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Shell shuts down Nigerian oil field after attack
Thursday June 19, 4:28 am ET
By Edward Harris, Associated Press Writer
Shell halts production at 200,000-barrel-per-day oil field in Nigeria after militant attack
LAGOS, Nigeria (AP) -- Royal Dutch Shell said it shut down production at an offshore oil installation that produces about 200,000 barrels per day after the most powerful militant group in Nigeria said it launched an attack there Thursday.
A leader of the Movement for the Emancipation of the Niger Delta told The Associated Press that militants attacked the Bonga oil field more than 65 miles from land. But the fighters weren't able to enter a computer control room, which they had hoped to destroy.
The militant leader spoke on condition of anonymity to avoid punishment by authorities.
Olav Ljosne, a spokesman for Royal Dutch Shell, confirmed an attack, but gave no details. He said production had been stopped from the field.
The militants also said they kidnapped a foreign worker from a supply vessel they met while returning home from the attack, but there was no immediate confirmation of that.
Attacks against offshore facilities are exceedingly rare. Oil industry officials consider their operations on the high seas much safer than those in the creeks and swamps of Nigeria's southern Niger Delta, where most of the attacks during two years of increased violence have taken place.
Militant attacks on oil infrastructure have trimmed about a quarter of total oil production in Nigeria, which is Africa's biggest producer and a member of OPEC.
The turmoil in Nigeria's south has helped send oil prices to historical heights, giving the militants more leverage in their drive to force the federal government to send more oil industry proceeds to their areas.
Despite being the home of almost all of Nigeria's petroleum reserves, the country's south is as desperately poor as the rest of the country, which is Africa's most populous with 140 million people.
But criminality and militancy are closely linked, with many of the militant groups accused of stealing crude oil from wells and pipelines for sale in overseas market and helping politicians rig elections.
http://biz.yahoo.com/ap/080619/nigeria_oil_unrest.html
PC was down past 3hrs /e
Atlantic City plans largest US solar roof
Wednesday June 18, 11:12 am ET
By Wayne Parry, Associated Press Writer
Atlantic City convention center plans largest solar roof project in US
ATLANTIC CITY, N.J. (AP) -- The Atlantic City Convention Center plans to install what it says would be the largest single-building solar energy project in the United States, providing more than a quarter of its daily electrical needs.
Under a 20-year agreement, the center is hiring a private company, Pepco Energy Services of Arlington, Va., to install the solar panels on 290,000 square feet -- or about two-thirds -- of its main roof.
Pepco will pay to install the panels; the convention center will then buy the electricity they generate from Pepco.
The center says it will save about $4.4 million in electricity costs over the 20-year contract, while also reducing greenhouse gases and helping the environment. It currently spends about $1.4 million a year on electricity.
The project will generate about 2.36 megawatts of energy, or enough to power 280 homes each day for a year. That would make it the largest solar energy project in the country involving a single rooftop, said Monique Hanis, a spokeswoman for the Solar Energy Industries Association.
Jeffrey Vasser, executive director of the Atlantic City Convention & Visitors Authority, said the group began planning a solar project a few years ago when Gov. Jon S. Corzine pushed for greater use of sun and wind power in New Jersey.
"We have a great building to do this on, and we wanted to be the first kid on the block to get in on it," Vasser said.
David Weiss, president of Pepco's energy services division, said renewable energy projects like the one in Atlantic City are "a great thing for the environment and the energy security of the country."
"This helps a young industry grow into a mature one, helps reduce our dependence on oil, and produces electricity that does not increase carbon emissions into the air," he said.
He would not say how much it will cost to install the panels other than to say it is "a multimillion-dollar project."
The work is expected to begin within 30 days and be completed by the end of the year. That's important because it would qualify Pepco for tax incentives for solar projects that are due to expire next year.
Public-private arrangements like this one are common across the country, but in Oregon, a power company has asked regulators to decide whether third-party deals that allow businesses to cut their tax bills by selling power to public entities violate utility laws.
The largest previously announced single-roof project in the United States is a 2.3-megawatt system being built by Toyota Motor Sales, in Ontario, Ca.
Other comparable projects include a 2-megawatt project at Tesco USA's grocery distribution center in Riverside, Ca., and 2-megawatt airport power projects in Denver and Fresno, Ca.
There are larger solar energy projects around the country that involve more than one building.
The 13,321 photovoltaic panels to be used in the Atlantic City project will generate electricity directly from sunlight by an electronic process that occurs naturally in certain types of material. Electrons in certain types of crystals are freed by solar energy, and can be made to travel through an electrical circuit, according to the solar association.
Currently, solar energy accounts for only 1 percent of U.S. energy use, the association said.
The convention and visitors authority also is looking into the possibility of building a single wind-powered turbine on land it owns near the center, as well as whether a solar project would work on part of Boardwalk Hall.
No idea half get placebo 4hr per week
WWEI big move, see reply to.
lab rat for a new protocol
select 59 other rats new drug
48.05, sorry been busy Dr appts.
Fed. 1day RP + 11.50B [All Add (icing)]
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
World's Fastest and First Petaflop Supercomputer Uses EMCORE Connects Cables
Wednesday June 18, 12:01 am ET
IBM uses 55 miles of optical fiber EMCORE Connects Cables to build Roadrunner HPC system
ALBUQUERQUE, N.M., June 18 /PRNewswire-FirstCall/ -- EMCORE Corporation (Nasdaq: EMKR - News), a leading provider of compound semiconductor-based components and subsystems for the broadband, fiber optic, satellite and terrestrial solar power markets, today announced that its optical fiber EMCORE Connects Cables (ECC) are being used by IBM on the DOE computer nicknamed Roadrunner, the first supercomputer to break the petaflop computing barrier.
ADVERTISEMENT
EMCORE Connects Cables are high-performance InfiniBand* interconnects that operate at high-speed 20 Gb/s data rates with and extremely low Bit Error rate of 10(-15). Due to this combination of high performance and excellent reliability, IBM chose EMCORE Connects Cables for Roadrunner, the Department of Energy (DOE) National Nuclear Security Administration funded High Performance Computing (HPC) cluster that will be housed at it's Los Alamos National Laboratory. On June 9, the DOE announced that Roadrunner was the first system to break 1,000 trillion calculations per second mark known as the Petaflop.
Stephen Krasulick, Vice President and General Manager of EMCORE's Digital Products division stated, "Two years of diligent work between the EMCORE Connects Cables team and IBM have made the era of petaflop computing a reality." Krasulick added, "EMCORE is proud to play a part in this computing milestone and to have our optical fiber EMCORE Connects Cables be the InfiniBand interconnect on the world's fastest supercomputer."
EMCORE is demonstrating a new 40 Gb/s EMCORE Connects Cable in conjunction with Mellanox Technologies at the International Supercomputing conference in Dresden on June 17-19. EMCORE Connects Cables currently support both 20 Gb/s Double Data Rate (DDR) and 10 Gb/s Single Data Rate (SDR) and are available in lengths from 1 to 100 meters.
