The Audacity of Hope, I hope Posted by: administrator (Jan-22-2009)
President Obama asked us to choose hope over fear but at least on the day of his inauguration, the market chose fear over hope. Wide spread fears were played out all over the market place as the UK bailed out some banks reminding us that this crisis is not quite over.
Oil fell hard in the back end of the curve and gold soared and treasuries fell as traders feared another global meltdown and seemed to be preparing for the worst instead of the best. Platitudes and finger pointing did not inspire the type of confidence that the market wanted to hear. The President said, “Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.” Yet how do we solve it. As noble as these goals are, the truth is the economy needs help in the short term.
House Democrats and President Obama’s plan to invest money for highways, school construction and other infrastructure projects in a massive economic stimulus will come too late to lift the nation out of recession. A report by the Congressional Budget Office said that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010 which would be long after this recession should have ended. Well at least we all hope so anyway.
Oil might be getting support from more ongoing violence in Nigeria. Now that the Russia Ukraine gas situation has been settled the other issue supporting Brent crude has been this violence. Reports of another tanker attack as well as a sailor being taken hostage is a story that might get over looked in the “gathering storm”.
Well with oil prices plunging, market forces are forcing many people to rethink their time frame, at the very least, on peak oil. Peak oil faithful have had their beliefs challenged on the recent drop as high prices and market forces rationed supply. But if you want a story to cheer that old, peak oil heart and need a story to renew your faith in your belief, then take a look at Bloomberg News. Bloomberg Reports “Petroleos Mexicanos, Mexico’s state oil company, will probably report its fastest drop in production since 1942, eroding revenue as plunging crude prices limit the amount of cash available to drill for new reserves. Pemex last year likely extracted 2.8 million barrels a day, down about 9 percent from the 3.08 million a day pumped in 2007, representing a total of $20 billion in lost sales, according to data compiled by the government and Bloomberg. The Mexico City based company, which had revenue of $104 billion in 2007, plans to report annual production figures. Falling output is leading Pemex into deepwater exploration as state run peers Petroleo Brasileiro SA in Rio de Janeiro and Ecopetrol SA in Bogota invest billions to boost production. Costs are rising at Cantarell, Pemex’s largest field, after declining pressure reduced output in the past five years. PEMMEX has been mismanaged and Bloomberg says that, “To offset declines at aging fields, Pemex is focusing on tapping oil under seas deeper than 500 meters (1,640 feet), where the government estimates it has 30 billion barrels of crude oil equivalent. That would be enough to supply the U.S .for four years, according to BP Plc.
Deepwater discoveries or finds at the onshore Chicontepec field may help counter a decline at the Cantarell field, the world’s third largest. Pemex is betting it can produce about 500,000 barrels a day from Chicontepec, a series of small, connected deposits spread across Veracruz and Puebla states, by 2021. The first deepwater well is due to come on line by 2015.” Will that be fast enough to save the Mexican economy?
An early rally in stocks is raising hopes that we can see oil rally yet a strong move higher in precious metals still suggests that we could see a selloff later. Oil is trying to build a base in the thirties and the low thirty support has been impressive. Yet until we work off over supply in the market place, do not expect a sustained rally. Beware if we take out $30 that will be a sign that fear is the order of the day.
We're short March crude from apprx 4354 on what is now a quadruple rollover!!! Lower stop to 5350.