Michael Bagley: $100 Oil to Counter Dollar Weakness?

From Michael Bagley Oil Price.Com.....

The 13 percent decline in the Dollar Index since June has led some OPEC members to call for oil to rise to $100 a barrel. The U.S. currency's weakness means the "real price" of oil is about $20 less than current levels, Venezuelan Energy and Oil Minister Rafael Ramirez said last week at an OPEC meeting in Vienna. The group, which accounts for 40 percent of global crude output, left targets unchanged and called for greater adherence to quotas, which are being exceeded by a supertanker load a day. OPEC is also concerned about the dollar because as the dollar weakens, prices go up. They're not paying any attention to production discipline.

The Dollar Index, which tracks the currency against those of six U.S. trading partners, has dropped 6.1 percent in the past month. The nominal value of OPEC's net oil export revenue will be $818 billion in 2011, 10 percent more than this year, according to U.S. Energy Department forecasts. Shokri Ghanem, chairman of Libya's National Oil Corp., said a higher crude price would help OPEC offset the loss of revenue from the weaker dollar.
"We would love to see $100 a barrel," Ghanem said last week in Vienna. "We're losing real income. Libya in particular would like to see a higher oil price."

Kuwaiti Oil Minister Sheikh Ahmad al-Abdullah al-Sabah said in an interview that $70 to $85 is the "most comfortable" range, while his Algerian counterpart, Youcef Yousfi, said between $90 and $100 is "reasonable." Speculation that the Federal Reserve may further loosen monetary policy through so called quantitative easing has weakened the dollar. Fed Chairman Ben S. Bernanke said today the central bank may expand asset purchases because inflation is too low and unemployment too high in the U.S. OPEC kept its production target at 24.845 million barrels a day at its meeting last week. Output from the 11 members bound by quotas exceeds the group's ceiling by 1.9 million barrels a day, or about the same as produced by Nigeria or Angola, according to Bloomberg estimates.

Given our line of business, we receive quite a number of emails asking for our picks on energy and oil stocks. While we don't offer stock tips, I might suggest a resource for those of you who are looking for some additional insight and assistance. We have no paid relationship or affiliation with Pennystocks.com but Peter Leeds seems to be on a roll at the moment based on the charts and numbers I have seen lately so if you have some extra cash to put to work, you may want to visit his site so see what they are doing over there. www.pennystocks.com

In the meantime, As more details seep out about the European Union crisis meetings last April regarding Greece and the future of the euro, the key role of European Central Bank President Jean-Claude Trichet in hammering out the compromises to stabilize the situation has become clearer. It also has made the picking of his successor that much harder. Trichet, whose term expires next year, has always been the ultimate fixer. He cut his first policy teeth in the 1980s as director of the French Treasury and head of the Paris Club, where he steered government debtors through the Latin American debt crisis of that period.

But he also put on central bank gravitas as head of the Banque de France and gained sufficient credibility to be acceptable to the Germans and other conservative northern Europeans as the second president of the Frankfurt-based European Central Bank. Trichet's eight-year term is due to expire in November 2011, and the jockeying for his succession is already well under way. For more insightful analysis on ECB moves, I encourage you to read further below where my colleague, Darrell Delamaide, has offered his insights as to who the players on the board are for the next president of the ECB.

Read more great post from Michael Bagley at Global Intelligence Report.Com


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Irans Option In Case Of Attack On Its Nuclear Facilities

The Obama administration recently announced its plans to sell $60 billion worth of advanced aircraft to Saudi Arabia, the culmination of a deal over which negotiations began in 2007. The package will include 84 Boeing F-15 fighter jets and another 70 upgrades; 72 Black Hawk helicopters; 70 Apache helicopters; 36 Little Bird helicopters. Reports also say that Washington may include a $30 billion package to update Saudi naval forces.

A 30 day Congressional review of the deal will likely begin within the next month and the White House is touting the deal as a major boon for the US economy that will support at least 75,000 jobs in the defense industry.

The deal is also designed to cement US preeminence in the Saudi oil sector, which is under significant threat from the increasing penetrations of Chinese, Russian, and Indian carbon economy interests. Saudi Arabia has the ability to pick and choose with whom it does business given that some are saying peak oil is already upon us.

US media is suggesting that the deal means that Israel no longer finds a threat in Saudi Arabia and sees the advanced aircraft package as containment against Iran. Speaking of which, sources in the Gulf region report that Iran is preparing for a possible attack by Israel and/or the United States on one or more of its nuclear production units by stockpiling arms and munitions with its proxy militias in Kuwait and Bahrain.

