Surplus world oil capacity has been declining since 2001. Current surplus capacity is one million barrels a day — down from more than five million barrels a day.
• Output from the world's existing oil fields is declining at a rate of about 5% per year. New production is coming online, but not fast enough to keep up with growing demand. Exploration can't keep up with production, either.
• The U.K.-based Oil Depletion Analysis Centre recently reported that 60 of the world's 98 oil producing countries have already hit peak oil production.

The oil that is found is more expensive. In fact, onshore drilling costs in the U.S. have jumped nearly 20% in recent years. Offshore drilling costs have jumped nearly 38%, to $70 per barrel.

All in all, it’s a great time for oil producers.

Company Fundamentals

Earnings Bonanza. Exxon recently reported the highest ever quarterly and yearly earnings for a US company. Fourth-quarter net income rose nearly 14 percent to $11.66 billion, or $2.13 a share, from $10.25 billion, or $1.76 a share, in 2006.

The company's full-year earnings of $40.61 billion set a new record for U.S. profits -- beating out its own previous mark for 2006.

Reserves are growing … or are they? Exxon says it replaced 101% of its production in 2007. The US government disputes this, saying Exxon replaced just three out of every 4 barrels it produced.

Exxon’s worldwide proved oil and gas reserves totaled 1.6 billion oil-equivalent barrels. Exxon’s 10-year average replacement ratio is 112%, and it has found more oil than it has pumped for 14 consecutive years.

Production and other problems: Quarterly production rose just 1 percent. Exxon also lost oil from assets that were taken over by Venezuela. What’s more, despite its record earnings, Exxon reports that ikts downstream earnings were off sharply from a year ago -- $622 million in the most-recent quarter versus $945 million in 2006.

Refining margins -- the difference between the cost of crude and what the company makes on refined products such as gasoline -- have been squeezed in recent months as spiking oil prices outpaced increases in gasoline prices and other refined products.

Exxon is the big enchilada of oil, and my price target is $103, a nice move from its current level of $88.10. However, I find more value in other companies – for example, any of my picks in my recent oil report, Running on Fumes.

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

News You Can Use for Friday

First, the biggest bull market of all -- Agriculture ...

Commodities to Rise This Year, Led Up by Agriculture, Merrill Lynch Says Agricultural commodities and precious metals may gain in 2008 as demand from emerging economies surges and investors look for alternatives as the dollar and equities decline, Merrill Lynch & Co. said.

Soybeans, Soybean Oil at Record After Storms Ravage China Rapeseed Crop Soybean and soybean oil futures in Chicago soared to a record on speculation demand from China will climb after winter storms damaged the nation's rapeseed crop.

Asia

China January Trade Surplus Up 22.7 Pct
China's trade surplus grew by 22.7 percent in January over the same month last year as foreign demand for exports stayed strong despite worries about slowing global growth, according to data reported Friday.

India Can Sustain Close to 9% Economic Growth, Prime Minister Singh Says India, Asia's third-largest economy, can sustain close to 9 percent economic growth, Prime Minister Manmohan Singh said, reiterating the government's target for average expansion in the next few years.

Metals

NMDC Plans to Buy Iron-Ore Mine in Canada to Secure Supply of Raw Material NMDC Ltd., India's biggest iron-ore producer, plans to buy a deposit in Canada in its first overseas venture, as it seeks to increase supply of the steelmaking raw material.

Britons Pray for Lead Price Drop to Stop Plunder of Historic Church Roofs Peter Bramley stands in the tower of Hemingbrough Minster and looks down at the plastic sheeting that covers a hole in the church's roof from which thieves ripped 20 square meters of lead.

Energy

Crude Oil Trades Little Changed on Signs of Asia Demand, Less OPEC Supply Crude oil was little changed after rising to a one-month high in New York on signs of sustained economic growth in Asia and reduced OPEC output.

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

Charts for Monday

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

Lotsa News for Tuesday

Here is some news you can use. First, the outlook for oil and iron remains bullish …

Bush Urges OPEC to Increase Oil Output to Lower Near-Record Crude Prices U.S. President George W. Bush, on his first visit to Saudi Arabia, urged the Organization of Petroleum Exporting Countries ahead of its Feb. 1 meeting to pump more oil in an effort to lower near record crude prices.

Rio Expects China Demand to Sustain `Strong' Market Outlook for Iron Ore Rio Tinto Group, battling a hostile takeover proposal from BHP Billiton Ltd., expects the ``strong market outlook'' for iron ore to continue on demand from China.

