Well it would seem that I am wrong and right. Both of which seem to be occurring sooner than I would have ever imagined. And the implications of this is going to have repercussions for quite some time.

With crude oil closing above $100 on Tuesday I am proven right in my expectation of an increase in the price. But I am incorrect for the reasoning and timing. It was my expectation that OPEC would cut production and this would help to fuel further price increases on the New York Mercantile Exchange. The OPEC meeting is on March 5th, and there are still expectations that production will be curtailed. So this may fuel even higher prices.

The cause of this sudden rise was not my presumption of actions in Venezuela and Iran either. It in fact is directly connected to the refinery accident in Texas on Monday. The refinery handled 67,000 barrels of oil a day and as such will have an impact rather quickly in the U.S. This explosion was a tragic accident that could not be expected nor factored.

But in looking at the results from this and the comments over the weekend of Hugo Chavez there are some things we can understand. Chavez, by the way, has backed off his threat to cease sales to the U.S. Obviously the threat was not a major problem for the U.S. as others nations were willing to cover any gap and the total volume from Venezuela is not enough to impact the nation. Cutting sales would impact Venezuela though. In addition I would imagine that Iran was not willing to back their friends in Venezuela on this matter.

According to AAA and the Oil Price Information Service the price for gasoline hit a national average price of $3.032 a gallon. Expectations by the Energy Department target the cost per gallon to exceed the $3.23 that was reached last May in this year. This expectation seems to be a forward indicator of higher crude oil prices, and futures contracts seem to support that theory.

I previously mentioned

“Beyond this scenario the more likely thing to expect is that OPEC will be cutting production levels during the March 5th meeting. Without a dramatic downturn in the U.S. and world economies, in that order of importance, a return to $100 a barrel will likely happen again for a brief period before the summer and then drop back into the mid -90’s. But I believe a surge will occur along with a resurgence of the American economy in the 3rd and 4th quarters. I will say that by the end of 2008 oil breaking $110 is likely.”

Without accounting for the unforeseeable, there has been nothing that has changed except the accelerated increase in crude oil prices and futures contracts. Given that, I continue to stand by my outlook, with one change. I expect that the short-term prices will likely run to about $110 before backing off. My new target, adjusting for this accelerated move in prices, is that by the end of 2008 crude oil will exceed $125 - $130.

Hopefully there will be no more tragedies for the entire year that could accelerate this move higher.

Labels: Crude oil prices, Energy Department, hugo chavez, New York Mercantile Exchange, Oil Price Information Service, OPEC, Venezuela

Crude oil prices have been on a seesaw of volatility, most notably since hitting $100 a barrel in January of this year. Since that time there have been recession fears in America, massive rate cuts by the Federal Reserve, horrendous losses by most financials due to the mortgage sub-prime loans, and drops in the stock markets to near bear levels. That says nothing of the current growing battle between Venezuela and Exxon.

Overall the pressure has been on the downside of pricing, as many of the indicators express a likelihood of reduced demand as industries slow down. Yet not all the pressure is one sided. And the economic outlook is seen as not as bleak as once thought.

"The market has been struggling with whether we are recession-bound or not," John Kilduff, senior vice president for energy at brokerage MF Global in New York said. "That's an indicator [Japan’s economy] that whether or not we are, there's some life out there in the rest of the world and energy demand could hold up."

It’s this factor that has added to the price of crude oil recently, topping $95 a barrel on February 14th. But I think there is an aspect that has yet to be factored into the market. That factor has nothing to do with Federal Reserve Chairman Ben Bernanke’s thoughts the U.S. economy will rebound at the end of the year. It has little to do with the lack of effort of states like Michigan to create a renewable portfolio standard. It has everything to do with Venezuela.

It’s a given that the 90,000 barrels of low quality crude exported by Venezuela to the U.S. is a fraction of what the nation used. The threatened cut of sales to the United States is more likely to have a negative effect on Venezuela than effect America or impact crude prices significantly. But it’s the ally of Venezuela, or more accurately the ally of Hugo Chavez that matters. That ally would be Iran.

Iran is a major oil exporter, and no friend of America. In recent months there have been several conversations of mutual support between Iran and Venezuela, and condemnation of the U.S. It is this mutual anti-American sentiment that could drive up prices beyond an OPEC reduction in supply might create.

If the current court actions continue to favor Exxon over Petroleos de Venezuela, and negotiations fail with ConocoPhillips causing them to follow in Exxon’s direction it could start a landslide against that nation. In the face of that kind of pressure, and the refusal to sell oil to America, Iran may join with Venezuela in a stance against America. This combination of political action and national leadership prejudices is an unknown that I have yet to see any analyst or blogger mention. It’s probable that the reason for that is the unlikely nature of it coming to pass. But unlikely is not improbable.

Beyond this scenario the more likely thing to expect is that OPEC will be cutting production levels during the March 5th meeting. Without a dramatic downturn in the U.S. and world economies, in that order of importance, a return to $100 a barrel will likely happen again for a brief period before the summer and then drop back into the mid -90’s. But I believe a surge will occur along with a resurgence of the American economy in the 3rd and 4th quarters. I will say that by the end of 2008 oil breaking $110 is likely.

