[MrBill]

$this->bbcode_second_pass_quote('cube', 'g')ood 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

[drew]

Hey Mr Bill, welcome back. I bet the Himilayas were awesome. A firefighter freind went there some years ago, and brought back lots of tales. I'm sure your adventure was great.

Anyways, trading wise, I have done nothing for months on end. One trade in fact. Good thing my patience has been paying off, since the TSX is trading very high of late. Of course, my stuff happens to be doing well too.

Just for the record, it has been two years to the month that I have beem actively trading. With not knowing what I am doing, I've done alright. If you count the little bit of cash we needed to take out from our portfolio, our gains were 26% per year. Removing that spent money, our returns have averaged 22% per annum.

Of course had I got out of Cameco before the flood I'd be even happier! Despite this, I can say that I'd be hard pressed to ever put my money back in mutuals.

Drew

[MrBill]

$this->bbcode_second_pass_quote('drew', 'H')ey Mr Bill, welcome back. I bet the Himilayas were awesome. A firefighter freind went there some years ago, and brought back lots of tales. I'm sure your adventure was great.

Anyways, trading wise, I have done nothing for months on end. One trade in fact. Good thing my patience has been paying off, since the TSX is trading very high of late. Of course, my stuff happens to be doing well too.

Just for the record, it has been two years to the month that I have beem actively trading. With not knowing what I am doing, I've done alright. If you count the little bit of cash we needed to take out from our portfolio, our gains were 26% per year. Removing that spent money, our returns have averaged 22% per annum.

Of course had I got out of Cameco before the flood I'd be even happier! Despite this, I can say that I'd be hard pressed to ever put my money back in mutuals.

Drew

[MrBill]

Quiet days, tough decisions. It is either write about markets that are not moving or buckle down and study my Russian lessons? A few quick words to the former before the latter.

This week's DOE inventory stocks numbers out on WEDS, NOV 29th should show another increase in inventories according to Bloomberg. This should help offset colder weather temperatures forecast across much of N.America in the next week.

Crude f/c +1.05 mio to 342.6 mio bbls +14% vs 5 yr ave
Distillates f/c +550k to 134.3 mio bbls +4.2% vs 5 yr ave
Gasoline f/c +1 bbls to 202.7 mio bbls vs +1.406 mio last week
Refinery utilization +0.8% to 88.9% as refiners come back from maintenance ahead of winter demand
As for winter NE USA heating oil demand seen -31% vs seasonal averages
Imports 10.5 mbpd unch'd from last week

Higher crude and products imports helping offset higher demand.
But interesting to note that 342.6 mio bbls stocks compares with a yearly high of 347 mio bbls on 06/16/06 and a yearly low of 319 mio bbls on 01/06/06, so a swing factor of less than 10% in inventory despite huge swings in the price based on the geopolitical risks.

Crack spreads are hovering between $9.22 and $10.31 per barrel, so rather in attractive territory for refiners, but nowhere near their previous highs (or lows). Nat gas prices have inched up in response to the colder weather. The DEC is $8.02 while the JAN futures are $8.37.

The USD is still under pressure against the euro trading near $1.3150 today which has been adding support to precious and base metals and grains. The 10-yr UST is yielding 4.54% so little change. The S&P energy index is basically unchanged at 438-440, but has suffered a few weaker days in response to overall stock prices, despite a multi-day rally in crude prices.

Now in the last week of NOV the outlook for year-end is becoming clearer. Based on standard deviations from the 21-day moving average we can expect the following year end prices for WTI crude:

$59.79-61.75 with 68% confidence
$58.80-62.72 with 95% confidence
$57.83-63.71 with 99.7% confidence
fat tails not withstanding! ; - )

Cheers.

UPDATE: Did not want to hijack Aaron's post on peak oil in a paragraph, but this article touches on the last post by DEN from Australia. Will post it here in case anyone is interested? Thanks.

$this->bbcode_second_pass_quote('', 'T')he colossal cost of fixing crumbling water infrastructure in the developed world has opened the door to government privatization.

Water delivery systems in the industrial world are in “dire need” of repair, says a report released Monday by CIBC World Markets Inc. At least one-fifth of America's municipal wastewater treatment facilities do not comply with federal regulations and in some U.S. cities, more than half of the water headed to consumers is lost along the way.

