By Julian Murdoch

It's all over the headlines: T. Boone Pickens' huge wind farm has been scrapped - or at least postponed. After warning last year that he was having difficulty securing financing for the project, and was terminating land leases in March, this week's announcement isn't a huge shock, but it does bring up some things to think about, and for Pickens' detractors, an opportunity for schadenfreude. After all, Pickens reportedly spent nearly $60 million last fall just advertising how awesome his plan was.

UBS has increased its forecasts for WTI crude from US$51 per barrel to US$58.25 for 2009 and from US$58 to US$70 for 2010. Second quarter prices came in roughly US$10 higher than its forecast.

UBS expects oil will trade in the middle to upper part of the US$50 to US$75 range on declining inventories in the second half of this year and into next. It also sees a weakening U.S. dollar in 2010-2011 and the market’s apparent willingness for greater risk appetite driving crude prices.

Oil prices have behaved erratically over the past two years, you may have noticed. After increasing steadily for most of the decade, prices rose dramatically in 2007, and then really dramatically in 2008. The 2008 spike could have been due to a speculative bubble, or it might have signalled a move past a critical point in the market, at which supply suddenly became more inelastic. Then the recession arrived and global demand collapsed; so, too, did oil prices. While the global economy continued to shrink, however, prices began rising again; as of last month, oil was more than twice as costly as at its recession low.

What was behind that move? Could have been expectations of imminent recovery for the economy and renewed demand. Could have been expectations of rigid supply, given the collapse in investment and exploration that accompanied the recession. Could have been a reaction to low interest rates, which made storage of oil attractive (contango!). Could have been speculation. Paul Krugman writes:

U.S. markets continue to move lower, as investors are re-valuing the state of the global economy. Earlier in the day, the European and the Asian markets also closed in the red.

The major U.S. indexes have reached the lowed value since late April on Wednesday, as investors continue to pull out of the cash equity markets. During the early U.S. session, the S&P futures managed to break below the 877.00 area, which has held the index since May 1. Investors remained in short mode until the S&P futures tested the 865.00 area, which represents the main resistance area for the month of April. Back then, the market needed almost two weeks to break above this swing point.

I was pretty bummed out yesterday after hearing that T. Boone Pickens would be canceling his 4 GW wind farm project. Not so much because that beautiful 4 GW wind farm won't be built in Sweetwater, TX – but because this little piece of news is likely to serve as an excellent opportunity for renewable energy naysayers to leave a fresh trail of misinformation about the wind energy industry.

It's already plastered all over message boards and blogs.

My column in Tuesday's Houston Chronicle on the proposed restrictions on energy trading by the Commodities Futures Trading Commission focused on the important role of speculation in the markets and the potential loss of liquidity that the new restrictions could bring. I also discussed the growing role of exchange-traded funds in augmenting speculative trading.

The Oil Drum's Nate Hagens goes a little farther, arguing that last year's price spike in crude wasn't a speculative bubble, but the result of a widening disconnect between financial instruments and real assets. In other words, the bigger problem has been too much money chasing too few resources.

Oil has plunged a little more than $13 over the last seven days of trading, making it the strongest pull-back the commodity markets has seen so far this year. Much of the downside action came as clear signs emerged that the global economy is not in the shape the market believed it was.

Crude oil has a tight connection with the global business cycle, as it is used as world’s main source of energy, and business expansion is reflected in the speculative interest in crude trade. Investors gauge the world growth rate to forecast oil consumption, and based on that determine a potential price for the raw material.

The 1,679 mile, $4.4 billion Rockies Express pipeline, or REX, is providing about 1.5 billion cubic feet per day (bcf/d) of cheap gas from the Rockies through the Midwest to Ohio. The latest section of REX just opened June 29 (www.rexpipeline.com).

Quick Technical Analysis - The Dow spent early June distributing along 8,800, which gave plenty of time to put on short positions with tight stops. The key chart trigger was the lower high at 8,600 which targeted a break of 8,200. The pattern size is 400 points which projects to 7,800 before the next expected bounce. The overall pattern size is about 650 which projects to 8,200 minus 650 = 7,550, which is pretty close to the original projection of April 26th for the target for the Correction AFTER the peak around 8,750. The chart is also showing an head and shoulders price pattern witch the same measuring move.

With their article in yesterday's WSJ, Gordon Brown and Nicolas Sarkozy launched an effort by major governments to do away with volatile oil prices. They think a handful of smart government types "should take the lead in establishing a common long-term view on what price range would be consistent with the fundamentals." This is the ultimate in hubris: to think that a select few bureaucrats can know more about the oil market than the billions of people (aka "the market") who produce and consume the stuff.

One likely target along the way will be to limit the size of speculators' positions in oil futures. What these supposedly smart people ignore is the obvious fact that producers can be speculators too. If producers think prices are going up, they can simply shut down production and let the oil sit in the ground. Speculators are already limited in their ability to stockpile oil, because above-ground storage capacity can't come close to what is underground already. And of course if producers think prices are going down they can simply pump more, again overwhelming speculative activity in the futures markets.

On July 7 the CFTC announced they would be holding hearings (aka time to get the lobbying machine cranked up to 11) to determine the new regulatory regime of the futures market.

Aggregate Position Limits and Review of Hedge Exemptions for Energy Futures Markets

Humanity crossed a threshold in 2007 when for the first time in history a majority of people became city dwellers. But if you read such books as the terrific Planet of Slums, by Mike Davis (City of Quartz), you’ll know that the composition of this migration has guided urbanizing populations not to modernity, but to squalor, high densities, and trash.

This is why it’s rather absurd for many to carelessly assert now that the concerns expressed in the 1970’s, about the future of food, water, and health were largely unfounded. Unfounded? Really? A fifth of the planet lives in poverty now. And not just mild poverty. A sixth of the planet lacks sufficient access to safe drinking water.

While browsing Cleantech News, I came across an interesting post on Energy Outlook on the lack of attention hydro power is receiving in the latest of round of policy efforts aimed at greening the U.S.' energy supply and combating climate change.

Besides having been been scuffed at in Waxman-Markey, hydro power has effectively been ignored in the ARRA, receiving a measly $32 million, peanuts in comparison to the $786.5 million awarded to biofuels, the $350 million for geothermal power and the $117.6 million going to solar. Not mention the millions of dollars that will flow into wind power as a result of changes to the PTC allowing project developers to claim a 30% investment tax credit [ITC] instead, and to obtain direct cash grants in lieu of the actual credit.

By Brad Zigler

We've been marveling at the surging investment interest in natural gas recently (see "(Natural) Gas Pains?"), most especially manifested through the United States Natural Gas Fund (NYSE Arca: UNG).

There is an interesting article in Wednesday’s FT describing BP’s trip “beyond petroleum and back again”. Having staked out the greener high ground of being the multinational oil company most devoutly search for alternative energy solutions, it is now seemingly retrenching, what with close its London office devoted to some such programs, as well as reputedly refocusing internally on petroleum and natural gas investments.

The piece carries many morals. First, it shows that alternative energy remains no cakewalk. Despite the massive capital budget of BP, and despite its vested interest in diversifying beyond fossil fuels, it has struggled to get even a fraction of its revenues from anything other than petroleum and natural gas. Second, the story reminds how difficult it will be for oil incumbents to avoid the Lorax trap of ever-enhancing extraction technology, thus making the eventual depletion curve for resources sharper and more calamitous.

By Brad Zigler

Real-time Monetary Inflation: 8.3%

A surprisingly large drawdown in domestic oil inventories failed to boost energy prices today.