[Doly]

$this->bbcode_second_pass_quote('MrBill', '
')Never the less, still learning about Insider Trading, Anti-Money Laundering and Know Your Customer Code of Conduct type of information for my exams on Friday.

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', '
')Never the less, still learning about Insider Trading, Anti-Money Laundering and Know Your Customer Code of Conduct type of information for my exams on Friday.

[MrBill]

NOV Brent rolled off the board in true contango style, so the continuation charts looks more bullish than it is. As well NYMEX Nat Gas jumped on the back of cash markets and an expected cold snap, but NOV WTI is already leaning over and looks like a piece of limp spaghetti to be honest. In otherwords, some technical buying or short-covering, but not likely a reversal in trend, yet.

Interesting year on year comparison of crude oil prices as expressed in inflation adjusted and nominal dollars keeping in mind that the majority of crude sold worldwide is not light, sweet WTI, but heavier and more sour grades that do sell at a price discount. Something to keep in mind when looking at historical prices.

Inflation Adjusted Monthly CRUDE OIL prices 1946-2006

As well as this excert from The Capital Spectator talking about the success of OPEC production costs against a falling crude price.

$this->bbcode_second_pass_quote('', ' ')Consider that Iran's reported share of a future one-million b/d cut for OPEC will amount to a decline of 140,000 b/d, according to TehranTimes.com. Embracing such a cut makes a price decline that much more difficult. Back in early September, oil was around $70 a barrel; today it's under $59, as we write. Assuming Iranian exports of 2.5 million b/d, the price decrease shaves $27.5 million a day. That's more than $190 million a week and $825 million a month--figures that are sure to catch the attention of even the most pious theocracy.

[MrBill]

Not much new here. Still range bound, but with a decidedly negative bias simply due to the fact that the bulls cannot gain upwards momentum even with winter around the corner.

And the world is far too peaceful, even with the Hermit Kingdom stirring up trouble. Like a baby in its crib throwing a fit because no one is paying it enough attention. Poor Kim Jong il, the UN wants to make sure he does not get anymore toys to play with because he keeps throwing them at the other kids in the neighborhood.

However, the interesting story is not in the headlines, but behind the scenes.

Oil Will Leap Again -- Blame Russia
$this->bbcode_second_pass_quote('', 'O')il prices are in retreat. Oil producers are talking about cutting production. Projected oil demand has been revised downward.


So the oil crisis is over, right?
Wrong. I can clearly see the next oil supply crunch on the horizon. The next supply shock that will send oil prices shooting higher will come from Russia and arrive in 2008. In Russia, the forces are already clearly at work that will produce that spike.

Oil prices have fluctuated wildly in the past few months. The spot price of a barrel of benchmark West Texas intermediate oil hit $74.41 on July 1. It's been down, down and down again since then, with the spot price of West Texas crude falling to $63.87 a barrel on Sept. 1 and $57.60 on Oct. 11.

That's a drop of 23% from July 1 to Oct. 11.

What's behind the plunge?

[MrBill]

Well, I am back from cold, gray, rainy, but always exciting Moscow to sunny, warm, but not so exciting Cyprus. I will be surprised if I do not catch a cold? Lot's to do here at the moment, but hope to get to all my mails this week? Thanks.

Not much has changed in the market. Pretty much a steady trend lower. November WTI rolled off the board, but not before testing a low of $56.50, which compared to Brent certainly looked cheap. The doldrums have come home to roost. I cannot help but notice anomalies like [url=http://www.marketwatch.com/News/Story/Story.aspx?guid={EF18DE97-4191-4C08-A582-1DF4FD2D0963}&siteid=mktw&dist=nbi]Schlumberger[/url] net income soars 85%, while their stock price skids 4% lower. Just a sign of the times indicating that the bears are buying into the slower US growth story.

But as the story points out oilfield service companies have full order books and healthy margins, so whether the negative tone is justified or not is questionable? Never argue with the trend, of course, but in the most recent Economist article, America drops, Asia shops it would appear that income growth in Asia is increasingly being spent driving up consumer spending in Asia to 7% year on year compared to just 3% in America. And this market is growing quicker as well starting from a low base.

