Gigem77

Crude Inventories: Largest Weekly Build Since March 2001

The build in crude inventory was due to a one off event. Shipping was delayed by "Edouard". Imports in the lastest reporting period rose to 11 million bpd instead of the usual 10. That's 7 million extra barrels and it completely explains the build in today's report.

Refiners are not producing nor importing as much gasoline as last year due to demand suppression and to lower crack spreads. The important take away is that refiners don't owe anybody cheap gasoline and will cut production to stay profitable. OPEC will also cut production to maintain their price targets.

OECD countries show reduced demand. BRIC countries show increased demand. World demand for crude is still growing. Seasonal demand in the northern hemisphere is lowest in the summer and higher by 2 million bpd in the winter. So let's see how this unfolds going into the fall shoulder season when refiners switch some production to heating oil. And then let's see how the market handles this years' winter heating season. I think we will see higher prices.

Q4 Oil Price Targets

Hey! they left out Jason Schwarz' prediction of 30 dollars. That's discrimination against SA.

No Renewed Bull Phase for Metals Miners Just Yet

The dollar index is 70% euros and yen. The rest are background noise. It's running into considerable resistance. It was not helped by the fact that FNM and FRE were shredded today. Crude is back to 116. Gold is 40 bucks off the low of last week.

Is Inflation a Clear and Present Danger? No Way

The true money supply is growing inexorably. It is growing faster than the economy. That defines inflation. Use the True Money Supply data supplied by the Classical Economists.

www.mises.org/content/...

Inflation has nothing to do with shortages.

The evidence of inflation is clearly visible in constantly rising prices for a broad basket of goods. Everything from health care to college tuition, from energy to food to gold, is rising year over year.

Crude Oil at Bearish Extremes

Oil has held the 112 support and is heading up. Gold is already 40 bucks off the lows set last week. Short one or both and lose money.

No Renewed Bull Phase for Metals Miners Just Yet

The dollar rally is the result of a large short position unwinding. The sharp correction in some commodities is likewise a technical event. It is logically incorrect to extrapolate the short term unwinding of trades into a dollar "bull" market.

The dollar is attached firmly to the continued crap out in the financial sector. FNM and FRE are headed for government takeover and their shares will go to zero. Will LEH fail? WM? When the FDIC needs more money, what will the effect be on the dollar?

This Gold Correction Has Further To Run

The problem with using other peoples charts and screens is that you are stuck with their assumptions and date selections. In this case, the assumptions are pointless because the date range is arbitrary. Go look at a 10 year chart of gold and try to find a 34% correction.

This Gold Correction Has Further To Run

Bespoke picked 1975 as the start date for their data collection. So their "averages" include the 18 yr bear market for gold between '82 and '01. Look back over the 7 years of this gold bull market and see that the average correction is not 34% nor does it last 18 months. The sharpest correction was in '06 and that dropped the price 25% over 5 weeks.

Understand also that the COT cutoff is Tuesday for the Friday report, so the high volume washout on Thursday and Friday is missing from the latest report.

Gold's Divergence Between the Paper and Physical Markets

Lance Lewis writes for Minyanville and does a better job of covering the gold market than DePew. www.minyanville.com/ar...

Lance concludes: "as long as the Fed is forced to keep real interest rates negative in order to prop up the crippled U.S. banking system and U.S. economy then global inflation is going to continue to accelerate (especially if foreign central banks begin to ease as well), and that’s bullish for gold. As I have said repeatedly since last August, if the Fed and other central banks want to keep the financial system functioning in the wake of the housing bust, their only option is to inflate, period. That’s what they have done, and that’s what they will continue to do (no matter what they might “say” to the contrary). That’s the long-term trend to keep your eye on. "

How Far Will the US Dollar Rally?

It's nice to see somebody using a chart. The dollar has a great deal to prove before the label "bull" means something positive. But the index is 70% euros and yen. Competitive currency devaluation could easily push the dollar higher without helping the economy. Much of the recent GDP strength has come from rising exports caused by the weak dollar. Reduce those exports and GDP shrinks. It won't help the move to alternate energy sources either. But let's see if that downtrend line can be broken... Keep the charts updating...

Forget $100 a Barrel - Oil Will Plummet to $30

Thanks for another good laugh.

July gasoline data show week over week increases in demand as the price fell. Demand has been suppressed and is returning with marginally lower prices.

New technology is exciting, but irrelevant to oil demand until that new tech is deployed commercially.

The next president will face a number of daunting challenges. One of those will be grasping the math of oil demand and production. You also face that challenge.

Oil is not plentiful, thus the exploration in difficult and expensive places like offshore Brazil, the deepwater Gulf and offshore Africa. These new finds will take years to bring into production and those will be the most expensive barrels ever produced. The rigs that PBR is mobilizing lease for 700k per day.

Buy RIG and NOV. They are minting money and will continue to do so for years.

BP Capital's Rough July

It's not stubborn if you look at this 5 week sell off as a temporary aberration. Crude moves higher every year into late October. The next filing report will show Boone added to his energy shares on this dip. The oil price in the 4th quarter will show that he was/is right.

Predicting the Bottom in Gold

August is the seasonally weakest month for precious metals. This has been a pattern for years. 2006 was the only exception in the last 8 years. So it's the cycle low for GG and all the others. Last year GG bottomed in August and doubled by December. This year the oversold condition is extreme, setting up a big move higher.

The driver for the CRB is oil and oil bears failed again to close below 112. How many more times will they beat their brains out on that wall before they cover, reverse and go long? T. Boone says 110 will hold. OPEC says 100 will hold. OPEC has control of what little spare capacity still exists in world supply. Oil will lead the CRB and gold higher.

Read the IEA Interim report omrpublic.iea.org/curr...

Non-OECD demand is growing 3.8% per year, more than compensating for the drop in OECD demand. World demand is still growing.

During the 4 weeks of spec liquidation and shorting in crude, gasoline demand increased week over week. There has been no demand destruction, just demand suppression. As the price declines, that demand comes back.

This sharp 5 week dislocation in commodity prices was caused by hedge fund speculation, not by fundamentals. The lower prices are causing resurgence in demand.

Negative Trend for Oil Exploration and Production Stocks

The market does not apply a large multiple to energy shares. For example, DVN is expected to make 12 bucks this year. But their PE has been 10 or below all year. Apply any reasonable multiple to 12 and look at today's price.

We have a 10 year uptrend in crude, which is still very much intact. But all of the punditry writing for seekingalpha is from daytraders trying to extrapolate a paradigm shift from 5 weeks of correction. The analysts revising earnings are getting twitchy also. I agree with Mr. Stolz, this is an great opportunity to buy.

The Market's View on Oil

What is the EPS range for your list? What PE did the market assign when oil was 85 in January and what was the PE when oil was 147? How does that range compare with today's price of 112? If the PE range is tight, and it is, then how does that affect your theory?

DVN is primarily a natural gas producer with expanding production. They have a forward PE of barely 6 today. When crude was 147 and natgas was nearly 14, their forward PE was about 7.5. You use a trailing PE of 10. That's not much difference.

A better hypothesis is that the market does not like energy shares and always assigns very low multiples. That's why many of the big energy companies are buying back their own shares.

Analysts estimate that DVN will make 12 dollars per share this year and 14 in '09. Assign any double digit PE you like and you get a price higher than the current one.