CIBC economist Benjamin Tal, author of the “Tapping into Water” report, estimates it will take “hundreds of billions of dollars” to fix dated water infrastructure in North America and Europe.

[MrBill]

Not a particular fan of Minyanville, but never the less I try to read everything possible to shed light on the precarious balancing act between 'asset class inflation' and 'dollar devaluation'. I have ignored money supply and asset class inflation to my peril, so I am loathe to be caught napping a second time by low inflation readings.

If we do not head into a 2007 recession that cuts world demand, but instead see lower US interest rates then I think it is a pretty strong case to argue that we will see exactly the same type of asset price inflation that we have seen in this latest bull rally from commodities through real estate to emerging markets repeating itself.

$this->bbcode_second_pass_quote('', 'T')here's no grand conspiracy here. There is inflation -- in things we need, such as energy, healthcare and education -- but there is also deflation, in commoditized products such as laptops, cell phones and plasma televisions.

But that's not really the point of this column. We all know that there are massive imbalances percolating under the seemingly calm financial surface. The question, from a capital preservation and profitability standpoint, is when and how they will manifest.
The answer is simple. They will "matter" when the price action dictates they do. And that will occur, in my estimation, when the chasm bridges between perception and reality.

I've long offered that we will toggle between "asset class inflation" and "dollar devaluation" and, as such, equity gains must be accompanied by slippage in the greenback (as has been the case for the last five years). But while slippage in the greenback has been stealthy in the eyes of most Americans, you can be sure that it hasn't gone unnoticed abroad.

Chatter continues to circulate that debasement (away from the dollar) is inevitable -- whether it's Hong Kong pegging to the Renminbi, the Middle East flipping to the euro or China and India diversifying into gold. As a trader, I've always hated invisible catalysts but as an investor, there is a clear utility in recognizing these secular risks.

[MrBill]

Afternoon update. Wow, an unexpected drop in inventories combined with stronger than expected demand has caused crude futures to jump $1+ per barrel lead by gains in the heating oil segment. The summary of the numbers is:

crude -300k to 340.8 mio bbls
gasoline -600k to 201.1 mio bbls
distillates -1 mio to 132.8 mio bbls
heating oil stocks -1.1 mio to 59.1 mio bbls
refinery runs +1% to 88.1%

crude imports -732k to 9.76 mbpd
product imports -197k to 3 mbpd

gasoline demand +1.2% to 9.21 mbpd
distillate demand +7.1% to 4.35 mbpd (prediction way off)
total demand +2% to 20.97 mbpd

This adds to the technical picture that is looking increasingly bullish with strong intraday gains, and an hourly chart that is staying well bid above 13- and 21-day moving averages. Daily support will run into weekly resistance above here in the $66 area in the WTI if we can hold gains above $61. Definately need to stay above $59 in any case if there is any hope for this rally to be the real McCoy and not just some seasonal short covering. But quite a reversal in the data from last week. Next week, regression to seasonal means?

[Concerned]

The volatility in the oil market is amazing. It looks like it could end the year from anywhere close to the $70.00 bbl mark to as low as $50-$55. Quite a variance IMO.

[cube]

$this->bbcode_second_pass_quote('Concerned', 'T')he volatility in the oil market is amazing.....

[MrBill]

When I was trading forex in the 1980-90's we saw some good volatility. I went to lunch one time and came back and the dollar had dropped 7 pfennings (700 pts.) against the deutschmark. During the ERM crisis in 1993-94 we also saw some brutal moves in the Club Med currencies against the deutschmark. Especially, Italian lira and Sterling, but other peripheral currencies that could not hold their artificial pegs as well.

The Asian crisis also provided some interesting currency trading chances. But I have also survived a mini-Czech koruna crisis and, of course, also the Russian crisis when I was trading Ukraine hryvnia and tbills. At one point we bought tbills with a yield to maturity of 3000% p.a.. Probably the single best trade of my life? Someone else's pain was my gain.

But all cautionary lessons about what could happen? And what can happen usually does at some point. Something else to keep in mind. I have not seen that volatility in crude, but I have not been trading it that long? However, looking at the nat gas futures is a cautionary tale about risk versus reward.