For more information, visit EMCORE at www.emcoreconnects.com
Countrywide revelations muddle housing rescue
Tuesday June 17, 6:37 pm ET
By Julie Hirschfeld Davis, Associated Press Writer
Housing bill's future in doubt as prominent Democratic senators defend preferential mortgages
WASHINGTON (AP) -- Senate Banking Committee Chairman Christopher J. Dodd acknowledged Tuesday that he knew in 2003 that Countrywide Financial Corp. placed him in a "VIP section" when the firm reportedly gave him preferential rates on two mortgages.
But he denied he knew he was getting any special deal and said he didn't plan to give up the loans.
"I'm not clairvoyant," Dodd, D-Conn., said. "There was no red flag to me that we were getting some special treatment."
Revelations that Dodd and Sen. Kent Conrad, D-N.D., the Budget Committee chairman, got cut-rate mortgages through a VIP program for friends of Countrywide CEO Angelo Mozilo muddled Democrats' message as they push to complete a massive foreclosure rescue package before Congress breaks for a weeklong July 4 recess.
The package, which also includes tighter regulation for government-sponsored mortgage giants Fannie Mae and Freddie Mac and an array of tax breaks, could come to a Senate vote this week and stands a good chance of drawing substantial bipartisan support. But it faces an uncertain future in the House, where Democrats object to key details.
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman in the House, called the emerging package "a very good basis for some negotiations" but said there "are still a couple of important points" of disagreement.
"No one should expect that negotiations between two senators are going to make public policy for the whole country," Frank added, referring to talks between Dodd and Sen. Richard C. Shelby of Alabama, the senior Banking Republican, that produced the bill.
The controversy swirling around Dodd's and Conrad's VIP mortgages has cost Democrats crucial credibility on the issue as they compete with Republicans to portray themselves as the party most sympathetic to the plight of struggling homeowners.
The Senate Ethics Committee is looking into charges by a non-government watchdog group, Citizens for Responsibility and Ethics in Washington, that the special loans violated Senate rules on gifts that forbid knowingly accepting a loan on terms more favorable than those available to the general public.
An announcement by Dodd and Shelby that they had reached agreement on key elements of the housing package was eclipsed by Dodd's comments about his involvement in the VIP program.
Dodd, who has been considered a potential vice presidential running mate to Barack Obama following his own failed bid for the nomination, said he couldn't rule out having met Mozilo at some point, but said he hadn't talked to him about his mortgages.
"I never would," Dodd told reporters. "I mean, the idea that you would call the CEO of a bank to get a mortgage ... I just wouldn't do."
Conrad has acknowledged that he spoke to Mozilo by telephone when he was looking for a mortgage to purchase a vacation home in Bethany Beach, Del.
He said Tuesday that he hadn't called Mozilo himself, but happened to talk to him "by serendipity" because the Countrywide executive had been visiting his friend Jim Johnson when Conrad phoned looking for advice on home loans.
Johnson, the former Fannie Mae CEO, resigned from Obama's campaign last week after it was revealed that he, too, got a special deal on a Countrywide mortgage.
"I had no reason to believe, and I had no expectation, that I'd have any sweetheart deal," Conrad said.
Conrad, who also is a senior member of the tax-writing Finance Committee, said he would cooperate fully with an ethics committee investigation and reimburse Countrywide the $10,700 he saved on his vacation home loan through the VIP discount if the panel found a violation of gift rules.
Seeking to put the incident behind him, Conrad has already sent a check in that amount to Habitat for Humanity and refinanced his other Countrywide mortgage through a different company.
Republicans, buffeted by a wave of scandals, retirements and poor fundraising that have contributed to a challenging re-election climate, relished the opportunity to use the VIP loans to turn the tables on Democrats during the housing debate, according to senior GOP aides.
Sen. Jim DeMint, R-S.C., signaled he might try to block the measure, saying, through a spokesman: "The housing bill has a multibillion-dollar taxpayer bailout for a company that reportedly gave preferential loans to members of Congress. This is exactly the type of thing Americans are sick of."
Sorry, l see it now on the page. /e
Can't find a headline or story
stocks have not dropped...yet
CPST new yearly high on double vol..no news
Heres another one
#msg-30059660
Feeling thrifty, the thirsty reach for tap water
Tuesday June 17, 12:06 pm ET
By Tali Arbel, AP Business Writer
On tap: Shrinking budgets, eco-concerns leave more plastic water bottles on the shelf
Tap water is making a comeback.
With a day's worth of bottled water -- the recommended 64 ounces -- costing hundreds to thousands of dollars a year depending on the brand, more people are opting to slurp water that comes straight from the sink.
The lousy economy may be accomplishing what environmentalists have been trying to do for years -- wean people off the disposable plastic bottles of water that were sold as stylish, portable, healthier and safer than water from the tap.
Heather Kennedy, 33, an office administrator from Austin, Texas, said she used to drink a lot of bottled water but now tries to drink exclusively tap water.
"I feel that (bottled water) is a rip-off," she said in an e-mail. "It is not a better or healthier product than the water that comes out of my tap. It is absurd to pay so much extra for it."
Measured in 700-milliliter bottles of Poland Spring, a daily intake of water would cost $4.41, based on prices at a CVS drugstore in New York. Or $6.36 in 20-ounce bottles of Dasani. By half-liters of Evian, that'll be $6.76, please. Which adds up to thousands a year.
Even a 24-pack of half-liter bottles at Costco Wholesale Corp., a bargain at $6.97, would be consumed by one person in six days. That's more than $400 a year.
But water from the tap? A little more than 0.001 cent for a day's worth of water, based on averages from an American Water Works Association survey -- just about 51 cents a year.
U.S. consumers spent $16.8 billion on bottled water in 2007, according to the trade publication Beverage Digest. That's up 12 percent from the year before -- but it's the slowest growth rate since the early 1990s, said editor John Sicher.
Coca-Cola Enterprises Inc., the biggest bottler of Coca-Cola Co.'s Dasani, recently cut its outlook for the quarter, saying the weak North American economy is hurting sales of bottled water and soda -- especially the 20-ounce single serving sizes consumers had been buying at gas stations.
"They're not walking in and spending a dollar plus for a 20-ounce bottle of water," said beverage analyst William Pecoriello at Morgan Stanley. Flavored and "enhanced" waters like vitamin drinks are also eating into plain bottled water's market share.
Pecoriello said Americans' concern about the environment was also a factor, driven by campaigns against the use of oil in making and transporting the bottles, the waste they create and the notion of paying for what is essentially free.
The Tappening Project, which promotes tap water in the U.S. as clean, safe and more eco-friendly than bottled water, launched a new ad campaign in May. The company has also sold more than 200,000 reusable hard plastic and stainless steel bottles since last November.
Linda Schiffman, 56, a recent retiree from Lexington, Mass., bought two metal bottles at $14.50 each for herself and her daughter from Corporate Accountability, a consumer advocate group, after she swore off buying cases of bottled water from Costco.
