The Week in Review

by Rob Kirby, Kirby Analytics. August 14, 2006

At 1:00 a.m. ET this [Aug. 14, 2006] morning, a fragile peace has descended upon parts of the Middle East with the adoption of a U.N. Security Council Resolution mandating the cessation of hostilities between Israel and Hezbollah in Lebanon. Let's hope it is successfully enacted, the killing and destruction stops and peace holds.

The resulting "easing of tensions" is already being served up by much of the mainstream financial media as the reason for steep declines in the price of gold and crude oil. Interestingly, or perhaps not, little or no attention has been paid to this newsy item from Chinadaily,

China's crude oil imports rise by 17.6% (Agencies)
Updated: 2006-08-13 09:57
China's net import of crude oil rose by 17.6 per cent year on year in the first half of 2006, due to the rapid economic growth and booming automobile purchases.
Net imports of crude oil rose to 70.33 million tonnes while that of refined oil products increased to 12.03mts in the first half.
Net imports are calculated after subtracting the amount of oil China exported from the amount it imported. China imported 73.33mts of crude oil and exported 3mts in the first six months, Chinese customs officials said.
Angola, Saudi Arabia, Iran, and Russia were the top four oil suppliers for China during the six-month period.
As for refined oil, the country imported 18.23mts and exported 6.2mts in the January-June period.
According to officials, China's crude oil purchases cost the country $32bn and refined oil products cost $4.37bn...

Does any of this make any of you wonder whether or not the glass is really half full or half empty?

Mainstream Media Flog. Then Visit A Deadhorse

While I've never been an advocate of crying over spilt milk – the situation at Prudhoe Bay, Alaska – mentioned briefly as a developing news story last week in this space - warrants some mention;

PRUDHOE BAY, Alaska (MarketWatch) -- As Greater Prudhoe Bay Field Manager for BP PLC (BP), Kemp Copeland oversees a workforce of 4,000 who toil on 300 square miles of unforgiving arctic tundra. Life is good whenever he keeps the giant oil field humming at 400,000 barrels of crude per day - which is most of the time...
After initially signaling a months-long suspension of the entire Prudhoe bounty, the supply outlook by week's end looked considerably less dire. Not only had BP affirmed its intention to keep some 200,000 barrels flowing on the western half of the field, company officials were eyeing alternative pipeline routes in the east that suggested at least some of the suspended production could be back within weeks, rather than months...
Faced with a media throng after the initial shutdown announcement, BP relented and organized not one, but two tours of the Northern Slope on Thursday and Friday to accommodate media from as far a-field as Houston, Washington and the U.K. Reporters were shuttled from Anchorage to a BP operations center in remote, severe Deadhorse.
In its dusty starkness, the tiny oil town is the land-based equivalent of the remote platforms in the Gulf of Mexico, which can be accessed only by helicopter. Its name notwithstanding, the mood in Deadhorse has picked up some since BP's stunning weekend announcement. By mid-week, BP lifted drilling restrictions and the rigs went back to work, said John Neason, drilling superintendent for Nabors Industries' (NBR) Alaska operation...

Isn't it incredible how supply disruptions and reports of greater-than-expected new demand of an increasingly scarce commodity have empirically led to lower – 72.85 / bbl at the time of writing - crude prices? Maybe we should all celebrate and go buy new Hummers?

As a gold bug, I usually write about gold. Specifically, I tend to write about how the price of gold has been manipulated [suppressed] by monetary authorities to protect their "created from thin air" fiat currency. Despite the fact that the gold bug's case has been credibly documented to the nth degree – the mainstream media, industry types and politicos alike prefer to "turn a blind eye" to these assertions with counter claims that conspiracies simply do not exist.

So I found it somewhat interesting to read this morning that Congress was going to "probe" BP's shutdown of the Prudhoe Bay field,

Congress to probe BP shutdown
Stephanie Kirchgaessner, Washington. August 14, 2006
BP is facing a congressional probe over whether its decision to shut down production at its Prudhoe Bay field was a "market strategy" designed to manipulate the oil market.
In a scathing letter sent to BP chief executive John Browne, chairman of the House energy committee Joe Barton suggested the Alaska shutdown could be part of a wider strategy by BP to influence the market, particularly in light of recent allegations by US regulators that the company had engaged in illegal trading in the propane gas market...

At the risk of being accused of being a cynic, I cannot help but wonder if last week's primaries, one that saw a couple of high profile incumbents lose, might have prompted this type of investigation. I mean, you don't really suppose they all just wanted to let us commoners know how much they were feeling our anxiety – do you?

Who would ever have guessed; maybe conspiracies really exist after all?

Today's Market

Overseas equity markets began the week on a positive note with Japan's Nikkei Index adding 292 points to close at 15,857. North American markets also did better with the DOW up 9.84 to 11,097.87, the NASDAQ ahead by 11.30 to 2,069.00 and the S & P gaining 1.45 to 1,268.20. NYMEX crude oil futures lost .82 to close at 73.53 per barrel.

Foreign exchange markets saw the U.S. Dollar Index gain .08 to close at 85.47.

In the interest rate complex, rates rose sharply with the 2-year benchmark gov't bond ending the day at 5.01%, the 5-year at 4.95% and the 10-year bond ending at 5.00%.

Precious metals ended the day mixed with COMEX gold futures dropping 4.80 to close at 629.30 per ounce while COMEX silver futures added .20 to close at 12.17 per ounce. The XAU dropped 2.54 to 139.66 while the HUI lost 5.95 to close at 325.01.

On tap for tomorrow, at 8:30 a.m. July PPI data is due – expected +.4% vs. prior +.5%. Core expected +.2% vs. prior +.2%. Also at 8:30 a.m. – the Aug. NY Empire State Index is due - expected 17.0 vs. prior 15.6. Then at 9:00 a.m. – June Net Foreign Purchases [TIC data] is due – previous month's reading 69.6B.

Wishing you all a pleasant evening and happy back-to-school shopping!

Rob Kirby

Contact Information

Rob Kirby | Proprietor, Kirby Analytics Newsletter - Proprietary Macroeconomic Research
Toronto, Ontario, Canada | Observations | FSU Editorials | E-mail