- Gas prices at four-year lows… and this is as good as it gets
- Six reasons why energy prices fell…
- Six reasons they’re about to rebound…
- And one way to take advantage for a killing
- Rally day: China, Europe supply Wall Street with easy-money heroin
- If the Dutch can reclaim their gold from the Fed, why can’t the Germans?
- IRS goes after London mayor… the real cost of Thanksgiving dinner… “getting our money’s worth” from a certain government agency… and more!
With five days to go before the proverbial “busiest travel day of the year,” the trip to Grandmother’s house should be the cheapest in years — at least if you’re traveling by road.
This morning’s “fuel gauge report” from AAA finds a $2.84-per-gallon national average for regular unleaded. If that holds next week, it will be the lowest Thanksgiving price in five years.
Enjoy it while it lasts. There appears to be a firm floor on oil prices at $75 a barrel, using the U.S. benchmark price of West Texas Intermediate crude.
Several times in the last week, it’s tested that $75 level, and it keeps holding. This morning, it’s up to $76.61.
“I believe that we’re in the bottom of the price trough,” says our resident oil field geologist Byron King. “Over the next six months, oil prices will likely head back up.”
We’ll get to why in a moment. But first, Byron explains how we got here: “What were the key downward price drivers? Here are six elements.”
1. Traders’ perceptions of a slowdown in China economic growth, hence lower future demand.2. General global economic slowdown, from Europe (especially Germany) to the emerging world and even North America.
3. Increased Russian exports to Asia via the new East Siberia-Pacific Ocean (ESPO) pipeline, creating price pressure for Middle East imports to the region.
4. Saudi Arabia discounting oil prices — especially in Asia, but also for U.S. customers — to maintain market share.
5. Growth in U.S. oil output via fracking, i.e., the “shale gale” and related tight-oil boom.
6. More refinery maintenance than usual this fall across the Northern Hemisphere, meaning less demand for crude oil to run through cracker units.
“In essence,” Byron sums up, “we’re talking about ‘too much oil’ for existing and perceived demand. Or as a wise old trader once told me, ‘There are just more people selling than buying.’ Hence, prices fell.”
Byron also has six reasons why prices will soon start heading back up.
Factor No. 1: Start with the meeting of OPEC ministers in Vienna, scheduled for the day most Americans will settle down for Thanksgiving dinner.
“If pre-meeting comments from OPEC big shots are indicators,” says Byron, “the closed-door session will feature incandescent arguments over cutting back oil output from numerous nations. The fact is that with just a little bit of collective production discipline, OPEC can arrest tumbling prices and turn things around.
“By the time of the post-meeting press conference, I suspect traders will already be bidding oil prices back up.”
Factor No. 2: Low oil prices are breaking the bank for many exporting nations.
“Nigeria, for example, requires about $130 per barrel to balance its national books (fat chance!), while Russia needs prices near $100 to pay all the bills,” Byron explains.
“In general, there’s a global push from many quarters to find ways to increase oil prices. The current number is too low.”
Factor No. 3 is an annual phenomenon known as “winter.”
“Highly credentialed weather guessers are forecasting another frigid winter,” says Byron, “with more polar vortexes just like last year. Energy demand will be strong in North America and Europe.
“Out in the field, expect harsh weather to negatively impact U.S.-Canadian oil output, with subzero conditions making it harder to operate in oil patches from the Bakken (North Dakota) to the Marcellus (Pennsylvania) and more.”
Factor No. 4 is also seasonal: “Across North America and other continents,” says Byron, “refineries that scaled back for maintenance this fall are now coming back online.
“They need crude oil to flow through all those clean, shiny new pipes. This is positive for overall crude oil demand.”
Factor No. 5: China. In theory, if China’s slowing down, that would put a damper on China’s energy demand.
But practice is rather different, says Byron: “I’ve seen hard numbers to the effect that China is using the current low oil price environment to fill its strategic petroleum reserve tanks across the country.
“This oil doesn’t show up as ‘economic output’ in Chinese statistics, but it makes for global levels of demand just the same.”
Factor No. 6 is a variation on the truism that “the cure for low prices is low prices.”
“I’ve heard from acquaintances up and down the supply chain that the falling oil price environment of the past six months has already caused a slowdown in scheduled drilling and completions in the North American oil patch,” Byron explains.
“Thus, as 2015 kicks into play, I suspect we’ll see lower numbers of rigs, using less drill pipe, bits, services and more. It’ll lead to a slowdown in rising oil output from U.S. fracking, which will create its own price dynamic of perceptions.”
No wonder Byron says “we’re at or near the price bottom.” And the timing couldn’t be better in light of the “once-per-generation moneymaking opportunity” spied recently by Byron’s partner on our energy team, Matt Insley.
As we mentioned on Wednesday, it presents you the opportunity to triple your money within the next two months. But as we mentioned yesterday, we’re keeping a strict cap on participation. You can see if it’s still open by clicking this link.
Wall Street is soaring to new heights on this Friday, propelled by easy money gushing from Europe and China.
Overnight, the People’s Bank of China cut interest rates for the first time in more than two years, the better to fight the aforementioned slowdown there.
Then came word the European Central Bank has started buying asset-backed securities, the better to fight the slowdown on the continent. It’s not full-on American- or Japanese-style “quantitative easing,” but it’s more than ECB chief Mario Draghi has been willing to do up till now.
Result back in New York — the Dow industrials and the S&P 500 are up three-quarters of a percent, ever higher into record territory. At last check, the Dow had crossed 17,850, while the S&P was at 2,068.
Bonds are selling off slightly, with the yield on a 10-year U.S. Treasury note at 2.34%. Gold is rallying modestly, three bucks above $1,200 again.