We have received all kinds of back channel dialogue from the UN General Assembly gathering in New York City this week so I include a special commentary from Claude Salhani, who has been covering terrorism issues in the Middle East for quite a number of years and checks in with a column titled, "Iran's Option In Case of Attack On Its Nuclear Facilities."

By Claude Salhani

Sources in the Gulf region report that Iran is preparing for a possible attack by Israel and/or the United States on one or more of its nuclear production units by stockpiling arms and munitions with its proxy militias in Kuwait and Bahrain. Earlier this month the tiny Kingdom of Bahrain announced the arrest of 23 men whom it accused of wanting to commit acts of terrorism and plotting to overthrow the government. Bahrain may well be the smallest of Arab countries yet it contributes greatly to the overall security of the Gulf region and the Middle East. Among other things Bahrain serves as the regional headquarters to the US Navy fleet operating in the Persian Gulf.

Strategically located at about halfway up the important sea lanes in the Gulf and through which most of the world's oil is carried from extraction sites to refineries aboard super tankers, the island nation of Bahrain is linked to the Saudi Arabian mainland by a 15-mile (24 km) causeway over the azure waters of the Persian Gulf. The causeway takes one into Saudi Arabia's Eastern Province, where the largest Saudi oil fields are located. Saudi's Eastern Province is largely Shiite.

Bahrain's population of 729,000 is composed of 70 percent of Shiites and the rest are Sunni. The Sunnis hold all the top positions of power in the country, from the king on down to every major office. The Shiites, who generally feel they are treated as second-rate citizens, relate to their coreligionists in the nearby Islamic Republic. Iran periodically likes to remind the Bahrainis that their island used to belong to Iran and that the Iranians have not forgotten that.

This is a part of the world where tensions run high and conflicts can easily ignite, particularly given that all the ingredients for an explosive situation are present: oil, religion and politics. The events that unfolded in recent days in Bahrain could well serve as the foundation for a John LeCarré novel, with one exception: this was no fiction. It's real and it could represent a very real and present danger to the security of the region. The men arrested in Bahrain were said to be working for "outside forces," the term usually meant to indicate Iran. Pointing the finger directly at the Islamic Republic can prove to be a dangerous gamble. Yet that language remains clear.

The report of an attempted coup in Bahrain is something that must be taken very seriously and should send alarm sirens wailing all the way from Manama, the capital of the tiny kingdom to the corridors of power in Washington. Tehran realizes two very important facts in case of attack against its nuclear facilities: First is that if attacked by Israel and/or the United States it will be incapable of striking back directly seeing the US' domination of the skies and Israel's quasi impregnable air defense system (with US contribution).

And second, Iran also knows that it must retaliate at all costs or lose all credibility. Hezbollah, the Lebanese Shiite paramilitary movement is in a perfect position to hit Israeli towns and cities from the north and could target large centers of population as far south as Hadera and possible further. Hezbollah's arsenal includes long range field artillery and Iranian supplied medium range rockets. From the south, Hamas, the Palestinian Islamic Resistance Movement can target Israeli locations the suburbs of Tel Aviv. Hamas' artillery is more antiquated and their Qasam rockets are home made and inaccurate, though they can still cause damage and casualties.

In the Gulf, Iran supports and arms and trains Kuwait's very own Hezbollah, who in turn is believed to have been supplying training and weapons to the Bahraini Shiites, such as the 23 men who were recently arrested in Bahrain. And of course one must not forget the influence Tehran carries in Iraq, where the US still has some 50,000 troops deployed and where Iranian-backed militias would very likely go on a shooting spree.

How seriously should one take the accusations?
Iran has periodically reminded Bahrain that the island is/was part of Iran. And if attacked by Israel and/or the US Iran might decide to push the envelope, especially if they feel they have popular support on the island.

Claude Salhani is a political analyst specializing in the Middle East and terrorism

Courtesy Oil Price.Com

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The U.S.-PRC Strategic Divide Begins

From Oil Price .Com.....

The simmering difficulties in the US strategic relationship with the People’s Republic of China (PRC) were, by the beginning of 2010, ready to emerge despite the attempts of the US Administration of Pres. Barack Obama to show a pattern of deference to Beijing. But the internal US economic policies, leading to the de facto devaluation of the US dollar, seemed, if anything, a deliberate move to devalue the worth of the PRC’s massive investments in US dollar instruments.

