Monday, 28 February 2011

Oil At $100.

Baltic Dry Index. 1245 +03

LIR Gold Target by 2019: $30,000. Revised due to QE.

Costanza Jacazio, an energy analyst at Barclays Capital in New York, says further unrest — or simply fear of further unrest — could well drive oil prices higher. “The degree of geopolitical risk now is massive.”

With world attention focused on events in Libya, and the temporary loss of about 1.4 mbpd of Libyan light oil, speculators and oil companies have nervously bid up the price of oil to $100 for West Texas Light, and about $119 for Brent Crude. Will that give a big push towards the second electric revolution and e-mobility, and with it extra demand for many of the REEs? The simple answer is no and maybe.

For now it’s assumed that once a new government is installed in Libya, Libyan oil production will quickly come back on-stream again, oil prices will decline, and any extra push towards the second age of electricity will be fleeting. Besides, converting the world to e-bikes, cars, busses and commercial vehicles, is a multi-year decadal project, with very little inputs from short term crises. Complacently we all “know” in our hearts, that Libyan oil is coming back quickly. But is that complacency really correct? What if the unthinkable needs to be thought? What if this is just the start of a long extended period of Middle East instability in the region that produces about 32% of the world’s oil supply. In effect, about almost 100% of the world’s “mobility”. Airplanes, busses, cars, trucks, many trains, shipping and most vans all run on derivatives of oil. Oil is the world mover of people and goods.

That’s where the “maybe” kicks in. There’s a generational dimension to the revolutions sweeping the region, the old order is no longer acceptable to the masses outside of the first tier of the old order. From Morocco to Iran the masses want change, yet change isn’t necessarily compatible with keeping an uninterrupted oil supply flowing. Or at least, flowing in the way we are accustomed to having it flow. First, the thousands of traumatized workers who have just fled Libya are unlikely to be in any hurry to immediately return. It may not be possible to get Libyan oil production back up to 1.4 mbpd again, at least not as quickly as we currently assume. The loss of this quality light crude will have to be made up from rickety Nigeria, just possibly Ghana might be a contender too. Pumping extra heavy sour crude in Saudi Arabia is of little value to most of the world’s refineries. We just might be looking at an oil price structure with much more upside than downside.

In the Gulf, Bahrain has to try to work out some sort of transition to a constitutional monarchy with an elected government. Or alternately, a republican democracy dispensing with monarchy. But that, once it happens, will become a blueprint for change in Saudi Arabia, Kuwait, and the UAE. Across the Gulf in Iran, the pressure for democratic change will only grow. All of which implies that regional instability is likely to be with us for months, and probably we’ll be very lucky if we get out of all this without some sort of further oil disruption ahead. Once that realization takes hold, our over dependence on oil as a method of transportation, becomes obvious and some much better minds than mine will be attracted back to the business of making e-transportation fast tracked. That probably means more efforts in solar and wind renewable energy. More expedited investigation of tidal resources. More input from those working on “clean coal” solutions. An expedited push towards nuclear. For without the reliable availability of the “e” in e-mobility, there won’t be an e-mobility era. Much of which will generate extra demand for REEs 2015-2025.

Shorter term, US stock markets remain vulnerable to another flash crash driven by oil news, and likely will remain so for weeks. Below, today’s update on Libya.

Tremors From Libya Threaten to Rattle the Oil World

By JAD MOUAWAD and CLIFFORD KRAUSS Published: February 27, 2011

This is no oil shock — not yet, anyway.

But the events unfolding in the Arab world, the epicenter of global oil production, are a sobering reminder that trading in oil, that mother of all commodities, is at heart a political game. Not since Iraq invaded Kuwait in 1990 have the politics of crude loomed so large. Like much of the Arab world, this market seems like a pocket full of firecrackers, just waiting for a match.

As rebels tightened their noose around Tripoli on Sunday, its critical oil supplies remained constricted. Production from most of Libya’s oil fields was down to a trickle.