In the currency markets, the euro has tumbled to $1.242. The dollar index, of which the euro is the biggest component, is up to 88.1.
The Dutch have jumped on the gold repatriation bandwagon.
The NOS TV channel in the Netherlands reports 120 metric tons of gold stored at the Federal Reserve Bank of New York have been brought back to Amsterdam by ship in recent months.
Up to now, more than half of Holland’s gold was held in New York. With the move, 31% of Dutch gold reserves are in Amsterdam, another 31% in New York, and the remainder in London and the Canadian capital Ottawa.
The Dutch central bank, known by its Dutch acronym DNB, issued a bland statement: “Following this adjustment, DNB is in line with other central banks holding a greater part of their gold stock in their own countries. Beyond realising a more balanced distribution of the gold stock across the different locations, this may also have a positive effect on public confidence.”
So what gives with Germany’s gold repatriation efforts? It’s left to us to raise the question, seeing as the elite media are ignoring it in its coverage of Holland’s move today.
In early 2013, Germany’s Bundesbank asked the U.S. and France to return its gold stash — 300 metric tons of which is held at the New York Fed. The New York Fed said it could complete the return process… by 2020. Cue the questions about whether the gold is really in the vaults.
Last we heard — back in January — only 5 metric tons has actually made it back home during 2013. The Bundesbank hoped to collect another 30-50 this year.
So how did the Dutch manage to collect 120 metric tons in a matter of months?
[And another impertinent question: What might all these developments mean for the Swiss gold referendum, set for nine days from now? One of the planks in that referendum is that the Swiss National Bank must repatriate its entire gold stash.
We’re eagerly awaiting the next briefing Jim Rickards is holding exclusively for Agora Financial readers. It’s on Monday at 10:00 a.m. EST. He’ll address developments in Switzerland in detail… and tease out what they mean for the global economy, the markets and your portfolio. If you’re not already a subscriber to Rickards’ Strategic Intelligence, you can guarantee yourself access to this briefing at this link.]
The IRS’ money grab from “accidental Americans” has finally bagged a big name… and he’s fighting back.
As you might be already know, U.S. citizens are subject to income taxes no matter where in the world they earn that income. And as we mentioned last month, many people are U.S. citizens without even knowing it — until the IRS tracks them down and demands they declare five years of back taxes under a “voluntary disclosure program.”
The latest target — London mayor Boris Johnson, touted sometimes as a future British prime minister.
NOT how Boris Johnson reacted to his U.S. tax bill;
his hair usually looks like this.
Mr. Johnson hasn’t lived in the United States since age 5. But the IRS insists on collecting a cut of the capital gain he got from selling his U.K. home.
Asked by a U.S. public radio interviewer whether he would pay, he said, “I’m — no, is the answer. I think, it’s absolutely outrageous. Why should I?”
Hmmm… “The question,” writes J.D. Tuccille at Reason, “is whether Johnson, as a connected political figure, makes separate peace with the IRS, emphasizing that the IRS’ reach applies only to the powerless. That might have some interesting international ramifications. Or will he carve out a wider exception that gives others a little relief from America’s official muggers?
“Or maybe the IRS will just exercise America’s imperial muscle and try to make even Johnson turn out his pockets to demonstrate its power.”
Stay tuned…
“You’re missing the second most important item after the turkey,” a reader writes after our minor rant about the cost of Thanksgiving dinner yesterday. “And that’s booze!”
The 5: Well, that depends on how much you like your relatives. Which is clearly on another reader’s mind…
“When we used to go to Turkey Day at my wife’s parents’ or her older sister’s, there was/were more turkey/turkeys around the table than on the table.
“Much better now since we have it at our house. We total 12 people, and I imagine it is around $150 or more. Lots of good food, and I get to see my out-of-town grandkids.”
“Happy Thanksgiving to all of you at The 5.”
The 5: $150 sounds more like it. It’s in the Farm Bureau’s interest to tout the sub-$50 figure. Never mind that it entails a factory-farmed turkey — that comes pre-stuffed with antibiotics — and store-bought pie crust (for starters).
“Oh, sure, that figure is fine if you drink water and have no snacks,” writes another. “Our family does neither. We usually end up spending about 200 bucks by the time all is said and done. And we’re not super-heavy drinkers. Once again, the government is living in Fantasyland.”
Our final correspondent does some math: “Turkey: 57 cents/lb X 20 = $11.40… Potatoes 48 cents/lb X 6 for regular and sweet = $3.00… Gravy comes out of the turkey… Misc. veggies, day-old bread for stuffing, salad, butter, etc., maybe another $8.00 if you buy the basics and make from fresh.
“Couple of store pies on sale at $2.99 each does dessert. Wine for six: three bottles at an average of $75 each (it is Thanksgiving).
“If you know how to buy right and aren’t afraid to cook, dinner can be sub-$30. But this is no time for ‘Two-Buck Chuck.’ Plan for a couple of C notes so you can toast your thanks in style!
“Happy Thanksgiving, and thanks for keeping us irreverently edutained!”
“So the CFTC spends over $264,000 per employee,” a reader writes — doing the math after we discussed the budget and staffing levels at the Commodity Futures Trading Commission.
“How much of that is salary, and how much is the cost of operations? Are we getting our money’s worth? What is the cost per employee (including those elected) for all of government? How does that jibe with private business? It would be interesting to know.”
The 5: The “getting our money’s worth” question answers itself if the agency has a website telling investors how to detect fraud, rather than the agency rooting out fraud itself, no?
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. The CFTC isn’t the only agency falling down on the job. One of our leading analysts has found what he considers a “screw-up” in public filings at the SEC that could show exactly when stocks might be about to soar in price.
As you can well imagine, this could be worth millions.
But the window of opportunity to act is very short. The next date is Nov. 30. And the government could close this loophole at any moment.