Exports to the US may suffer as the US economy slows, but underlying investment in infrastructure and improving standards of living in Asia may take up much of the slack. As Europe trades more with Asia stronger EU growth is sucking in Asian imports, while European exports are sending capital goods and machinery the other direction despite a very strong euro. This can only be good for commodity markets, base metals and energy in the medium to long-run as growth elsewhere in the world decouples from the US consumption lead growth on the back of debt.

OPEC has announced a definite 1 mbpd production cut starting from November 1st. This is supposedly a real cut from actual exports not just one on paper? We'll see who cheats and who doesn't?

$this->bbcode_second_pass_quote('', ' ')Turnarounds are cleaning up the product market

Sharp product draws led to a draw in total hydrocarbon
inventories

Atlantic Basin refinery turnarounds are beginning to tighten petroleum product fundamentals, generating large draws in product inventories last week. The product draw dominated a substantial crude oil inventory build, leading to a sizable net draw in total hydrocarbon inventories. We continue to believe that the large Atlantic Basin refinery maintenance programs, combined with strong demand that has been supported by the sharp decline in retail prices, will lead to further substantial draws in product inventories sufficient to dominate crude oil builds.

Long-dated crude oil prices bottomed four weeks ago

Long-dated crude oil prices have been steadily rising over the past two weeks following a moderate retrenchment in recent months. Exceptional weakness in crude oil timespreads in recent weeks has resulted from this back-end strength rather than from declining front-month prices, which have remained relatively stable. Nevertheless, current timespreads look extremely anomalous relative to inventory levels, which we believe is unsustainable.

Natural gas: Just the opposite of crude oil

In contrast with the oil market, the back-end of the NYMEX natural gas forward curve has remained fairly steady, while the front-end has moved up. Front-month prices rebounded strongly early this week, supported by an equally impressive recovery in cash prices, with Henry Hub cashes increasing up to New York Harbor 1% residual fuel oil prices in recent days. Driving this price strength has been a combination of near-term demand and supply factors that continue to tighten the physical market

[drew]

They stopped trading of Cameco on the tsx for a few hours today because of bad news from their Cigar Lake project. Shares were down over 10% on the day. The spot price of uranium was up ten% on the bad news. This is why many investors prefer mutual funds to stocks. I don't;where's the excitement in that?

Anyways it turns out they have severe flooding problem brought about by opening up a new area underground. Safety measures and pumps couldn't deal with the inflow.

Goes to show how tight the uranium market must be.

Why didn't I sell at 47?

'cause I'm dumb!

Drew

[MrBill]

Drew, here is some proprietary research that my guys in Moscow made with regards to the nuclear power industry in Russia.
$this->bbcode_second_pass_quote('', 'U')ranium Sector: New Clear Trend

We reiterate our long-term Buy recommendation on Machine Plant
Electrostal (MASZ) common and Novosibirsk Chemical Concentrates Plant (NZHK) common and preferred shares with target prices of $648, $26 and $15, respectively. We rate Priargunsk Chemical and Mining Company (PGHO) common shares as a Hold and set target price of $426. We assign a Hold recommendation to PGHO preferred shares with a target of $281.

Russia’s nuclear industry is being reformed and is to end with the
creation of Atomprom, a holding company that is to unite all Russian nuclear-related assets similar to Franco-German AREVA.
We think that it is consolidation risks that have retarded share price growth. However, we believe that such risks are exaggerated: As TVEL is likely to be the center of consolidation, it has a paramount interest in enriching the value of its subsidiaries, since this leads to greater TVEL value. Moreover, Russia plans to participate in international tenders and attract financing to carry out its ambitious plans. Increased transparency is a prerequisite. This should lead to share price gains.

In line with global trends, atomic energy in Russia is playing an
increasingly important role. According to the Federal Service for
Atomic Energy strategy, the share of nuclear power in the domestic
energy balance is to roughly double by 2030 through construction
of 40 new reactors, worth some $70 bn. This indicates much
stronger demand for nuclear fuel. MASZ and NZHK, Russia’s only
nuclear fuel producers, should see sales skyrocket due to rising
consumption at home and abroad.

With uranium production worldwide failing to meet nuclear power
plants’ requirements and the lack of feasible alternatives to bridge
that gap in the near future, we believe that the price of uranium and thus nuclear fuel will remain high, resulting in gains for producers. Since most nuclear fuel supply contracts are signed on a long-term basis and at relatively fixed prices, even under the existing transfer pricing schemes within TVEL, an increase in physical volumes should lead to financial improvements.