Now let’s see if this comes to pass.

Labels: Ben Bernanke, ConocoPhillips, Crude oil prices, Exxon, Federal Reserve, hugo chavez, Iran, John Kilduff, MF Global, OPEC, Petroleos de Venezuela, Venezuela

Mid-day February 11, 2008 gold futures prices have risen to $927. Gold continues to move forward, taking many of the gold stocks along with it. In fact speculation in the most precious yellow metal has grown dramatically on a global level. In China, Beijing Caishikou Department Store sold out of two tones of gold bars in less than 2 hours.

“The real value of gold is not that it provides a quick, speculative fix, but its capacity to provide a sure and steady means of protecting wealth and to enhance risk-adjusted returns,” said Hou Huimin, vice-chairman of China Gold Association.

With a weak dollar, spikes in oil prices - which are consistently above year ago levels, and an outlook of an unknown time period for an American recession gold hedges seem more attractive everywhere. And outside factors continue to add to this upward trend in prices.

Already the effect of Venezuelan President Hugo Chavez threatening to cut America off from that nations oil supply has added to the price of oil, while power shortages in South Africa have forced many mining companies to lower production, boosting in turn platinum and gold futures. This is having a net effect being seen in the Philadelphia Gold and Silver Index rising .73%, along with the CBOE Gold Index up .26% and the Amex Gold Bugs Index up .76%

Will the gold mining stocks of South Africa take a hit? Of course, and many other mining stocks will drop along with them. But that is hardly an indication of a bear market any more than the fact that once those mines are back online gold spot prices will drop. In a few weeks supply and demand factors will shift again with the aforementioned miners increasing supply. But the real factors moving gold in all the various investment markets is not the short-term actions that are the fodder of traders.

Protecting wealth and risk adjusted returns are the main concern right now as global markets look weaker by the day. With global instability and the other factors that are growing with no end in sight, I believe that gold will continue to increase in price. $1000 gold spot prices are not the top in my opinion but a stepping stone to a higher level. Whether shortages due to difficulty in mining or nature, increased demand in emerging markets like India and China, or economic weakness and general bear markets in stock markers globally I do not see a substantial retreat of gold or gold stocks in 2008.

Labels: Amex Gold Bugs, CBOE Gold Index, emerging markets, gold spot prices, gold stocks, hugo chavez, Philadelphia Gold and Silver Index, South Africa

Well the Presidential candidates continue to bring up some of the most interesting items in blogs and news stories as we approach the primary votes. From comparisons to Hugo Chavez, to reports of web activity, to MoveOn.org. And we still see that most of the nation is very divided on what the future will bring. The issues for the next President of America are widespread and intense.

We are seeing that the internet is being used by more people to discuss more fringe opinions than were ever known to exist by the mainstream before. Probably one of the now best known fringe groups would be MoveOn.org. Not only has this organization come into the full light of public attention, they have made an impact. Perhaps not the intended on though. The vile attack against Gen. Petraeus offended every veteran, military members and family that I know of. Many have come to question the Democratic Party and the presidential candidates that have refused to denounce the ad.

Whether it’s connected or not, we now can see a sites that questions some of the social views of Sen. Hilary Clinton are being compared to Hugo Chavez.

Quick, take a shot as guessing who said this: “Society cannot allow the private sector to do whatever it wants…”
If you said Hillary Clinton, I can’t blame you. That was my first impulse, too, …

"Many of you are well enough off that ... the tax cuts may have helped you," Sen. Clinton said. "We're saying that for America to get back on track, we're probably going to cut that short and not give it to you. We're going to take things away from you on behalf of the common good."

Surprising comparison. One that you might expect MoveOn to make and defend. But they seem quite busy right now trying to claim yet another American figure is a betrayer. Having failed with the first target and ads with this phrasing, MoveOn has now targeted Rudy Giuliani as betraying Americans. The latest set of ads target is work with the 9/11 commission, and ignore his work on 9/11 and the weeks afterwards. But none have ever said MoveOn is good at making any point other than they represent a fringe of America, and due to the backing of billionaire George Soros they can get any ill-conceived message out to the masses.

Avoiding all this drama has been Fred Thompson. New to the race, officially, he has done quite well. The most recent results from Hitwise state that Thompson leads all candidates with views of his website din the last week. His lead is not shabby either, with more than double the second place candidate, Sen. Barack Obama. I will say that the site is very well designed.

So with all the activity on the internet, and still months to go, where do you fit in? Do you have a candidate you agree with? Do you understand the platforms the various candidates support?

If you don’t remember one thing. One of these candidates will be the next President. Know who you are voting for, and what they stand for. Understand who supports them. Otherwise you may be very surprised, at least, by what you get during their presidency.

Labels: 9/11, Fred Thompson, hitwise, hugo chavez, moveon.org, Presidential candidates, Rudy Giuliani, Senator Barak Obama, Senator Hillary Clinton