A lot of young traders as well as new investors get unlucky and start to make money right away. This leads to a false sense of security that they know what is going on and are smarter than the market. Like Brian Hunter at Amaranth that is usually their downfall. Only when we lose our hard earned money do we start to question what we think we know and we become a whole lot more conservative. Any trader that makes one billion dollars in one year has to be taking large risks. And risk means exactly that.

[cube]

$this->bbcode_second_pass_quote('MrBill', 'W')hen I was trading forex in the 1980-90's we saw some good volatility. I went to lunch one time and came back and the dollar had dropped 7 pfennings (700 pts.) against the deutschmark. During the ERM crisis in 1993-94 we also saw some brutal moves in the Club Med currencies against the deutschmark. Especially, Italian lira and Sterling, but other peripheral currencies that could not hold their artificial pegs as well.
.....

[drew]

$this->bbcode_second_pass_quote('MrBill', 'A') lot of young traders as well as new investors get unlucky and start to make money right away. This leads to a false sense of security that they know what is going on and are smarter than the market.

[MrBill]

Cube, I had to edit yours and my posts. I should have said 7 pfennings (700 pts.) not 700 pfennings. Glad no one called bullshi'te on me? ; - )

In any case, there is a fine line between good trading and greed. Right now I am wondering where exactly that line is? The S&P Energy Index has exploded taking out the previous high at 452, and is now touching 472 after bouncing from 384 when crude tanked to $55. What to do, what to do?

Put another way, some benchmark stocks like XOM are now above their 2 standard deviations above their 21-day moving average and are almost at 3 stdv. That is normally a screaming sell signal as it gets into overbought territory and is susceptable to a correction. At least a sign to take some profits if not actually short it?

The problem is, for me at least, that I see a lot of support for crude prices, and therefore oil company earnings, going forward on the back of a weaker US dollar making commodities, energy and base metals less expensive (or not as expensive) in euros, yen and yuan. Even though there is more supply coming onto the market in 2007, eroding some refining margins, so I expect extra demand from Europe and especially Asia.

Looking at stock market gains the market seems to be pricing in a soft-landing in the USA, and one year LIBOR rates at 5.10% seem to indicate some easing from the FED to accomodate that light touchdown? That may be way too optimistic, but you have to read the tea leaves as they are. Of course, that slower growth combined with America's fiscal and trade imbalances along with narrower interest rate differentials viz a vie the eurozone is not going to support any kind of US dollar rally either. I think a re-test of the $1.3600 area is just a matter of time in the run-up to year-end or early in Q1'07.

OPEC members seem determined to defend higher oil prices in order to clawback some of those currency losses stemming from dollar sales in order to finance a lifestyle built on imports from Europe. Who can blame them? Manmade islands cost real money to build and to maintain. University tuition fees and living costs for their children in the UK are not getting any cheaper in Sterling either.

I think this adds up to stronger oil prices, despite adequate supplies, on managed sales, so long as members do not cheat on their quotas. I assume a weak dollar scenario in 2007, and hope refining margins do not collapse from current $10 per barrel levels. I am guessing that any dollar weakness in excess of $1.4000 will be met with European Min Fin/ECB/political intervention before it breaches the very psychological $1.5000. Especially if Sterling and the euro are bearing the brunt of all the dollar weakness while the Chinese and Japanese manipulate their own currencies to maintain their export competitiveness.

I cannot see European apathy under such circumstances as their domestic growth is not that robust that they can suck up such extreme moves in the external value of the euro. Again especially against export competitors such as China and Japan that have the ability to displace European exports abroad as well as substitute inter-member trade with cheap imports from Asia into the EU. Italy, Europe's weakest link, is already suffering from import competition from China in its manufacturing sectors like textiles, and I do not think that France is prepared to go the same route willingly? Think Airbus.

So that leads me back to oil companies and their share prices. It would be prudent to lock-in gains now that they are in overbought territory, but for the reasons outlined above this trend may extend into 2007 as the dollar weakens. From a technical perspective one should at least sell 50% of the long position, and look to add those shares back on a dip should OPEC fail to agree to production cuts and honor them. No one ever went broke by taking a profit, but as Charlie Daniels might put it, "He was in a bind 'cause he was way behind. And he was willing to make a deal."