[cube]

$this->bbcode_second_pass_quote('MrBill', '.')..
OPEC has announced a definite 1 mbpd production cut starting from November 1st. This is supposedly a real cut from actual exports not just one on paper? We'll see who cheats and who doesn't?
...

[MrBill]

The next Chairman of Gazprom? One of the largest and most important energy cos. in the world?

$this->bbcode_second_pass_quote('', 'P')utin says he'll retain influence out of office

With his popularity high, Mr. Putin sees the session — his fifth since taking office in 2000 — as an opportunity to show he can respond directly to voters' concerns. He said the trust Russians have in him will allow him to keep influencing the country after his presidency.

"Even having lost the powers and the levers of presidential power and not tailoring the basic law according to my personal interests, I will manage to retain the most important thing that a person involved in politics must cherish — your trust," he said. "And using that, you and I will be able to exert influence on the life of our country and guarantee its development."

[cube]

$this->bbcode_second_pass_quote('MrBill', '.')..
Bit of a rally today in the crude on back of verifiable cuts to some commercial clients of OPEC in the realm of approximately -5%. Not likely enough to ignite a year-end rally here,
...

[MrBill]

Jump in crude on a big surprise in the EIA inventory numbers. I think the follow through would have been larger had the poor existing housing sales and inventory numbers not been released at the same time showing a drop in sales, inventories rising to 7.3 months of supply and median prices down year on year. Never the less here is the snapshot of the picture in the US at the moment.

crude -3.3 mio to 332.3 mio bbls vs. +2.6 mio f/c
gasoline -2.8 mio to 207.4 mio bbls vs. -0.6 mio f/c
distillates -1.4 mio to 144 mio bbls vs. -1.1 mio f/c
heating oil +0.7 mio to 61.4 mio bbls

crude imports -936K to 9.49 mbpd
product imports +380K to 3.23 mbpd
refinery utilization -0.1% to 86.2%

gasoline demand +3.3% YOY to 9.28 mbpd
distillate demand +6.1% YOY to 4.34 mbpd
total product demand +4.1% YOY to 21.03 mbpd

That is a HUGE increase in year on year demand, but in barrels per day lower than during the summer driving season. Never the less it runs contrary to the demand destruction theory related to a slowdown in the US economy. Imports below the psychological 10 mbpd level. While refineries running at less than 90% of capacity.

Along with REAL OPEC supply cuts to commercial lifters and it points to tighter supplies and that should help support crack spreads. The spread is between $7.75-9.10 per barrel at the moment, close to the long-run average of about $10 per barrel. We have seen the oil company S&P index recover from its dip to 385 and it is now standing at 436 near its previous high of 449.

The overall stock market is supported by the FED's decision to keep its rate of lending at 5.25% with one year LIBOR at 5.40% and the 10YR UST yielding 4.75%. A bit of inversion between money market rates and US treasuries, but government bond yields are essentially flat across the curve, dipping slightly and then rising on the long dated maturities. The dollar dropped slightly from its high of $1.2520 to $1.2655 on the decision, but perhaps that was to be expected seeing some might have been positioned for further tightening and therefore disppointed.

My best guess is that the markets are all converging around a softlanding scenario for the US economy. And with strong growth in Asia and middling growth out of Europe that should be sufficient that we will not see any nasty shocks in 2007 baring unforeseen geopolitical events. Which is a pity I guess? Some real demand destruction or significantly higher oil prices might have prompted the great washed masses to change their consumption patterns, but instead aspirational Asian consumers are picking up any slack. So with any kind of recovery, we can only expect worldwide demand to explode hence hastening resource depletion.

Of course, if you're leveraged up to your eyeballs and trying to offload one of your houses bought on speculation it might not seem as benign to you personally, but if you're Joe Sixpack or Jane Spender, so long as you're gainfully employed and have your bills under control this will not seem too bad. Heck, with all the problems that GM and Ford are having you might even look at a new car or truck next spring? Party on, Garth. Party on, Wayne.

[MrBill]

Sorry, to those that have been asking about my pronouncements on the dollar going forward. I am still working on my opinion, but I thought this article was particularly interesting today, especially these anonymous comments left at the bottom of the blog. The Internet is truly democratic. Good (and bad) points of view from unexpected quarters help shape our understanding in new and interesting ways. Thanks.

