I just talked to the always-excellent Bill Caiaccio on CNN Radio. I made some notes for the interview, but of course, once we got talking we went off where his questions led us.
Here are my notes …
Geopolitical events are driving oil prices. Russia blocked the entrance to Georgia’s main oil port, and Russia is showing that it can control Europe’s natural gas supply. The neocons in Washington seem to be hoping for a new cold war with Russia, and they just might get it. Unfortunately, fear of such a cold war add to the price of oil.
Supply and demand is also in play.
Drawdown of gasoline stockpiles in US was more than twice expectations — 6.3 million barrels. Demand destruction may have been short-term. Since prices have pulled back, people may be driving again.
Chinese demand dipped during the Olympics as they shut down factories and took cars off the road. It will probably increase again after the Olympics.
On the supply side, Mexico, Nigeria, Norway, Britain and Russia are all seeing production go down year over year. Nigeria’s shortfall is due to civil war, everyone else may be hitting production peaks.
[End notes]
In other developments, I am so glad I sent out an issue yesterday to Red-Hot Commodity ETFs subscribers telling them to buy the DGP (double-gold ETF) and DIG (Double oil index ETF). Oil is up more than $4 this morning before the open and gold is up $20 an ounce as I write this.
Does this mean we’re out of the woods on commodities? Not by a long shot! However, this is a playable bounce. What will determine how high the bounce will go? Probably action in the US dollar. Let’s look at a weekly chart of the dollar …
And now let’s close up on that next support on a daily chart.
That test of support for the greenback will be very interesting.
In other news …
The Neo-Cons are getting the war they always wanted — a renewed cold war with Russia. This has sent oil prices soaring this morning which, again, is exactly what the powers that be in Washington (I’m looking at you, ExxonMobil) have wanted, despite their “drill-drill-drill” mantra.
This ugly turn of geopolitical events prompted former Soviet Union President Mikhail Gorbachev to write the following op-ed in the New York Times …
In recent days, Secretary of State Condoleezza Rice and President Bush have been promising to isolate Russia. Some American politicians have threatened to expel it from the Group of 8 industrialized nations, to abolish the NATO-Russia Council and to keep Russia out of the World Trade Organization.
These are empty threats. For some time now, Russians have been wondering: If our opinion counts for nothing in those institutions, do we really need them? Just to sit at the nicely set dinner table and listen to lectures?
Read Gorbachev’s whole piece. He doesn’t have a monopoly on the truth. But we have to know where the Russians are coming from if we want to reach a compromise everyone can live with.
China replaces the US as Japan’s #1 customer.
Honda Motor Co. and Komatsu Ltd. are turning to China, the world’s fastest-growing major economy, as the U.S. slowdown intensifies and rising fuel and food costs weaken demand at home. Higher oil prices caused the import bill to climb to a record last month, triggering an 87 percent drop in the trade surplus.
XX Sean’s note — “Decoupling” anyone? Oh wait, I can’t use that word. It’s been proven not to exist!
Goldman Sachs renews its call for $149 oil by the end of this year.
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