"I've been doing a lot of cost-cutting since I retired," said Schiffman, a former middle-school guidance counselor. "Additionally, I started feeling like this was a big waste environmentally."
Aware of those concerns, some bottled water makers are trying to address the issue.
Nestle says all its half-liter bottles now come in an "eco-shape" that contains 30 percent less plastic than the average bottle, and it has pared back other packaging. PepsiCo and Coca-Cola have also cut down on the amount of plastic used in their bottles.
While it is difficult to track rates of tap water use, sales of faucet accessories are booming.
Brita tap water purification products made by Clorox Co. reported double-digit volume and sales growth in May and have seen three straight quarters of strong growth.
Robin Jaeger of Needham, Mass., fills her kids' reusable bottles with water from the house's faucet. But she doesn't use water straight from the tap.
"My kids have come to the conclusion that any water that's not filtered doesn't taste good," she said.
Her reverse-osmosis filter system costs about $200 every 18 months for maintenance -- still cheaper than buying by the bottle.
Kennedy, the tap convert from Texas, has a filter built into her refrigerator. She also recently bought a reusable aluminum bottle made by Sigg, a Swiss company which has stopped selling its $19.99 metal bottles from its Web site, saying demand has swamped its supply.
While Brita is the dominant player in water filtration, according to Deutsche Bank analyst Bill Schmitz, sales of P&G's Pur water filtration systems are also growing. Sales from the Pur line have increased almost every month since mid-2007, said Bruce Letz, its brand manager. He declined to give sales figures but said "the water filtration category is expanding very rapidly."
"There's a backlash against the plastic water bottle," Schmitz said.
Cities and businesses, big to small, have also gotten in on the action.
Marriott International Inc. distributed free refillable water bottles and coffee mugs to the 3,500 employees at its corporate offices in Bethesda, Md., and installed multiple water filters on every floor. The Chez Panisse restaurant in Berkeley, Calif., got rid of bottled still water in the summer of 2006 and started sparkling its own water in early 2007.
"Does it make sense to bottle water in Italy, trek it to a port, ship it all the way over here, then trek it to our restaurant?" said Chez Panisse general manager Mike Kossa-Rienzi. "We were going through 25,000 bottles a year. ... Someone has to end up recycling them."
Many cities, including New York, have enacted pro-tap campaigns, and some have stopped providing disposable water bottles for government employees.
Chicago started a 5-cent tax on plastic water bottles in January. San Francisco has done away with deliveries of water jugs for office use, instead installing filters and bottle-less dispensers, and banned the purchase of single-serving bottles by city employees with municipal funds. The city has already cut its government water budget in half, to $250,000 a year, said Tony Winnicker, spokesman for the San Francisco Public Utilities Commission.
"It's becoming chic to say, 'Oh no, I don't drink bottled water, I'll have tap water,' " he said.
WWEI
Welwind Energy International Corp Announces Negotiations of Joint Venture Partnership With Turbine Manufacturing Company and the Signing of Turbine Supply Agreement
Tuesday June 17, 9:00 am ET
SAN DIEGO, June 17, 2008 (PRIME NEWSWIRE) -- Welwind Energy International Corp (the ``Company'') (OTC BB:WWEI.OB - News) announces that it has begun negotiations for a Joint Venture Partnership with YATU Wind Energy Manufacturing Co. Ltd (formerly ENGGA) to manufacture wind turbines internationally and further announces that the two companies have signed a Turbine Supply Agreement (EPC) for 66 Wind Turbines for its Zhanjiang Wind farm Project.
more...http://biz.yahoo.com/pz/080617/144798.html
WWEI
Welwind Energy International Corp Announces Negotiations of Joint Venture Partnership With Turbine Manufacturing Company and the Signing of Turbine Supply Agreement
Tuesday June 17, 9:00 am ET
SAN DIEGO, June 17, 2008 (PRIME NEWSWIRE) -- Welwind Energy International Corp (the ``Company'') (OTC BB:WWEI.OB - News) announces that it has begun negotiations for a Joint Venture Partnership with YATU Wind Energy Manufacturing Co. Ltd (formerly ENGGA) to manufacture wind turbines internationally and further announces that the two companies have signed a Turbine Supply Agreement (EPC) for 66 Wind Turbines for its Zhanjiang Wind farm Project.
more...http://biz.yahoo.com/pz/080617/144798.html
Fed.(2)1day forward 28day + 20.00B [net sm drain
This repo operation has 1 collateral tranche
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
Fed. 2day RP + 5.00B [ drain 11.25 sofar
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
Butler: A Hidden Silver Default?
By: Theodore Butler
16 June, 2008
Today I am going to write on a subject that I feel is of the utmost importance to all silver investors. It’s particularly important to those holding shares of the Barclays silver ETF, traded on the American Stock Exchange under the symbol SLV. Because this may prove to be quite controversial as well, I will attempt to be thorough in my discussion, in the hopes that my words will not be misinterpreted. Although I will try to keep it short and simple, there is much to discuss.
It is just over two years that SLV has been in existence. Trading commenced at the end of April 2006. I started writing about this Silver Trust three years ago when it was first proposed, and have written many articles since then. I have always maintained that the silver ETF was big doings for silver. In just two years the amount of silver held in SLV has grown to 195 million ounces, the largest known stockpile on the face of the earth. Throw in two new silver ETFs from London and Switzerland and total silver ETF holdings jump to more than 220 million ounces. That’s a lot of silver.
It’s no secret why the silver ETFs have proven to be so popular. For the first time in history, they enabled institutional and retirement funds and other stock-only type accounts to easily buy and hold silver. Given silver’s unique dual role, as industrial commodity and investment asset, this was no small development. It is also clear that the advent of the ETF had an important impact on the price of silver. Not as much as I had expected, but still significant. After all, the price of silver tripled after the SLV was proposed. While there were other factors, it was the introduction of SLV that exerted the most influence on the price. Prior to the SLV, silver was locked in a $4 to $5 trading range.
As a silver analyst, I have always recognized the importance of the SLV in the silver supply and demand equation. Key to that issue was the matter of whether real silver backed up the assets of the trust, as Barclays claimed. While some commentators doubted that all the silver claimed to be in the trust was really there, others suggested the silver was being leased out or was being used to suppress the price of silver. However, I always believed that the silver claimed to be on deposit was actually in the custodian’s vaults. I still do. What I will be discussing today doesn’t involve the silver claimed to be on deposit. So much time and attention has been placed on the silver already deposited (or not) in the SLV, that the most important issue has been overlooked. That involves silver not claimed to be on deposit.
(A brief side note here. I’m a (very) independent silver analyst. I write what I feel should be written about concerning silver, with little or no concern for what others may think. I’ve written more than 300 articles in the past seven years that have been underwritten by Investment Rarities, Inc., and made available at no charge to all who care to read them. Not once have I written that readers should buy silver from them, although I do hold them in the highest regard. Nor have I ever taken any potshots at the SLV, perhaps much to the chagrin of the president of IRI, Jim Cook, who rightly views the SLV as a competitor to what his firm sells. I want to thank Mr. Cook for never trying to interfere or influence my analysis on the SLV or any other issue I chose to write on.)