$this->bbcode_second_pass_quote('', ' ')All this illustrates the absurdity of measuring monetary dilution by price indexes. It is an intentional mixing of apples and oranges whose only economic effect is confusion. It's like trying to figure out who won a baseball game by analyzing the crowd noise.

What the CPI was really meant to measure, and what it does measure if it's calculated honestly, is the political impact of monetary mischief. Of course, since the press now reports this number as though it was faxed directly from the Vatican, this has a doubly nifty effect.

The only way to measure "inflation" without mixing fudge factors with actual numbers, which, as I'm sorry to inform people who believe that mathematical economics is a natural science, is considered a mortal sin in every other field of human endeavor, is to look at the change in the exchange rate over time between two economically equivalent commodities. For example, you can make precise statements about the exchange rate between orange juice and yen, or between dollars and sugar, or between gasoline and mold. Then you get an actual number. But of course, this actual number tells you nothing about anything else in the world, nor does it contain information about how it came to be the number it is.

Hopefully no one will inform Chinese savers that they can protect their savings from confiscation by storing them not in yuan, or in real estate, but in mold. I'd hate to see what that would do to the global monetary system. Fortunately, no one in China has access to the Internet, so this disaster may be averted indefinitely.

We now return you to your regularly scheduled mathematical economics.

[cube]

I'd like to restate my position about the 1 day rally from yesterday. When I said, "doesn't mean much" I meant by itself it doesn't mean much but it is still a very important clue once combined with all the other "clues" that get dropped. Much like a murder mystery that has to be solved by adding up all the clues: trading is somewhat the same...okay bad example.

For now it's too early to say much.....until next week

have fun

[MrBill]

Crude is higher as the Royal Navy has been dispatched to deal with a possible [s]terrorist attack [/s](sorry) idealist freedom fighter's liberation of the world's biggest offshore oil facility at Ras Tanura in Saudi Arabia. The mission is in response to intelligence of a possible troubles in the area and involves coalition as well as Saudi and Bahranian forces. Output is apparently not affected.

I like this line of thinking about why a small interest rate decreases are not likely to stop the fall in home values once it gains bearish momentum.
$this->bbcode_second_pass_quote('', 'T')he decline in mortgage rates is deceptive, said High Frequency Economics' Shepherdson, who argues that what really matters to buyers is the real rate, not the nominal one.

The "real rate" means the rate adjusted for inflation. You could adjust it for the increase in the consumer price index, but it makes more sense to adjust it for the change in housing prices.

If housing prices are rising at 10% a year, then a 10% mortgage rate is effectively costless even before tax savings, he says.
Shepherdson figures that real mortgage rates were sharply negative a year ago. When lending rates were at 6% and prices were rising 16% year-over-year, the real rate was negative 10%. Now that prices of existing homes have fallen by more than 2% year-over-year, the real mortgage rate is more than 8%. The turnaround of 18% in real rates dwarfs the half point drop in nominal rates.

"The link between real mortgage rates and home sales is very strong," Shepherdson said. "It screams that home sales will fall much further."
The real mortgage rate is likely to continue to climb as prices fall.

[MrBill]

A central European energy market, onced linked to Germany, the primary supplier of wholesale nat gas from Russia, and then connected to the Nordic's hydro-electric grid will ensure that most of core Europe is able to import and export power according to their base and peak needs. This will smooth the supply side. Now what will be interesting is whether the incumbants can be forced to give up their pricing power and pass those savings along to consumers? Also, a larger, better connected grid makes wind energy more efficient as surplus power can be moved around the grid to where it is needed, while base power supplied by conventional sources are always on and more easily ramped up when power from wind decreases. A distinct problem with wind only or wind as a large percentage on smaller grids. All good moves, just executed with glacial speed.
How much wind power is too much?
$this->bbcode_second_pass_quote('', 'E')urope nears single energy market


Europe on Friday took an important step towards establishing a fully functioning single energy market after three countries agreed to open the European Union’s first multinational electricity exchange.

France, the Netherlands and Belgium on Friday finally backed the Belpex integrated energy market which will aim to offer a single price for power on the wholesale market between the three countries.