All that was needed to cause Beijing to vent its frustrations with the US — quite apart from major differences over the demand for Beijing to make economic and social investments in redressing alleged “climate change” — were additional seeming insults to the PRC’s sovereignty and pride. US allegations that the PRC Government was censoring the Google online search engine in China — which evidence indicates was the case — highlighted the sensitivity of Beijing which collectively recognizes (a) the potential of the electronic media to cause social unrest, and (b) the delicacy of the PRC to any social and economic unrest occurring in the near future.

The most significant pretext, however, was the US decision to move ahead with its $6.4-billion defence equipment sales package to the Republic of China (ROC: Taiwan), which was announced by the US Defence Department on January 29, 2010. Given historical precedent, Beijing had no option but to react negatively to the sale, and hoped its early threats of damage to US-PRC relations would sway the now left-leaning US Congress to refuse sanction for the sale, an unlikely occurrence, but one which had a 30-day window of opportunity, the time during which Congress can veto an Administration foreign military sale after it has been proposed.

Perhaps most importantly, however, the incident gave Beijing the long-awaited opportunity to break completely with the US-led packages of measures on trade, economic approaches, and “climate change” accords, which were perceived as being highly detrimental to the PRC’s need to control its domestic agenda and the foreign resources acquisitions needed to support it. Thus, competition between the PRC and the West in Africa, the Middle East, and Central Asia (not to mention East Asia) will intensify with less regard for niceties.

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This will, Defense & Foreign Affairs analysts believe, lead to the more rapid coalescing of new strategic blocs, some of which will be expedient and temporary, including the Russo-Chinese alliance using the Shanghai Cooperation Organization (SCO) as a basis. Within this framework, the PRC will pursue its fundamental and long-term alliance relationships with Pakistan and Myanmar, and in both these countries the development of communications infrastructure linking the PRC with the Indian Ocean can be expected to take precedence. Indeed, the PRC will need to move quickly to ensure that it continues to exert strong influence over the Myanmar Government after the late-2010 elections which could see the military leadership out of the national leadership.

The PRC will attempt to further demonstrate that its strategic relationship with the Iranian Government is separate and equal to the Russo-Iranian relationship, but more friendly to Tehran than Moscow. But there is no escaping Beijing’s need to remain close with Moscow in order to access all of the pipelines linking it through Central Asia to Iran, and then on through Turkey to Europe.

US media speculation that the PRC would support, or not interfere with, a new US-led sanctions regime against Iran — over Iran’s continued pursuit of an indigenous nuclear weapons program — are, according to Defense & Foreign Affairs analysts, naïve. Firstly, the PRC is, with Russia, the major facilitator of trade access to and from Iran and neither will jeopardize its influence with Tehran and the benefits derived there from. That would be akin to suggesting that the Great Game for control of Central Asia and Persia had not just been won by Russia and its allies (in this case, the PRC).

This leads inevitably to the reality that Iran will — with US sensibilities now less of an issue in Beijing or Moscow — be invited to become a full member of the SCO, with the implied military protection of Iran from external attack (“an attack on one is an attack on all”), either formally or de facto.

Most significantly, the changing trends mean that the PRC will no longer have to mask its growing interest in the Indian Ocean and its intention to compete there with the US as well as India. The PRC in January 2010 made it clear that it needed what could be called “temporary home porting” in Gwadar, the Pakistani port being developed by the PRC, of its PLA Navy vessels in the Indian Ocean so that crews could get their necessary shore-time and ships could be revictualed.

The ROC, meanwhile, has a brief respite to build relations with Washington, now that the strenuously leftist Administration of Barack Obama has been rebuffed by the state it felt was a natural ally, the PRC. But within this taut web of competition and dependencies, the US and the PRC will remain careful not to push each other too far.

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Oil Futures Plunge, Bond Markets Vote America

Statsweeper registered alerts across the entire WTI oil futures complex yesterday.

Prices fell dramatically, with all six of the nearest contracts down over 5%. Four-month futures took the biggest percentage dive, dropping 5.6% from $78.60 to $74.21 per barrel.

Front month futures fell 5.1%, from $77 to $73.06.



As widely reported, the fall in WTI was part of a larger sell off in commodities. Triggered by strengthening of the U.S. dollar.

With all the focus on yesterday's selling, there was less press on the things being bought. Most notably U.S. Treasury notes.

Alerts registered for falling yields on three-, five- and ten-year Treasury securities. Yields plunged as traders piled into these investments, driving up prices.

This is significant. Many analysts recently predicted investors would shun U.S. government debt as America's deficit spending rises and the nation's monetary base remains ballooned by more than $1 trillion compared to just 18 months ago.