After Barclays decided to follow my public suggestion that they openly list all the weights, serial numbers and hallmarks of the bars on deposit, my conviction that the silver said to be on deposit was reaffirmed. I publicly congratulated Barclays for doing the right thing.
However, I did mention in past articles that I noticed delays, from time to time, in the depositing of silver into the trust for new shares that were purchased. I attributed this to the logistics of physically procuring and transporting the silver to the custodian’s vaults in London. This wasn’t the way the prospectus clearly dictated, namely, that the silver had to be deposited before any new shares were issued or, allowed to be purchased. However, I wanted to save my critiques for more important issues. You learn to pick your battles, and I chose not to harp about a short delay, of a week or two, of a few million ounces of silver being deposited into the trust.
I began to notice this pattern of delay in depositing silver into the trust about six to eight months ago. In fact, the pattern became so regular that I could tell, fairly precisely, when and how much silver would be deposited. I did this by observing the price and volume patterns in the trading of SLV shares. I shared this information with close associates, and could see they were surprised with the accuracy of the pattern.
One thing became clear - in obvious conflict with what the prospectus dictated, there were regular periods when the trust did not have all the silver it should have. In other words, SLV had the silver it said it had, but, at times, there should have been more silver than that. It was also clear to me the mechanism by which this delay could be effected. Buyers of new shares could be issued those shares without new additional silver being deposited through the short selling of shares to the buyers of the new shares.
Aside from a fascination with observing the pattern, my main take from the consistent delays in depositing silver into the SLV, was that silver was not readily available in London. As an analyst, this told me that the supply of wholesale quantities of silver was much tighter than was generally known. This coincided, of course, with a well-known tightness in retail forms of silver, especially US Silver Eagles (thanks to Izzy’s article).
So here we had evidence of delays in the delivery of both retail and wholesale silver. Many are loath to utter the word "shortage" in connection with silver. They believe that to be impossible or they think the word means no availability at any price. That definition is silly, as there will always be some quantity available at some price. A commodity shortage doesn’t mean that all the silver (or any other commodity) in the world suddenly disappears. The correct definition of a commodity shortage would revolve around delivery delays, not unavailability. In other words, a delay in delivery of both retail and wholesale forms of silver would constitute a shortage. Maybe not a severe shortage, but a shortage nevertheless. Such evidence of delivery delays, in the face of declining prices, should disturb believers in free market principles.
Although these delivery delays into the SLV well after the shares were purchased bothered me, I chose not to complain. (By the way, this pattern can be discerned by the uneven deposit pattern into the SLV compared to its trading volume). The main thing that bothered me was that the shares were being shorted at all.
I am going to make a very straight-forward statement. I don’t think short-selling of any kind should be allowed in the shares of the SLV, nor in the shares of the two publicly-traded gold ETFs, GLD and IAU. Of all the tens of thousands of different common stock and other traded securities that are regulated by the US Securities and Exchange Commission (SEC), these three metal ETFs are very unique and distinct from the rest. Out of tens of thousands of different securities, only SLV, GLD, and IAU call for a rigid metal backing, 10 ounces of silver behind each share of SLV, one-tenth of an ounce of gold behind each share of either GLD or IAU. Investors buy shares of these ETFs because they are assured that this specific metal backing exists. Investors buy shares knowing that the sponsors and custodians guarantee the metal to be there.
But what happens when someone buys shares in these ETFs and the seller is selling those shares short? Does the short seller deposit metal to back up the buyer’s purchase? No. The short seller just sells the shares short without depositing metal, perhaps borrowing other shares first, perhaps not. The buyer doesn’t know who he is buying from, he gets a confirmation of his purchase from his broker, pays for it and assumes, according the representations in the prospectus, that he is buying new shares issued by the sponsor who has deposited metal, or from an existing shareholder who has decided to liquidate his shares. It never occurs to the buyer that he is buying from a short seller who is not depositing metal. In essence, the short seller is circumventing what is promised in the prospectus. That party is short-circuiting and destroying the promise clearly laid out in the prospectus that real metal backs every share sold.
Here’s the disturbing question - which buyers’ shares are left without silver backing when short sellers are involved in the transaction? Just the hapless and unsuspecting buyer who was unlucky enough to happen to have his purchase short sold, or do all SLV shareholders get shaved proportionately, like a silver coin clipped in olden times? Don’t look to the prospectus for answers, because you won’t find any.
For those who were unaware of this and don’t understand how shares can be sold with no metal backing (or doubt my contention), there is hard proof. There is a short position list reported that proves short selling exists. Currently, the SLV shows a small published short position on the American Stock Exchange of around 250,000 shares, or the equivalent of 2.5 million ounces. On March 11, this reported short position hit almost 1 million shares, or nearly 10 million ounces. So, there can be no doubt that some short selling exists, which raises all sorts of disturbing questions. In my opinion, this aspect of the metal-only ETFs wasn‘t fully thought through before their introduction. Unfortunately, the problem may be worse than just this SLV short selling; maybe much worse.
Around this past April 15 I began to notice a more pronounced delay of silver deliveries into the SLV. This was for much larger amounts of silver than I previously observed. In fact, the amount of short selling in SLV shares began to look extreme.
Just a short word on short-selling. Please don’t confuse this discussion on the short selling of shares of the SLV (and GLD and IAU) with the short selling I continually discuss in COMEX silver futures. I know this can be a complicated topic, but it is important for you to understand it. In futures, there must be a short for every long. Therefore, the problem in silver futures is not the presence of shorts, but the documented concentrated nature of this short position, namely, an extremely large short position held by just a few traders. Less extreme concentrations in other commodities have always been considered manipulative by the CFTC in the past; just not now in silver (and gold), for some reason.
Due to relaxations in the restrictions on short selling over the past decade by the SEC, the new phenomenon of naked short selling has exploded. Naked short selling in stocks doesn’t involve first borrowing the shares in which to sell short. The naked short seller just sells short without borrowing shares. The short seller then fails to deliver the shares to the buyer on settlement date. The punishment for what is essentially a delivery default? The SEC puts out a (long) list of stocks which have fails to deliver. That’s all it does, it makes a list. No fines, no forced buy backs, no identification of who is naked short selling, no staying after school for detention. And yes, SLV is on that list from time to time. To SLV owners, that should be disturbing.
One last kick in the teeth for SLV and silver investors. All investors who purchase SLV shares must pay in full for their shares (or borrow from their brokers at sky-high margin interest rates). Not only do the naked short sellers not have to deposit a dime for their short sales, nor deposit one ounce of real silver, they receive the full cash proceeds that the buyers put up and get to earn interest and deploy that cash until they buy back their short sales. Which may be never, as no one is pressuring them. This is a Wall Street scam and fleecing of the first order.
