Wednesday, September 12, 2007

One Step At A Time

Oil Hits $80 a Barrel for First Time

NEW YORK (AP) -- Oil futures prices rose sharply Wednesday, briefly climbing above a record $80 a barrel after the government reported a surprisingly large drop in crude inventories and declines in gasoline supplies and refinery activity.

The report from the Energy Department's Energy Information Administration suggested oil supplies are tightening as demand remains strong. That's why oil prices are rising despite OPEC's decision on Tuesday to boost crude production by 500,000 barrels per day this fall, analysts said.


Despite Wednesday's jump, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.


Oil's recent advance has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months, Ritterbusch said.


Prices were also being supported by worries a tropical depression that formed in the western Atlantic on Wednesday will become a hurricane and hit critical Gulf of Mexico oil and gas infrastructure.

"The National Hurricane Center says there's a good chance that could get into the Gulf," Ritterbusch said.

Oil is not difficult to understand. Like all commodities, it's price is driven by supply vs. demand AND the value of a Dollar.

Dollar Hits All-Time Low Against Euro

NEW YORK (AP) -- The dollar plunged to its lowest point ever against the euro Wednesday amid speculation that the Federal Reserve will soon cut interest rates and on a warning from the U.S. treasury secretary that turbulence in financial markets may linger.

The euro surged after Treasury Secretary Henry Paulson, speaking to officials from some of the biggest financial firms in the U.S., said volatility in financial markets will take some time to be resolved, particularly in the area of subprime mortgages.

"We have been experiencing market turbulence and as I have said for awhile, it is going to take some time to work its way out," Paulson said at a meeting at the Treasury Department. "We are going to work our way through this, in some markets more quickly than others."

Linger? Mr Paulson, could you please define "linger" for us? My feeling is that this "turbulence" [LOL...turbulance...LOL] will linger much longer than your tenure as treasury secretary. Much, much longer in fact. Thanks for the pep talk. Hey could I have a hit off that?

Gold had a constructive dip today and held the line at 705. Gold has now closed over $700 for ninth day in the past 26 years...and the past four days in a row. Gold has had a magnificent march higher from it's August lows. Click on the chart above and take in the beauty of it's powerful stair-stepping move higher over the past month as seen on an hourly chart. Each step on the chart now represents support in Gold.

Silver's chart is much the same. Silver also had a constructive "dip" today as it held near term support at 12.47. Silver is inching ever closer to multiple resistance at the 100 day moving average [12.83] , the Feb 2007 high downtrend line, and horizontal resistance at 12.90 [50% retracement of Feb 2007 high and August 2007 low.] Gun shy Silver Bulls are no doubt hovering over weary Silver Bears at this time in anticipation of a mega breakout here. Dem Rat Bastids may be in for a major flogging soon.

Surprising that both metals were not significantly higher today given the weakness in the Dollar and the strength in Oil. Precious Metals Bulls have earned the right to be skeptics here given the abuse they have endured the past 16 months. However, unless the Fed fails to follow through with a cut in the Fed Funds rate next week, Golds projected run to 835 has only just begun. Silver of course will be along for the ride.

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