It will be interesting to see how uranium stocks react to this next one. Paladin in Australia jumped over 7% on the good news from ERA …

Energy Resources Jumps After Higher-Than-Expected Uranium Price Increases Energy Resources of Australia Ltd., producer of more than a 10th of the world's mined uranium, rose the most in almost five months in Sydney trading after it won greater-than-estimated prices for the fuel.

Even this news didn’t hold it back …

Australia Won't Sell India Uranium, Reversing Previous Government's Stance Australia, holder of the largest known uranium reserves, won't sell the fuel to India because the country isn't a signatory of the Nuclear Non-Proliferation Treaty, reversing a decision by the previous government.

China and Energy – full steam ahead …

China's 2007 Coal Imports Jump 34% as Economic Expansion Increases Demand China, the world's biggest user and producer of coal, increased purchases of the fuel from overseas by 34 percent last year as its economy expanded.

December Diesel Imports Rise More Than Fourfold on China Demand for Fuel Diesel imports by China, the world's second-largest energy consumer, jumped more than fourfold in December from a year earlier after the government ordered refiners to ensure supplies and ease shortages.

India – bearish force (short-term, anyway) for wheat and gold?

Wheat Production in India May Rise to Seven-Year High, Reducing Imports India, the world's largest wheat consumer after China, may reap its biggest harvest in seven years after favorable weather and increased planting, easing pressure on the government to import the grain for strategic reserves.

Indian Housewives Boost Old Jewelry Sales as Gold Prices Soar to Record Sales of gold scrap in India, the world's biggest buyer of the precious metal, have increased as record prices prompt housewives and other consumers to recycle more old jewelry, curbing demand for new supplies of bullion.

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

News You Can Use for Monday

Big miner mergers continue …

Vale do Rio Doce May Buy Xstrata to Diversify Its Portfolio, Liberum Says Cia. Vale do Rio Doce, the world's largest iron-ore exporter, may buy Xstrata Plc to diversify its production and gain access to U.K. investors, Liberum Capital Ltd. said.

While commodity prices -- and demand -- heat up ...

Copper Rises in Asia as China Imports Reach 8-Month High, Commodities Gain Copper prices rose in Asia after imports of the metal by China, the world's largest user, reached an eight-month high and as investors bought raw materials as an alternative to a declining dollar.

Crude Oil Advances as Qatari Minister Says OPEC Unable to Control Prices Crude oil rose for the first time in four days after Qatar's Energy Minister Abdullah al-Attiyah said OPEC is unable to temper near-record prices.

Chicago Soybeans Advance to Record on Output Drop; Corn at 11-Year High Soybeans in Chicago extended gains to a record after a government report showed global production will fall as demand increases for animal feed, vegetable oil and fuel made from crops. Corn futures rose to an 11-year high.

But if commodity demand is heating up, why is everyone worried about Asia's growth? ...

Goldman Sachs Cuts Asian Growth Forecast as U.S. Economy Nears Recession Goldman Sachs Group Inc. reduced its growth forecasts for Asia on concern an expected recession in the U.S. will erode demand for the region's exports.

China's Growth-Slowing Efforts May Kick In at Worst Time for World Economy China is starting to gain control of its turbocharged economy, just as a U.S. slowdown raises the risks of doing so.

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Oil -- The Disappointment of Great Expectations

The EIA’s weekly petroleum data is out. And it shows us that market sentiment is a funny thing.

We saw U.S. crude inventories drop by 6.8 million barrels in the latest week, much more than the 2.1 million barrel drop expected by analysts. Even so, oil prices fell on the news.

Why? It’s an expectations game. We’ve seen bigger-than-expected drawdowns week after week, so traders are starting to price a “surprise” in. And they sell on the news, whatever the news is – even when it’s bullish.

Meanwhile, here’s something I find interesting. Motor gasoline demand over the last four weeks has remained 9.3 million barrels per day. Not only is this unchanged from recent trends, it’s up 0.4% from the same period last year. So much for economic weakness and higher gasoline prices affecting Americans’ driving habits. It may be that in our car-centric society, Americans are finding it impossible to drive less, even if they have to pay more at the pump.

In this case, rising gasoline prices will quickly lead to cutbacks in other purchases, as consumers direct more of their money toward gasoline purchases. That could translate into bad news for retailers.

My target for oil this year is $150, as you can read here. And it may be on the low side.