While it is simple to prove that both short selling and naked short selling in the SLV exists, it is not easy to quantify the amount. I’m convinced much of the naked short selling is done on an unreported basis. My best current guess of the amount of cumulative short selling in SLV shares since April 15, is between 2.5 to 5 million shares. This represents an amount of silver of between 25 to 50 million ounces. Let me be clear. I believe that buyers have paid for and hold shares in SLV for more than 25 to 50 million ounces of silver than are deposited in the trust. Can I prove this? No. Do I make this statement loosely and without careful consideration? No. Could the amount of naked short sales of SLV be less than my estimate? Yes. Could the amount of naked short sales be more than my estimate? Yes.
In the interest of full disclosure, I did try to take the high road in this matter. Several weeks ago, I notified Barclays Global Investors (BGI), of my specific concerns and asked them to resolve the issue privately. Since I have seen no effort on their part to do so, nor to refute my contentions, I decided to go public with this. In addition, a colleague of mine, Carl Loeb, also wrote to Barclays, which resulted in an exchange that either confirmed or did not deny the information I am describing today.
So what does this all mean to the silver market and, especially, to SLV investors? For the silver market, nothing could be more bullish or more disturbing. If I am correct, one or more Authorized Participants (APs), perhaps even Barclays, are the most likely candidates to be the big naked shorts in SLV. And it is hard to imagine that such naked short sellers of SLV are not one and the same as the big concentrated COMEX shorts.
What makes this so bullish for silver is that there is only one good reason for anyone to naked short sell SLV shares - because the available silver needed to be purchased and put into the custodian’s vault doesn’t exist. Rather than go out and aggressively bid up the price of world silver, it is infinitely easier just to sell shares of SLV short. No one would be the wiser and it keeps the price nice and orderly. But this also confirms that real silver may be unavailable in wholesale quantities. In other words, this would be proof of a wholesale shortage of silver to go along with a retail shortage.
What is disturbing, if my numbers are as correct, is that the same fraud and manipulation of the concentrated shorting in COMEX silver futures, has now spread to the SLV. And, if so, probably by the very same entities. Think about it - why would anyone willing to be short hundreds of millions of ounces of COMEX silver futures, hesitate to sell tens of millions of ounces more in SLV to keep the scam going? In for a penny, in for a pound. In fact, the pressure that has been put on the concentrated COMEX shorts may have forced the manipulators to sell the SLV short, in order to keep the COMEX short position from growing.
But what is most disturbing of all is that, aside from the manipulation connection, the short selling in SLV shares represents something that was only expected to be realized in the future in COMEX silver - a delivery default. If there is the equivalent of 25 to 50 millions of silver sold short in SLV (maybe less, but maybe more), that is equal of 5000 to 10,000 COMEX contracts. If buyers stood for the delivery of 5000 to 10,000 contracts of COMEX silver, and the sellers failed to deliver within the required contract period of time, everyone would know that was a major default and it would result in the most serious (bullish) impact possible for the price of silver and the exchange.
I ask you to use your common sense. If buyers bought and paid for 25 to 50 million ounces of silver in the SLV, as I claim, and the sellers did not deposit the silver as required, but instead just sold shares short, is that not a clear default? Is that not the same as 10,000 contracts defaulting on the COMEX? Just because no one knew it happened, until it was explained to them, does that make it less of a default?
Finally, even if my calculation of how much naked shorting of SLV shares is wide of the mark, I have laid out a scenario that could happen easily and that, to my knowledge, has never been publicly aired. Short selling (and naked short selling) of these shares does exist and those shares do not have silver behind them. At the very least, this should all be nipped in the bud by Barclays and the SEC and any short selling of SLV shares of any type should be strictly forbidden. Keep the short sellers confined to the COMEX and derivatives cesspool. All silver (and gold) investors should be concerned because the unique nature of these ETFs, with their direct connection and convertibility into metal, renders them as potential tools of fraud, manipulation and default.
What should SLV investors do about this? I think a few things. First, don’t rush to sell your SLV shares in disgust and walk away from the silver market. That would be like cutting your nose to spite your face. Silver is close to exploding in price, in my opinion, and to sell out just before that happens would be foolish and cause you to rue the day you did so. But neither should you sit passively with your SLV shares and pretend this short selling is unimportant.
If you can, make the switch to real silver, either in your own possession or in bona fide professional storage. A switch means a simultaneous transfer of one asset to another. Make the arrangements to buy real silver before you sell your SLV shares. Don’t get cute and try to time the market. And for the umpteenth time, professional storage (of 1000 oz bars) involves getting the serial numbers, weights, hallmarks of all bars certified to be specifically owned by you, having the ability of taking actual delivery of these same bars at your demand and storing your silver apart and distinct from the dealer you bought it from. Please don’t ask me about this or that program, just make sure it conforms to these rules.
For those who can’t switch out of SLV, hold your shares, but press Barclays and the SEC to the wall on this issue. I believe this can be fixed if you force them to fix it and demand no short selling of any kind, due to the unique nature of these securities and the clear representations in the prospectus. You succeeded when you asked Barclays to list the serial numbers and you will succeed on this issue. That even such a thing could happen is an outrage and if Barclays drags their feet on this issue, you should give them holy hell. Even if you can switch, please inquire yourself and give Barclays a chance to comment on all this - isharesetfs@barclaysglobal.com
Further, here’s a suggestion for large investors in SLV, those holding quantities in basket increments (50,000 shares or 500,000 ounces). Switch your shares to direct ownership of silver, by making a few phone calls and having your broker or AP, convert your shares to allocated silver held in your name. It will be cheaper for you to pay storage directly than pay Barclays management fees, it will be safer, and it will immunize you from these naked short selling games. The funny thing is that your silver will not even have to be physically moved, it’s just a matter of changing the ownership paperwork. Just have your BS-detection meter handy to measure the idiotic excuses you will be given when you initially propose this to your representatives.
Lastly, I’d like to review some of my past thoughts on the SLV, beginning when it was first proposed. I was wrong when I doubted that the silver ETF would come at all, but I was right that it would have a good impact on price if it came. I was right that the SEC would never approved another ETF that involved the physical buying of the commodity involved. Perhaps my biggest mistake was in stating that 130 million ounces of silver could not be purchased at anywhere near the current price, then around $7. I even questioned what the people at Barclays were smoking to suggest that 130 million ounces could be bought without fireworks. While it’s true that a tripling in price (at the highs) does meet the definition of "nowhere near current prices," I admit that I expected much more price-wise. And since there are now 195 million ounces in the SLV, maybe it wasn’t Barclays who was smoking something. Maybe it was me. Then again, maybe not.
This is not intended as a way for me to weasel out of a past misstatement, as that is sure to occur, as I try to write unique and provocative stuff about silver nearly every week. When you are quick on the draw, and try to stay current and out in front, you sometimes miss the mark. It’s an occupational hazard. The trick is not to hurt anyone, even if you miss the bulls-eye. While it would appear that I was way off in my lambasting of Barclays about them securing 130 million ounces easily, I’d like to review my contention again, strictly for analytical purposes, in light of what I now know versus what I couldn’t have known then.