[MrBill]

Up, down, and then sideways. That was the market's reaction to yesterday's release of DOE inventory figures. A summary of the numbers is:

crude -1.1 mio to 339.7 mio bbls
gasoline -1.1 mio to 200 mio bbls
distillates -400k to 132.4 mio bbls
heating oil -1.5 mio to 57.6 mio bbls

which you have to admit looks like draws across the board or not? supply and demand numbers were no better...

refinery use rose 2.4% to 90.5%
gasoline demand up 1.6% to 9.26 mbpd
distillate demand (diesel & heating oil) +6.6% to 4.33 mbpd
total demand increased 1.7% to 20.98 mbpd

so much for higher prices curbing demand?

the only nugget of negative news was that imports also climbed 541k to 10.3 mbpd
while product imports dropped slightly by 81k to 2.92 mbpd

hence the market's first reaction, which was to rally on an apparent drop in inventories in the face of strong demand. however, the rally was short-lived and forecasts of above average temperatures eventually won over the day, and the market settled back into a tight range, down somewhat on the week, but not totally erasing the gains of last week's strong move up.

technically we need to stay above $60.40 in the WTI to keep the bulls happy and resistance is quite strong at $64.80. with refining margins slipping under $10 per barrel and mild weather in the forecast there is a tangible risk that we might also grind lower until next week's inventory data either confirms a consistant drawdown in stocks and/or the weather turns noticably colder?

on the calendar is the OPEC meeting starting tomorrow. we already know the hawks are sharpening their talons and favor deeper, longer lasting cuts to output, but let's face it, so far this band of brothers have only delivered about 500k bpd of their planned 1.2 mbpd reduction in production. they will have to follow through with some enforcement amoung their members or risk losing what little credibility they still retain with the market. especially as Russia is gung-ho to produce and export as much goo as they can and are still signalling growing exports for the balance of 2006 and into 2007. their spigots are stuck open wide to fill any shortfalls from potential shortfalls elsewhere. its a bummer when observer status does not translate into towing the OPEC party line.

but what I really wanted to talk about is currency manipulators, and you know who you are? that is right, you China. and yes, you too Japan. shame, shame, shame. did you really expect you could shift the burden of the world from the America to Europe while you go merrily on exporting your way to prosperity? well, so far so good, so I guess I cannot blame you for trying?

however, with the EURJPY hitting 154.18 yen and EURCNY touching 10.4725 yuan, I guess sooner or later your trading partners, and not just the US, eh, are going to start to protest.

what do BRIC countries all have in common? that's right, they are all growing quickly. one good reason is that they do not feel obliged to play by any rules and can pretty much do as they like with impunity. WTO is a toothless dragon as we all know. your sanctions will just lead to my sanctions, and by the time the paper pushers in geneva figure out who's lying your industry will be dying, so why bother? environmental standards are for chumps. who cares what kind of degradation we create, so long as we grow quickly? its the jobs first, at any cost, economic policy. but investors love us, so who's going to change?

India. man you have to love their sense of humor. they proposed capping oil prices because high energy prices are bad for growth and eventually would hurt producers as well if countries like India did not keep growing quickly lifting millions out of poverty. that would be great if we were not talking about finite resources. but we are. all those millions, because using the word billions sounds like I am exagerating, extra workers and consumers producing stuff so that India can grow quickly are using up other stuff, like commodities, base metals and energy, which surprise, surprise is making them more expensive.

but India, with all their trained university graduates, some of the best in the world, still has policy makers stuck in the socialist-interventionist 60s when Calcutta was a byword for abject poverty and also a poster child for UNICEF because if I have to see flies on one more crying baby I am going to puke my snap, crackle and pops all over the breakfast table. so what do they do instead? yes, that is right, in order to ration demand and make sure energy is not wasted, they have decided once again to lower retail prices for gasoline and diesel in India, subsidized by taxpayers, but as they do not collect many taxes, ultimately by debt taken on by the state and flogged to western investors who are buying into that whole BRIC story.