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Pressure at the Gas Pump

<>#1) Peak Oil Review - December 31st, 2007
Some are beginning to ask if a major turning point was reached about 6 months ago. World oil production has been flat for the past three years. US and European consumption has been flat while consumption by India, China, and the oil producers have been increasing rapidly. The shortfalls largely have been made up by reduced consumption in poor countries that cannot afford to import oil at current prices. The poorer countries, however, can only cut back imports by so much before they reach an irreducible minimum.

If that minimum has been reached, then the OECD countries are living off stockpiles. When the minimum operating level for these stockpiles is reached and shortages start to occur, the bidding war for imports will shift into high gear, and much higher prices will ensue.

Just go read the whole thing.

#2) Big Oil Sets Sail for Greenland's Waters< style="font-family:verdana;">ExxonMobil and Chevron of the US, Husky and Encana of Canada, Dong of Denmark and Britain's Cairn Energy are amongthose that have either already won or have applied for exploration licences from Greenland's Bureau of Minerals and Petroleum. just one area off eastern Greenland could contain more than 110 billion barrels of oil - about 42 per cent of Saudi Arabia's reserves

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Some year-end stats: Gold gained 31% in 2007, the seventh straight annual increase, and crude oil gained 57% as the dollar touched a record low against the euro.

Some news stories…

US ECONOMY

Treasuries Lose to Europe's Two-Year Notes Yielding the Most in Four Years The world's biggest bond investors are buying in Europe, where the cheapest government securities in four years may promise better returns than Treasuries for the first time since 2005.

Citigroup May Have to Write Down $12 Billion, Sanford C. Bernstein Says U.S. subprime-mortgage defaults have already forced the world's biggest financial institutions to write down about $100 billion in fixed-income securities and prompted concern about a global economic slowdown. Goldman Sachs Group Inc. said last month that Citigroup may discount the value of its investments by $18.7 billion in the fourth quarter.

Holiday Internet Sales Growth Slows as U.S. Consumers Hold Back Spending Internet sales by U.S. retailers during the holiday season rose at the slowest pace on record as consumers grappled with $3-a-gallon gasoline and the worst housing slump in 16 years.

CURRENCIES

Dollar Falls as Data May Show December U.S. Manufacturing Growth Weakened The dollar fell against the euro, extending last year's 10 percent decline, on concern the slowdown in U.S. manufacturing will give the Federal Reserve more reason to lower interest rates.

Yuan Rises to Strongest Since End of Dollar Link on Central Bank Pledge The yuan rose to the strongest since a peg to the dollar was scrapped in July 2005, after China’s central bank reiterated its pledge to maintain a ``tight'' monetary policy this year.

AGRICULTURE

China Offers 500,000 Tons of Corn From Reserves to Reduce Price Increases China, the world's second-largest corn producer, sold 34,396 metric tons of the 498,884 tons of the grain it offered in a series of nationwide auctions today, part of government measures to cool rising food inflation.

Corn Futures Advance to 11-Year High on China's Plan to Tax Grain Exports Corn futures in Chicago rose to an 11- year high as China imposed an export tax on grains to ensure domestic supplies and curb increases in food prices. Soybeans and wheat prices also rallied.

Wheat, Soybeans, Corn May Extend Gains in 2008, Olam Chief Executive Says Wheat and soybeans, the best- performing agricultural commodities last year, may rise further in 2008 along with corn as growing demand for the commodities for food and biofuels continues to outstrip supply.

ENERGY

BHP, Woodside, Santos Restart Australian Oil Fields After Cyclone Melanie BHP Billiton Ltd., Woodside Petroleum Ltd. and Santos Ltd., Australia's three biggest oil and gas producers, are resuming production at oil fields off the northwest coast after shutdowns caused by a tropical cyclone.

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Charts That Will Knock Your Socks Off!

The market chattering class keeps talking about Bhutto’s assassination as a market mover. Her death is a tragedy. However, her return to Pakistan already put a lot of tension and volatility into that country. It could get worse, but it could also not get worse.

I think we should instead focus on the bullish breakout happening in gold right now, and should keep happening, no matter what happens in Pakistan. Check out this chart of the GLD …
And now let's look at silver ...Bottom line: The percentage move for silver could be much bigger than that for gold!

The latest on crude: Inventories fell by 3.3 million barrels to 293.6 million barrels in the most recent week, according to the U.S. Energy Information Administration. Analysts polled by Dow Jones Newswires were expecting a drawdown of 1.2 million barrels. OOPS!

Gasoline supplies rose by 700,000 barrels in the latest week, while distillate stocks fell by 2.8 million barrels, EIA reported.

The oil fund I added to Red Hot Resources last week already hit PT1. Gold and silver look ready to ramp up, and oil is coiling up for its next big move.

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