I had assumed back in 2005, that there were not 130 million ounces of available silver in the world to be bought near $7 an ounce. Of course, I knew that more than that amount of silver existed, as I always quote a billion ounces of silver bullion equivalent to be in existence. But there is a difference between what exists and what is available for sale. I thought it was impossible to buy 130 million ounces in the single to low double digit price range. With the benefit of hindsight, I now see where I was wrong. And where I was right.
I never imagined that Warren Buffett would willingly sell his silver (said to amount to 130 million ounces, coincidently) so cheaply. Of course he didn’t exactly sell his silver willingly, he was more snookered out of it due to him speculating and miscalculating on short-term price fluctuations. But the net effect of him losing his silver was that it ended up in the SLV. Therefore, of the 195 million ounces in the SLV, as many as 130 million ounces may be from Buffett, leaving only 65 million as having been bought elsewhere. Am I doing this just to save face about a bad prior prediction? Absolutely not.
I am making these calculations to analyze what might be the real significance of the short selling in SLV shares. Had we all know that Barclays had somehow secured Buffett’s silver prior to the launch of the SLV, instead of calculating how much silver could be bought and at what price effect, starting from a zero base, we would have all made our calculations starting from a base of 130 million ounces. In other words, with the benefit of hindsight, removing the one-time snookering of Buffett, the actual amount of silver bought in two years by SLV was 65 million ounces, not 195 million. Taken Buffett out, the price of silver tripled because only 65 million ounces were actually purchased on the open market. That suggests a market tight beyond description.
I believe this is important because if my calculations are accurate, we may be in the eye of a world-wide silver shortage. That’s what the real motivation may be behind the shorting of SLV shares. The big shorts on the COMEX are now shorting the shares of SLV because they have no choice - there may be no silver available. If true, this is beyond profound for the price. If you are holding as much silver as you can hold, you are correctly positioned, in my opinion. If not, you are missing out on a remarkable opportunity.
A quick personal note. One of the unexpected benefits of being involved in silver, has been the opportunity to come to know some delightful people, because of a shared interest in silver. I had the occasion to visit (with my wife) such a friend recently, who has had a rough patch, health-wise. Here’s a wish and a prayer for a speedy recovery to my special friend Larry O and best regards to his lovely bride Judy.
http://news.silverseek.com/TedButler/1213640342.php
Butler: A Hidden Silver Default?
By: Theodore Butler
16 June, 2008
Today I am going to write on a subject that I feel is of the utmost importance to all silver investors. It’s particularly important to those holding shares of the Barclays silver ETF, traded on the American Stock Exchange under the symbol SLV. Because this may prove to be quite controversial as well, I will attempt to be thorough in my discussion, in the hopes that my words will not be misinterpreted. Although I will try to keep it short and simple, there is much to discuss.
It is just over two years that SLV has been in existence. Trading commenced at the end of April 2006. I started writing about this Silver Trust three years ago when it was first proposed, and have written many articles since then. I have always maintained that the silver ETF was big doings for silver. In just two years the amount of silver held in SLV has grown to 195 million ounces, the largest known stockpile on the face of the earth. Throw in two new silver ETFs from London and Switzerland and total silver ETF holdings jump to more than 220 million ounces. That’s a lot of silver.
It’s no secret why the silver ETFs have proven to be so popular. For the first time in history, they enabled institutional and retirement funds and other stock-only type accounts to easily buy and hold silver. Given silver’s unique dual role, as industrial commodity and investment asset, this was no small development. It is also clear that the advent of the ETF had an important impact on the price of silver. Not as much as I had expected, but still significant. After all, the price of silver tripled after the SLV was proposed. While there were other factors, it was the introduction of SLV that exerted the most influence on the price. Prior to the SLV, silver was locked in a $4 to $5 trading range.
As a silver analyst, I have always recognized the importance of the SLV in the silver supply and demand equation. Key to that issue was the matter of whether real silver backed up the assets of the trust, as Barclays claimed. While some commentators doubted that all the silver claimed to be in the trust was really there, others suggested the silver was being leased out or was being used to suppress the price of silver. However, I always believed that the silver claimed to be on deposit was actually in the custodian’s vaults. I still do. What I will be discussing today doesn’t involve the silver claimed to be on deposit. So much time and attention has been placed on the silver already deposited (or not) in the SLV, that the most important issue has been overlooked. That involves silver not claimed to be on deposit.
(A brief side note here. I’m a (very) independent silver analyst. I write what I feel should be written about concerning silver, with little or no concern for what others may think. I’ve written more than 300 articles in the past seven years that have been underwritten by Investment Rarities, Inc., and made available at no charge to all who care to read them. Not once have I written that readers should buy silver from them, although I do hold them in the highest regard. Nor have I ever taken any potshots at the SLV, perhaps much to the chagrin of the president of IRI, Jim Cook, who rightly views the SLV as a competitor to what his firm sells. I want to thank Mr. Cook for never trying to interfere or influence my analysis on the SLV or any other issue I chose to write on.)
After Barclays decided to follow my public suggestion that they openly list all the weights, serial numbers and hallmarks of the bars on deposit, my conviction that the silver said to be on deposit was reaffirmed. I publicly congratulated Barclays for doing the right thing.
However, I did mention in past articles that I noticed delays, from time to time, in the depositing of silver into the trust for new shares that were purchased. I attributed this to the logistics of physically procuring and transporting the silver to the custodian’s vaults in London. This wasn’t the way the prospectus clearly dictated, namely, that the silver had to be deposited before any new shares were issued or, allowed to be purchased. However, I wanted to save my critiques for more important issues. You learn to pick your battles, and I chose not to harp about a short delay, of a week or two, of a few million ounces of silver being deposited into the trust.
I began to notice this pattern of delay in depositing silver into the trust about six to eight months ago. In fact, the pattern became so regular that I could tell, fairly precisely, when and how much silver would be deposited. I did this by observing the price and volume patterns in the trading of SLV shares. I shared this information with close associates, and could see they were surprised with the accuracy of the pattern.
One thing became clear - in obvious conflict with what the prospectus dictated, there were regular periods when the trust did not have all the silver it should have. In other words, SLV had the silver it said it had, but, at times, there should have been more silver than that. It was also clear to me the mechanism by which this delay could be effected. Buyers of new shares could be issued those shares without new additional silver being deposited through the short selling of shares to the buyers of the new shares.
Aside from a fascination with observing the pattern, my main take from the consistent delays in depositing silver into the SLV, was that silver was not readily available in London. As an analyst, this told me that the supply of wholesale quantities of silver was much tighter than was generally known. This coincided, of course, with a well-known tightness in retail forms of silver, especially US Silver Eagles (thanks to Izzy’s article).