and how will it end? yes, India will still be poor, despite pockets of excellence, and armchair liberals in the west, probably logged onto their laptops right now, surfing the cyber world on the look-out for social injustices, will tell us, or at least someone, twenty years from now that India is poor, not because of over-population and bad policy choices made today, like subsidizing energy, almost guaranteeing it will be wasted, but because greedy western investors with the help of the IMF and World Bank (never blame the ADB) trapped India in a downward cycle of poverty because oil is priced in dollars.

nevermind that oil producers think the dollar is too weak, and Iran wants supply contracts in euros, apparently this weak dollar thing is bad for consumers as well? yes, that is right. somehow a weak dollar ends up costing oil importing countries more money and making their dollar debt more expensive to service? don't ask me, I am not a trained economist, and I do not even play one on the internet, but that is the standard line of argument in the ethernet. dollar hegemony is the root of all evil. not consumption. not excessive debt. not over-population. but something called a washington consensus. neo-cons, when they are not too busy fighting foreign wars, have explicitly told countries like India to waste money on nuclear warheads. while subsidizing energy imports, and hoping against hope, that this will somehow result in better allocation those scarce resources, that this desperately poor country needs to lift millions out of poverty, and at the same time cut their reliance on expensive imports of foreign oil. no wonder your average villager decides to plow this year's surplus earnings from a good harvest into gold jewelry.

here is a game you can play at home. its called blame the market. take on more debt than you can ever hope to repay. live beyond your means by extremes. promise your wife and kids that everything is fine, so there is no reason to plan or save for the future because things will always get better. then when it does not happen. blame the market. your friends will enjoy playing this game as well. it is easy to learn and fun for the whole family.

now pretend you're a government and not just a plain, ordinary household. you get to make all the rules and pass as many laws as you want. no one can stop you. not even the UN! let's see them try to stamp all over your sovereign state? HAHA! you're the boss of your country. now run it like you did your household. tax and spend. or better yet, spend and borrow. then there is no pain. by no one. you'll be popular. don't listen to anyone who says otherwise.

always justify your decisions by repeating the following mantra, we need to tax, spend and borrow because it is lifting millions of people out of poverty. or if you're not yet a poor country, you might try justifying every decision by saying, we're a rich country and we can afford all these programs. of course, we do not want to pay for them, so that is why we borrow the difference.

now remember. you made all the decisions and all the rules and laws to enforce those decisions. so if it all blows up in your face, look surprised at these unforeseen events, and repeat after me, its all the markets fault! HEHE. Isn't that easy? And fun, too.

but you do not want to drone on and bore your audience all day long, so occasionally you'll need to spice up your speeches with a little variety on the its the markets fault spiel. for that you can borrow a page, its okay, I asked him already, from our socialist friend, Fidel Castro. blame the US, eh, instead. or both. if you don't believe this can work, then you do not really understand the blame game, yet. for proof that this is a perfect strategy just ask Chavez. why he is looting his country right now, stuffing his and his cronies pockets full with illgotten gains from unaccounted for oil & gas revenues, and all along he is proclaiming, loud enough to distract even the most ardent public auditor of the state's finances, that it is America's fault! and only, he, Chavez, can lead a bolivar revolution to stop those neo-con bullies and their washington consensus.

and the people believe him. afterall after more than seven years in power, he has delivered a few hundred million dollars in basic services that you might expect from a government. nevermind the revenue from that lost one million barrels per day that is in a slush fund directly controlled by Chavez, and not in the central bank, where one might see it and count it? let's see, math was never my strong point, but $60 per barrel, less production costs, let's round it down to $30, multiplied by one million, by 365 days, and then again by seven years is how much again? I give up, but it must be at least a few hundred million give or take? where did the dough go, Hugo? and they say, don't cry for me Argentina! I guess not, when taxpayers in Venezuela have to foot the bill to buy defaulted Argentenian bonds just to piss off uncle sam and prove that latinos are masters of their own house.

of course, this is a never ending story, so expect those same armchair liberals who are moaning and complaining about India being in the shitter due to IMF, World Bank, dollar hegemony and greedy western investors to also cast their penetrating gaze southwards, past that north-south divide, not just east-west anymore, and see that despite being an oil exporter that venezuela is also a victim of the market.