Behind the initiative is a concern that the inefficient use of capacity on cross­border electricity links limits the smooth transfer of power between countries and leads to uncertainty about the supply of energy within the EU.

Many EU member states depend on foreign energy supplies, although France with its fleet of nuclear power stations has a certain degree of independence and can even export electricity.

Andre Merlin, head of France’s grid operator RTE, said the establishment of the exchange was “a very important step in European energy integration”.

Although the new exchange will account for just 5-10 per cent of Europe’s daily power trading, plans are under way to extend it to the Scandinavian market in 2008 when an underwater interconnector between Norway and Europe is launched. There are also hopes that Germany, Europe’s biggest economy, will join the project.

Mr Merlin said: “It will be a much more efficient use of the market and, all other conditions being equal, it could even lead to lower prices for some consumers.”

It could also help reduce growing concerns over the state of competition in Europe’s electricity sector.

Some suggest that Belpex could make it more difficult for a power company to “hoard” capacity strategically on electricity transport cables – action that has made it harder for their rivals to operate.

The plans to set up Europe’s first regional integrated power market have been in train for several years and are seen as the first stage in establishing a common European market in energy.

So far attempts to encourage a single market have been held back by a lack of interconnector capacity and the protectionist approach by individual countries on energy policy.

Elia, the Belgian grid, owns 60 per cent of Belpex. Dutch energy exchange APX, French group Power-next, the Dutch transmission system operator TenneT and the French grid company, RTE, each hold 10 per cent.

[MrBill]

A special thanks to my friend Peter for sending me his Elliot Wave counts, which are very bearish crude prices over the medium to long-term.

Please keep in mind this is pure technical analysis that can be applied to any tradeable market, and has nothing to do with fundamental crude supply and demand analysis.

I have a very hard time believing we might yet dip back below $30 to $28.36, but some of his intermediate targets like $52.95 do look more attainable depending on OPEC's ability to maintain production discipline and alternative extra supply coming back on-line from players such as Nigeria who have been under producing due to domestic conflicts or other problems.

$this->bbcode_second_pass_quote('', 'C')rude Oil - Nymex US$ (Dec. 06):

Summary - July's high at 77.95 is seen as completing the entire uptrend that began from the 10.35 low of Dec.'98. The subsequent decline has begun a protracted inter-mediate term downtrend that is ultimately targeted towards 28.36, the fib. 50% retracement level - see fig's #1 & #2. The 152 month/ 12.6yr cycle lows schedules this price level for Aug.'11 +/-. Cutting the 77.95-28.36 decline into two series of 'golden sections' provides targets for intervening support levels - the first at 52.95, the second at 41.75.

Shorter-term, the decline from 77.95 appears to be incomplete, requiring one additional decline below last week's lows of 56.55 before a more substantial counter-trend advance can begin. However, a short-term advance is expected first, with resistance to fib. 38.2% resistance towards 63.75-64.15 before preices falling back inside the range prior to making a decline into lower lows, with targets towards 52.35 - see fig's #3 & 4. This forecast negated upon acceleration above the fib. 50% resistance level of 66.20 +/-.

Scenario #2 - declines from the July highs are unfolding exactly the same as described above - the only difference is that this fall in price is depicted as part of the counter-trend sequence that began from the Aug.'05 high of 70.85. This interpretation would allow oil prices to begin a more sustainable advance following completion at 52.28 with ultimate targets to higher highs, towards 84.17 - see fig #5.

Elliott Wave Count - a five wave impulse decline continues to progress within the July decline from 77.95. There are several fib-price-ratios converging towards 52.95-52.35, the higher calculated by cutting the entire decline for primary wave 4 into a series of 'golden ratios', i.e. 61.8% - see fig's #1 & #2. If the current decline unfolds into a five wave impulse and trades into this initial price level, it would ensure primary wave 4 would eventually subdivide into a double zig zag pattern.

Minor wave iii. is deemed to have completed at 56.55 mainly because of internal wave counting, and the fact that 56.55 is too short to complete intermediate wave (A) basis the measurements calculated within primary wave 4 (unless 4 is calculated to a fib. 38.2% level of 36.00, but then the current decline should have stopped around 58.29).