Several ports and refineries were left stricken by workers too afraid to go to work. And with most foreign oil company employees having left the country and armed men beginning to loot equipment left behind, a return to normal production appears weeks away at best.

About 80 percent of the nation’s oil production lies in rebel-held territory, though there is not a way to verify how much rebel leaders directly control.

Granted, the world can cope with a disruption of exports from Libya. But what has brought us to $100-a-barrel oil again — and set people on edge — is the possibility that the uprisings that toppled autocrats in Egypt and Tunisia might spread to other OPEC nations in the Middle East.

For the moment, heavyweights like Saudi Arabia can make up the difference, and big consumers, like the United States, have stored millions of barrels of oil for just this kind of emergency.

But few oil experts are surprised that the unrest has so unnerved the market. The world is thirsty for oil, and supply and demand are in delicate balance. There is little room for more disruptions in supplies. Indeed, spare capacity — essentially that amount of extra oil that OPEC members are able to produce in a pinch — is now about five million barrels a day. That is about 6 percent of the oil that the world consumes every day. That cushion is greater than in 2008, when it equaled about 2 percent of daily consumption, but it remains worryingly thin. And that is not even taking into account the loss of about one million barrels a day exported from Libya.


Jan Stuart, an energy economist at Macquarie Securities, explained: “This brings back the political dimension to oil-price dynamics. For the best part of the past 25 years, the Saudis have bent backwards to make sure politics would be banned from discussions about oil supplies. The risk today is we could go back the other way again.”

At the Comex silver depositories Friday, final figures were: Registered 43.17 Moz, Eligible 59.76 Moz, Total 102.93 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

No crooks today just a warning from China. China’s leaders want the pace of growth in the economy lower. If they are serious about making it happen, it will happen. That’s pretty much how China still works, but what would it mean for the rest of the world economy? Lower imports, for a start, and a slower recovery on either side of the Atlantic? If so, it looks like QE3 will be happening by year end. Stay long precious metals.

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."

Jerome F. Smith

China lowers growth targets

China's Premier has lowered the country's economic growth targets and declared that the world's second-biggest economy can no longer "blindly" pursue unsustainable expansion
By Rupert Neate 6:59PM GMT 27 Feb 2011

Wen Jiabao reduced China's annual growth target from 8pc to 7pc for the next five years in an effort to curb soaring food and housing prices.

In an online "chat" with his nation's citizens, Mr Wen said: "We want to put the emphasis of our work on the quality and the benefits of economic growth. We want the fruits of development to benefit the people."

Mr Wen said China must become more self-sustainable by increasing domestic consumption and reducing its reliance on exports and investment.

Analysts said that while Mr Wen's message was clear, the lower growth target was principally a symbolic gesture because China has exceeded its previous 8pc target every year for the last six years. Last year growth reached 10.3pc, making China the fastest-growing major economy in the world.

Alistair Thornton, China analyst for IHS Global Insight, said: "The roadmap is clear, but the extent to which the political will and power is sufficient remains to be seen."

Kenneth Jarrett, head of APCO Worldwide's China consultancy, said: "No one will really have 7pc as their target. Everyone's going to be higher than that. [But] the message is that they want growth to slow down."

Mr Wen acknowledged that the gap between China's official rate of inflation and the cost of food and housing is making life difficult for hundreds of millions of Chinese people.

Officially inflation is running at almost 5pc, but food prices are climbing at an annual rate 10pc, according to figures released in January.

"Rapid price rises have affected the public and even social stability," Mr Wen said, in the online forum which was broadcast across all state media in China. "The Party and Government have always made a priority of keeping prices at a generally stable level."

The decision to lower China's growth target came as Mario Draghi, a possible successor to Jean-Claude Trichet, the President of the European Central Bank, became the latest top-ranking official to warn of the dangers of accelerating inflation.

"The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."

Henry Hazlitt

The monthly Coppock Indicators finished January:

DJIA: +161 Down 10. NASDAQ: +228 Down 10. SP500: +161 Down 4.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

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