yes, that amazing, maleable market, it can be made to fit any crisis you can create. just use your imagination. if man had not found a use for petroleum then we would not have all these problems. and afterall man only bothered to find a use for petroleum, which was safely buried in the ground and under the sea, because, duh, the market demanded it. there was an unmet need for cheap, plentiful energy, and the market was there to fill-it.

but don't worry, there is no problem that the market can create, that an even bigger government cannot solve. just ask india? we can pass laws to penalize any company that successfully finds more petroleum, while capping prices to make sure everyone has access to cheap, plentiful energy, to support growth, to lift millions out of poverty. well, that and by manipulating our currencies so that everyone grows faster than average and becomes richer than the next country. stupid market anyway! you're no match for big government.

[cube]

$this->bbcode_second_pass_quote('MrBill', '.')..
but what I really wanted to talk about is currency manipulators, and you know who you are? that is right, you China. and yes, you too Japan. shame, shame, shame.
...

[drew]

Wow, I can't really trump that at all can I? My rant is slightly less magnificent! It is good to take a profit, but as you've said, Mr Bill, its 50/50 as to what a stock will do next. So I place my order to sell cibc, and hear on the news later that it is the market leader for the day. Record quarter, record year....

Oh well, I would have made another 150 bucks....

No biggie...

Let's hope it stops going up!

Drew

[MrBill]

Hmm, apparently ML takes a dimmer view of refining margins than I had allowed for? Mind you I missed their downgrading the refining sector as well? No worries, seems we have settled into a narrower range with a tendency to over react to whatever latest headline comes out next? Good luck and have a nice weekend. Cheers.

$this->bbcode_second_pass_quote('', ' ')
Adjusting '06 & '07 earnings on weaker margins & currency

Whilst our expectations of a weaker refining margin environment in 4Q06 (accounting for our sector downgrade in September) have no doubt materialised, the pull back has been somewhat more pronounced than we had been forecasting. QTD, European refining margins have averaged c.20% below our forecasts and continue to display a weakening trend (NW European margins were below US$2/bbl by Wednesday close). As such, we are lowering our 4Q06 NW European refining margin estimates from US$5/bbl to US$3.5/bbl (-30%) and our Mediterranean margin estimates from US$7.6/bbl to US$6.3/bbl (-18%). Our 2007 forecasts remained unchanged. Additionally, we have adjusted our forecasts for the updated ML views on the weakening US dollar. All in, these changes have lowered our 2006 & '07 EPS estimates by 3% and 4% respectively (excluding MOL, PKN and Hellenic in 2006).

Earnings risk remains in the near term

The recent downward trend in refining margins, whilst pronounced, has not been replicated in the performance of the European refiners. Specifically, the European refiners have enjoyed an average 7% improvement since early October whilst European refining margins have fallen by approximately 60% over the same period. Furthermore, we believe 2006 consensus earnings estimates have yet to fully reflect the current margin weakness. Indeed our new '06 forecasts lie (on average) 6% below Reuters consensus for the Western European refiners, with only one quarter left in the year. With the seasonal weakness in refining margins now materialising (especially as January and February approach), we believe there are growing risks of a short term correction within the European refining space.

Global margins down 22% as diesel and gasoline weaken

Global refining margins posted a 22% drop this week as gasoline and diesel crack spreads contracted heavily. The pull back was most pronounced in the US and Asian markets, where margins fell 22% and 27% respectively as supply availability improved on the back of higher refinery utilisation rates. In Europe a similar trend was observed as average margins fell 5% on the week; with diesel margins accounting for most of the weakness. With European gasoline margins now testing seasonal lows as demand subsides, diesel margins displaying a bout of unexpected weakness on forecasts of warmer weather in the US and refinery utilisation rates on the up (especially in the US markets) we expect refining margins to remain seasonably weak in the near term.

[MrBill]

$this->bbcode_second_pass_quote('drew', 'W')ow, I can't really trump that at all can I? My rant is slightly less magnificent! It is good to take a profit, but as you've said, Mr Bill, its 50/50 as to what a stock will do next. So I place my order to sell cibc, and hear on the news later that it is the market leader for the day. Record quarter, record year....

Oh well, I would have made another 150 bucks....

No biggie...

Let's hope it stops going up!