So here we had evidence of delays in the delivery of both retail and wholesale silver. Many are loath to utter the word "shortage" in connection with silver. They believe that to be impossible or they think the word means no availability at any price. That definition is silly, as there will always be some quantity available at some price. A commodity shortage doesn’t mean that all the silver (or any other commodity) in the world suddenly disappears. The correct definition of a commodity shortage would revolve around delivery delays, not unavailability. In other words, a delay in delivery of both retail and wholesale forms of silver would constitute a shortage. Maybe not a severe shortage, but a shortage nevertheless. Such evidence of delivery delays, in the face of declining prices, should disturb believers in free market principles.
Although these delivery delays into the SLV well after the shares were purchased bothered me, I chose not to complain. (By the way, this pattern can be discerned by the uneven deposit pattern into the SLV compared to its trading volume). The main thing that bothered me was that the shares were being shorted at all.
I am going to make a very straight-forward statement. I don’t think short-selling of any kind should be allowed in the shares of the SLV, nor in the shares of the two publicly-traded gold ETFs, GLD and IAU. Of all the tens of thousands of different common stock and other traded securities that are regulated by the US Securities and Exchange Commission (SEC), these three metal ETFs are very unique and distinct from the rest. Out of tens of thousands of different securities, only SLV, GLD, and IAU call for a rigid metal backing, 10 ounces of silver behind each share of SLV, one-tenth of an ounce of gold behind each share of either GLD or IAU. Investors buy shares of these ETFs because they are assured that this specific metal backing exists. Investors buy shares knowing that the sponsors and custodians guarantee the metal to be there.
But what happens when someone buys shares in these ETFs and the seller is selling those shares short? Does the short seller deposit metal to back up the buyer’s purchase? No. The short seller just sells the shares short without depositing metal, perhaps borrowing other shares first, perhaps not. The buyer doesn’t know who he is buying from, he gets a confirmation of his purchase from his broker, pays for it and assumes, according the representations in the prospectus, that he is buying new shares issued by the sponsor who has deposited metal, or from an existing shareholder who has decided to liquidate his shares. It never occurs to the buyer that he is buying from a short seller who is not depositing metal. In essence, the short seller is circumventing what is promised in the prospectus. That party is short-circuiting and destroying the promise clearly laid out in the prospectus that real metal backs every share sold.
Here’s the disturbing question - which buyers’ shares are left without silver backing when short sellers are involved in the transaction? Just the hapless and unsuspecting buyer who was unlucky enough to happen to have his purchase short sold, or do all SLV shareholders get shaved proportionately, like a silver coin clipped in olden times? Don’t look to the prospectus for answers, because you won’t find any.
For those who were unaware of this and don’t understand how shares can be sold with no metal backing (or doubt my contention), there is hard proof. There is a short position list reported that proves short selling exists. Currently, the SLV shows a small published short position on the American Stock Exchange of around 250,000 shares, or the equivalent of 2.5 million ounces. On March 11, this reported short position hit almost 1 million shares, or nearly 10 million ounces. So, there can be no doubt that some short selling exists, which raises all sorts of disturbing questions. In my opinion, this aspect of the metal-only ETFs wasn‘t fully thought through before their introduction. Unfortunately, the problem may be worse than just this SLV short selling; maybe much worse.
Around this past April 15 I began to notice a more pronounced delay of silver deliveries into the SLV. This was for much larger amounts of silver than I previously observed. In fact, the amount of short selling in SLV shares began to look extreme.
Just a short word on short-selling. Please don’t confuse this discussion on the short selling of shares of the SLV (and GLD and IAU) with the short selling I continually discuss in COMEX silver futures. I know this can be a complicated topic, but it is important for you to understand it. In futures, there must be a short for every long. Therefore, the problem in silver futures is not the presence of shorts, but the documented concentrated nature of this short position, namely, an extremely large short position held by just a few traders. Less extreme concentrations in other commodities have always been considered manipulative by the CFTC in the past; just not now in silver (and gold), for some reason.
Due to relaxations in the restrictions on short selling over the past decade by the SEC, the new phenomenon of naked short selling has exploded. Naked short selling in stocks doesn’t involve first borrowing the shares in which to sell short. The naked short seller just sells short without borrowing shares. The short seller then fails to deliver the shares to the buyer on settlement date. The punishment for what is essentially a delivery default? The SEC puts out a (long) list of stocks which have fails to deliver. That’s all it does, it makes a list. No fines, no forced buy backs, no identification of who is naked short selling, no staying after school for detention. And yes, SLV is on that list from time to time. To SLV owners, that should be disturbing.
One last kick in the teeth for SLV and silver investors. All investors who purchase SLV shares must pay in full for their shares (or borrow from their brokers at sky-high margin interest rates). Not only do the naked short sellers not have to deposit a dime for their short sales, nor deposit one ounce of real silver, they receive the full cash proceeds that the buyers put up and get to earn interest and deploy that cash until they buy back their short sales. Which may be never, as no one is pressuring them. This is a Wall Street scam and fleecing of the first order.
While it is simple to prove that both short selling and naked short selling in the SLV exists, it is not easy to quantify the amount. I’m convinced much of the naked short selling is done on an unreported basis. My best current guess of the amount of cumulative short selling in SLV shares since April 15, is between 2.5 to 5 million shares. This represents an amount of silver of between 25 to 50 million ounces. Let me be clear. I believe that buyers have paid for and hold shares in SLV for more than 25 to 50 million ounces of silver than are deposited in the trust. Can I prove this? No. Do I make this statement loosely and without careful consideration? No. Could the amount of naked short sales of SLV be less than my estimate? Yes. Could the amount of naked short sales be more than my estimate? Yes.
In the interest of full disclosure, I did try to take the high road in this matter. Several weeks ago, I notified Barclays Global Investors (BGI), of my specific concerns and asked them to resolve the issue privately. Since I have seen no effort on their part to do so, nor to refute my contentions, I decided to go public with this. In addition, a colleague of mine, Carl Loeb, also wrote to Barclays, which resulted in an exchange that either confirmed or did not deny the information I am describing today.
So what does this all mean to the silver market and, especially, to SLV investors? For the silver market, nothing could be more bullish or more disturbing. If I am correct, one or more Authorized Participants (APs), perhaps even Barclays, are the most likely candidates to be the big naked shorts in SLV. And it is hard to imagine that such naked short sellers of SLV are not one and the same as the big concentrated COMEX shorts.
What makes this so bullish for silver is that there is only one good reason for anyone to naked short sell SLV shares - because the available silver needed to be purchased and put into the custodian’s vault doesn’t exist. Rather than go out and aggressively bid up the price of world silver, it is infinitely easier just to sell shares of SLV short. No one would be the wiser and it keeps the price nice and orderly. But this also confirms that real silver may be unavailable in wholesale quantities. In other words, this would be proof of a wholesale shortage of silver to go along with a retail shortage.