But it appears when the markets get shaky, buyers still see U.S. bonds as the safe haven investment of choice.

Particularly interesting was investors' choice of Treasuries. Yields fell most notably for the three year note, dropping nearly 7% to 1.34% yield. This is the lowest yield registered since late December 2009.



Buying was also strong on the five-year note, which fell 4.6% to 2.29% yield. And the ten-year, falling 2.9% to 3.62% yield.

This contrasts with previous "flight to safety" buying of Treasuries, where purchases were focused on short-dated notes and bills. Often with maturities of 52 weeks or less.

Bill yields did fall yesterday. With the 52 week bill down 12.1% to 0.29% yield. But overall buying of these securities hasn't been as strong as might be anticipated.

52 week bills are still trading in the same range that's prevailed over the last few weeks. By contrast, two-, three- and five-year note yields appear to have broken resistance, moving markedly lower than recent trading ranges yesterday.



If this trend continues, it suggest investors are willing to lock in their money with the U.S. government for longer periods than they were previously comfortable with. A big vote of confidence for America and the U.S. dollar.

From The Staff at Oil Price .Com

Statsweeper is the financial community's premier data monitoring engine. The site tracks commodities, economics and finance data from around the globe, and alerts investors to critical changes and emerging trends. Visit www.statsweeper.com for more, and sign up for Pierce Points daily e-letter (www.piercepoints.com) for commentary on what the data mean for your commodities investments.
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The information provided here is based on data collected by www.statsweeper.com and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any securities or commodities named herein. Information contained herein is obtained from sources believed to be reliable, but is in no way assured. All materials and related graphics provided herein and any other materials which are referenced herein are provided "as is" without warranty of any kind, either express or implied. No assurance of any kind is implied or possible where projections of future conditions are attempted. Readers using the information contained herein are solely responsible for verifying the accuracy thereof and for their own actions and investment decisions.
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Do Oil prices Really have an Impact on Financial Markets? Yes and No

Stock market commentators like to draw parallels between the behavior of oil prices and stock prices on any given day. After all, who hasn’t seen a headline like this: “Oil Spike Pummels Stock Market”? But evidence shows that a change in oil prices does not necessarily affect the stock market in any predictable and meaningful way.

Before we explain why, let’s look at the traditional wisdom, which holds that when oil prices rise, stocks fall, and vice versa. When oil prices rise, gasoline prices follow. Higher gas prices hurt consumers, who then have less money to spend on other goods and services. A decline in consumer spending causes businesses to see decreasing sales. At the same time, businesses are also hurt by higher oil prices because they use oil for gas and other goods as well, and must pay higher prices for it. As a result, high oil prices can create a drag on corporate earnings and businesses often end up passing those costs onto already strapped consumers. It’s a vicious cycle, and it seems obvious that it would cause stocks to decline. The opposite is true when oil prices fall.

That seems reasonable enough. So why do we say the traditional wisdom isn’t always true? Because higher oil prices don’t always result in a drag on corporate earnings. There a number of reasons for this. For example, the U.S. economy is less dependent on oil than it used to be: Each dollar of U.S. gross domestic product produced today takes about half the oil it did 30 years ago. Additionally, much of the oil used by American businesses at any given time has been purchased under fixed prices contracts that were negotiated when oil prices were much lower.

So, we have two ways of looking at the same situation. The traditional wisdom holds that higher oil prices hurt stocks. But when we look a little deeper, we can see that isn’t always the case. That’s quite a muddle, and it piqued the interest of economists—two of whom set out to find out which is the case: Do higher oil prices hurt stocks, or don’t they?

These economists, based at the Federal Reserve Bank of Cleveland, looked at both oil prices and the S&P 500 Index, which is widely considered a broad indicator of stock market performance. The economists found, that over the past 10 years, oil prices and stock prices have mostly risen but there has been little correlation between them. That was the case even during periods of peak oil prices, when we might expect stocks to really suffer.

The economists did find, however, that certain segments of the stock market were correlated with oil prices. For example, the Dow Jones Transportation Index rose when oil process rose, and fell when oil prices fell—presumably because changes in oil prices have a significant effect on transportation companies. On the other hand, the Dow Jones Financials Index rose when oil prices fell, and fell when oil prices rose—presumably because the financial industry is not directly affected by oil prices.

That information may offer investors some insight when it comes to buying and selling stocks during periods of high and low oil prices. When oil prices are high, you might want to sell (or short) airline stocks. When oil prices are low, you might want to buy energy stocks. Savvy stock pickers could potentially benefit in this way.

Contributed By Oil Price .Com


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