Minor wave iv. now in progress, with an advance towards fib. 38.2% resistance at 63.75-64.15 - see fig's #3 & #4. It seems that wave iv. four is unfolding as an expanding pattern, either a more conventional exp. flat, 3-3-5, or the basis of a contracting/symmetrical triangle, 3-3-3-3-3.

Alternate Count - this count remains valid and is updated to show minor wave iv. unfolding into an expanding flat within the larger uptrend - see fig #5. Targets also unchanged, towards 52.28.

[MrBill]

The fundamental view via GS, but they tend to be at the most bullish end of the spectrum over the past month or so?
$this->bbcode_second_pass_quote('', 'E')nergy Weekly Commodities

Front-end oil prices join back-end prices in rebound

US oil stats and OPEC production cuts support near-term prices

In the past week, near-term crude oil prices have started to follow long-dated prices that rebounded nearly four weeks ago. Near-term prices were supported by continued strong inventory draws in the US and evidence that some OPEC members are starting to implement the recently announced production cuts as of November 1. However, the inventory overhang in the US still remains large, suggesting that the market may need to see more evidence of the
market cleaning up before such a rebound can form a sustainable upward trend in prices.

Cold weather and strong transportation demand support market clean-up

The combination of extremely strong transportation demand growth (even controlling for the hurricane depressed demand of last year), reduced supply and imports due to significant refinery turnarounds in the US and Europe respectively, and recent cold temperatures that are expected to remain colder-than-normal in the main heating oil regions in the US have continued to reduce the US inventory overhang and will likely continue to do so in coming weeks, forming the basis for a more sustainable rally in oil prices.

US natural gas dodged storage capacity constraints

Due to an early cold snap and an improving underlying supply and demand balance, natural gas inventory builds have slowed tremendously in the past several weeks, allowing the market to finish the summer refill season without breaching storage capacity constraints which are currently around 3.5 Tcf. Not only have we seen a significant strengthening in cash prices relative to the NYMEX, but also in the futures curve time spreads, reflecting a the
potential for a much tighter winter market.

LNG imports into the United States rebounded significantly

Part of the shift in the underlying balance was due to a substantial collapse in LNG imports back in early September. However, with the rebound in prices, LNG imports have also rebounded, likely softening the underlying weather-adjusted balance in coming weeks.

[MrBill]

I am getting ready to leave on vacation for 2 1/2 weeks for some trekking in Nepal in the Himalayas. I am sure looking forward to that, but it means a lot of preparation of budgets for 2007 and other office tasks before I leave.

I am trying to keep my eye on markets, and am a bit distressed about how soft they really are here, not even finding nominal support at $60. Therefore, increasing the chances they will end the year between $50-55 not $60-65 baring unforeseen consequences. That will not be necessarily positive for oil service company or refiners share prices either. Not the price range so many predicted going into 2006 for sure!

Here is some interesting analysis about China's goals in the oil markets. As always, it is such a complex geopolitical issue that this is just one such take on what may happen? However, it has a ring of truth to it at that.

$this->bbcode_second_pass_quote('', 'r')e: China's motivations

1) It is late to the party. Offshore reserves account for a far smaller share of China's oil cos reserves than of Exxon Mobil or Chevron or BP or any other western major.

2) It believes in China, Inc. If you think demand will keep on rising and supply is gonna be constrained relative to demand, buy now ... and I suspect Chinese oil cos have yet to be burned in a big way offshore, so they are not as conservative as the western majors. The Chinese seem to have been the first to raise their expected long-term price for oil .. and thus have been willing to bid a bit more.

3) It is cash rich -- China's problem is finding enough places to invest its dollars, not the other way around (as was noticed). If you are gonna overpay for Treasuries, why not for oil fields?

4) It wants the rent in the middle (as you noted)

5) It doesn't fully trust the western oilcos in the event of a supply disruption ... if oil is really limited, China would prefer to have Chinese cos with the oil, not to rely on Exxon and BP to sell to the highest bidder (relates to 1)

6) It wants oil that the US navy cannot interdict in a crisis (i.e. Kazahk oil + a pipeline, Siberian oil if available -- but not gulf/ african oil)

7) It thinks it can capitalize on the unpopularity of the United sTates' efforts to spread freedom with its vision of respecting the sovereignity of all/ doing business of oil. China, Inc won't lecture sheiks, mullahs or secular dictators on democracy ...