Drew

[MrBill]

Eulogy for a ruthless Dictator

$this->bbcode_second_pass_quote('', 'G')en. Augusto Pinochet Ugarte, the brutal dictator who repressed and reshaped Chile for nearly two decades and became a notorious symbol of human rights abuse and corruption, died yesterday at the Military Hospital of Santiago. He was 91.

[MrBill]

My 'is this another Yukos' fear-o-meter is starting to flicker like a geiger-mueller in a sushi restaurant that comes across traces of polonium 210. Russian equities are booming, up 63% so far in 2006 despite a nasty fall-out bug in June, but such nationalization rumors, especially under duress can none the less give money managers pause to re-evaluate.

$this->bbcode_second_pass_quote('', 'A')ccording to the paper’s information, the first item on the government agenda is a careful inspection of all licenses previously issued for the development of shelf fields. The authorities will also review the extent to which the operators of those projects are following the conditions of their licenses. The main operators in question are the foreign owners of licenses for projects on Sakhalin Island where extraction has already begun. Rosneft, for example, holds only a 20 percent stake in the Sakhalin-1 project: the rest of the shares are owned by ExxonMobil (USA), ONGC (India), and Sodeco (Japan). The operator of the Sakhalin-2 project is Shell (55 percent); no Russian companies are involved in that project at all. All of the operators of these projects are now being warned that their extraction of oil and gas from the shelf is not compatible with Russia’s national interests.

[MrBill]

US crude stockpiles down as imports slump according to this afternoon's EIA/DOE inventory numbers. A summary is as follows:

crude down 4.3 mio to 335.4 mio bbls which has quite a lot larger than expected
gasoline down 100k to 199.9 mio bbls
distillates down 500k to 131.9 mio bbls
heating oil down 700k to 56.9 mio bbls despite warm weather

imports dropped 701k to 9.6 mbpd which is much larger than expected
product imports down 401k to 3.32 mbpd as well

refiners cut output by 1.4% to 89.1%

gasoline demand was up 1.9% to 9.34 mbpd
distillate demand incl. heating oil and diesel was up 3.0% to 4.26 mbpd
total demand increased 0.7% to 20.99 mbpd

basically the price of crude bounced off of unexpected low imports against higher demand, but from a low base, as uncertainty over OPEC cuts is harming the bullish picture. Also no immediate support from a slightly stronger dollar at $1.3200 against the euro that also helped erode upwards momentum in base and precious metals. PMs are down about 1.5% while bases are down between 1% and 3.5%.

a tale of two yield curves may shed some light on the EUR/USD? or if you're like me, it just confuses me more?

USD--------------------------EUR------------------------I/R DIFF
1 mos. LIBOR 5.35%----- 1 mos. EURIBOR 3.90%------ 1.31%
1 YR LIBOR 5.21%---------1 YR EURIBOR 3.65%--------- 1.70%
10 YR UST 4.54%----------10 YR Bunds 3.98%----------- 0.56%
Yield curve (0.81%)--------yield curve flat +0.08%-----(0.75%)

The US yield curve seems to be pricing in a cut in FED funds this year, while the ECB is seen as doing nothing, at least according to money market traders. As a foreign exchange trader your short-term cost of funds favors a long USD position +1.31%, but for bond traders that yield pick-up evaporates to next to nothing +0.56% for holding benchmark US bonds. Likely not enough to compensate you for the currency risk stemming from the US' twin deficits and large funding needs.

Also the inverted yield curve still signals the risk of a slowdown in 2007 even if the chances of an out and out recession may be fading somewhat? MBA mortgage applications jumped 11.4%. No one is expecting a quick turn around in the housing market in 2007, but some are talking about 2008/09 for a bounce? Hmm, that is a long time... I would sooner wait until the data supports a recovery story.

In the meantime, the slower growth story and mild weather is bound to keep a lid on energy and metals prices, so long as the dollar does not drop out of bed. Stayed tuned. Cheers.

p.s. JAN Brent and WTI now trading at PAR once again. Yes, missed the chance to buy cheap WTI and sell expensive Brent once again! But the forwards have really moved into the left indicating a tighter supply scenario than was being discounted early in the month. From contango to backwardation? It would have to come from the products first.