Re: Iraq, I don't think the US has a conscious strategy of keeping the oil rents in dollars. The US position is more or less do what you want -- we are confident we can always attract the financing we need. The US hasn't pushed china to keep its peg (the real constraint on its offshore investment allocation) or pushed the Gulf states to hold dollars. Indeed, it has pushed China to change and the Patriot act has hardly encouraged "onshore" $ flows from the gulf.

But i agree in general with your point about oil rents. I don't think the US worries so much about trading oil rent for euros rather than dollars. But it doesn't want folks in the gulf -- whether Iran, Iraq or S. Arabia -- trade oil rents for nukes. Alas, its strategy in Iraq provided helped supply Iran with the means (more oil profits) and the incentive (if you are part of the axs of evil, better to have a nuke than not) to accelerate its nuclear program ... or so it seems.

Incidentally, the Shadid account of Baghdad (one of the links) is devastating -- it is amazing and sad that the US could preside over Baghdad's descent into living hell, as the lawless capital of what sure looks like a failed state.

Written by bsetser on 2006-10-29 16:10:29

[MrBill]

Back from almost 3-weeks in Nepal trekking in the Himalayas. Great eye opening experience, especially as seen through the lens of peak oil related issues of resource depletion and other trends. But also power down scenarios that do not include chaos or indeed the end of civilizations. Still ruminating on some aspects of my trip, but hope to write something coherent soon while it is still all fresh in my mind.

Nothing much has changed since I have been away. Crude briefly touched the $55 area on the expiry of the DEC futures month, but has since recovered to $60. Think it is fairly likely now that we will end the year in this range. $55-65 or clustered around $60 for lack of new and interesting inputs. Extreme cold weather aside. Certainly the prospect of subdued energy prices and the likelihood of lower interest rates in the US has buoyed stock markets. Also, still in a downward tailspin, housing starts are lower, but expectations for the future are improving. Leading indicators point to slow growth in 2007, but the chances of a full-blown recession or hardlanding are dissipating.

The dollar is still stuck in a very narrow trading band. 2006 was not the year the world lost faith in the value of the dollar. Perhaps due to lack of alternatives? However, the prospect of up to two interest rate cuts in 2007 by the FED plus persistantly high core inflation, despite energy prices falling as of late, mean that the dollar will continue to lose some of the interest differential advantage it has enjoyed against the eurozone. And therefore the dollar downtrend should continue to poke against the $1.3000 resistance of the $1.2000-1.3000 range that we have (mostly) been in during the past 12-months.

Sterling has been a beneficiary of dollar weakness and M&A activity in the UK is driving further inward investment related FDI over Continental Europe where national government gerrymandering to promote state interests over EU wide energy efficiency mean that once again EU countries are missing a golden opportunity to deal with structural problems in favor of shortsighted political fixes at the expense of long-term growth.

My pick for 2007? Well, political change and corporate governance issues aside I still favor Russia for the energy and resource sectors as well as positive budget and trade surpluses. This should continue to exert upwards pressure on the ruble to revaluate. The same might be said for Canada, but unfortunately a stronger Loonie works against Canada's manufacturing sector that exports mainly to the USA. Russia has far fewer non-resource based exports, exports mainly to the Europe as well as fast growing Asia, and the domestic economy is also poised to expand 6-7% per year of its own accord.

$this->bbcode_second_pass_quote('', ' ') Russia's economics minister discussed the medium-term future of the economy at a news conference Tuesday, focusing on plans for an oil exchange, changes to the domestic gas price, inflation, and import regulations.

German Gref said exchange-based oil trading in Russia will be launched in 2007.

"Next year, the exchange will be launched. I think it will contain the whole range of products - both dark and light oil products," he said.

Russian President Vladimir Putin suggested setting up an oil and oil product exchange in St. Petersburg at a meeting with the city's governor in early October.

"I believe that it would be a landmark event for the whole of Russia and for St. Petersburg," the president said.

[cube]

good to have you back Mr. Bill

*you definitely did NOT miss out on anything*

This downtrend in crude has caught me off-guard and I know I can't be the only one. I'm just waiting for it to show signs of a bottom / sideways trend...before even thinking about a long position. I'm guessing a downtrend of this duration probably happens only once every 10 years.

Is there going to be a year end rally or am I going to have to *gasp* wait for next year?

until next week