What is disturbing, if my numbers are as correct, is that the same fraud and manipulation of the concentrated shorting in COMEX silver futures, has now spread to the SLV. And, if so, probably by the very same entities. Think about it - why would anyone willing to be short hundreds of millions of ounces of COMEX silver futures, hesitate to sell tens of millions of ounces more in SLV to keep the scam going? In for a penny, in for a pound. In fact, the pressure that has been put on the concentrated COMEX shorts may have forced the manipulators to sell the SLV short, in order to keep the COMEX short position from growing.
But what is most disturbing of all is that, aside from the manipulation connection, the short selling in SLV shares represents something that was only expected to be realized in the future in COMEX silver - a delivery default. If there is the equivalent of 25 to 50 millions of silver sold short in SLV (maybe less, but maybe more), that is equal of 5000 to 10,000 COMEX contracts. If buyers stood for the delivery of 5000 to 10,000 contracts of COMEX silver, and the sellers failed to deliver within the required contract period of time, everyone would know that was a major default and it would result in the most serious (bullish) impact possible for the price of silver and the exchange.
I ask you to use your common sense. If buyers bought and paid for 25 to 50 million ounces of silver in the SLV, as I claim, and the sellers did not deposit the silver as required, but instead just sold shares short, is that not a clear default? Is that not the same as 10,000 contracts defaulting on the COMEX? Just because no one knew it happened, until it was explained to them, does that make it less of a default?
Finally, even if my calculation of how much naked shorting of SLV shares is wide of the mark, I have laid out a scenario that could happen easily and that, to my knowledge, has never been publicly aired. Short selling (and naked short selling) of these shares does exist and those shares do not have silver behind them. At the very least, this should all be nipped in the bud by Barclays and the SEC and any short selling of SLV shares of any type should be strictly forbidden. Keep the short sellers confined to the COMEX and derivatives cesspool. All silver (and gold) investors should be concerned because the unique nature of these ETFs, with their direct connection and convertibility into metal, renders them as potential tools of fraud, manipulation and default.
What should SLV investors do about this? I think a few things. First, don’t rush to sell your SLV shares in disgust and walk away from the silver market. That would be like cutting your nose to spite your face. Silver is close to exploding in price, in my opinion, and to sell out just before that happens would be foolish and cause you to rue the day you did so. But neither should you sit passively with your SLV shares and pretend this short selling is unimportant.
If you can, make the switch to real silver, either in your own possession or in bona fide professional storage. A switch means a simultaneous transfer of one asset to another. Make the arrangements to buy real silver before you sell your SLV shares. Don’t get cute and try to time the market. And for the umpteenth time, professional storage (of 1000 oz bars) involves getting the serial numbers, weights, hallmarks of all bars certified to be specifically owned by you, having the ability of taking actual delivery of these same bars at your demand and storing your silver apart and distinct from the dealer you bought it from. Please don’t ask me about this or that program, just make sure it conforms to these rules.
For those who can’t switch out of SLV, hold your shares, but press Barclays and the SEC to the wall on this issue. I believe this can be fixed if you force them to fix it and demand no short selling of any kind, due to the unique nature of these securities and the clear representations in the prospectus. You succeeded when you asked Barclays to list the serial numbers and you will succeed on this issue. That even such a thing could happen is an outrage and if Barclays drags their feet on this issue, you should give them holy hell. Even if you can switch, please inquire yourself and give Barclays a chance to comment on all this - isharesetfs@barclaysglobal.com
Further, here’s a suggestion for large investors in SLV, those holding quantities in basket increments (50,000 shares or 500,000 ounces). Switch your shares to direct ownership of silver, by making a few phone calls and having your broker or AP, convert your shares to allocated silver held in your name. It will be cheaper for you to pay storage directly than pay Barclays management fees, it will be safer, and it will immunize you from these naked short selling games. The funny thing is that your silver will not even have to be physically moved, it’s just a matter of changing the ownership paperwork. Just have your BS-detection meter handy to measure the idiotic excuses you will be given when you initially propose this to your representatives.
Lastly, I’d like to review some of my past thoughts on the SLV, beginning when it was first proposed. I was wrong when I doubted that the silver ETF would come at all, but I was right that it would have a good impact on price if it came. I was right that the SEC would never approved another ETF that involved the physical buying of the commodity involved. Perhaps my biggest mistake was in stating that 130 million ounces of silver could not be purchased at anywhere near the current price, then around $7. I even questioned what the people at Barclays were smoking to suggest that 130 million ounces could be bought without fireworks. While it’s true that a tripling in price (at the highs) does meet the definition of "nowhere near current prices," I admit that I expected much more price-wise. And since there are now 195 million ounces in the SLV, maybe it wasn’t Barclays who was smoking something. Maybe it was me. Then again, maybe not.
This is not intended as a way for me to weasel out of a past misstatement, as that is sure to occur, as I try to write unique and provocative stuff about silver nearly every week. When you are quick on the draw, and try to stay current and out in front, you sometimes miss the mark. It’s an occupational hazard. The trick is not to hurt anyone, even if you miss the bulls-eye. While it would appear that I was way off in my lambasting of Barclays about them securing 130 million ounces easily, I’d like to review my contention again, strictly for analytical purposes, in light of what I now know versus what I couldn’t have known then.
I had assumed back in 2005, that there were not 130 million ounces of available silver in the world to be bought near $7 an ounce. Of course, I knew that more than that amount of silver existed, as I always quote a billion ounces of silver bullion equivalent to be in existence. But there is a difference between what exists and what is available for sale. I thought it was impossible to buy 130 million ounces in the single to low double digit price range. With the benefit of hindsight, I now see where I was wrong. And where I was right.
I never imagined that Warren Buffett would willingly sell his silver (said to amount to 130 million ounces, coincidently) so cheaply. Of course he didn’t exactly sell his silver willingly, he was more snookered out of it due to him speculating and miscalculating on short-term price fluctuations. But the net effect of him losing his silver was that it ended up in the SLV. Therefore, of the 195 million ounces in the SLV, as many as 130 million ounces may be from Buffett, leaving only 65 million as having been bought elsewhere. Am I doing this just to save face about a bad prior prediction? Absolutely not.
I am making these calculations to analyze what might be the real significance of the short selling in SLV shares. Had we all know that Barclays had somehow secured Buffett’s silver prior to the launch of the SLV, instead of calculating how much silver could be bought and at what price effect, starting from a zero base, we would have all made our calculations starting from a base of 130 million ounces. In other words, with the benefit of hindsight, removing the one-time snookering of Buffett, the actual amount of silver bought in two years by SLV was 65 million ounces, not 195 million. Taken Buffett out, the price of silver tripled because only 65 million ounces were actually purchased on the open market. That suggests a market tight beyond description.
I believe this is important because if my calculations are accurate, we may be in the eye of a world-wide silver shortage. That’s what the real motivation may be behind the shorting of SLV shares. The big shorts on the COMEX are now shorting the shares of SLV because they have no choice - there may be no silver available. If true, this is beyond profound for the price. If you are holding as much silver as you can hold, you are correctly positioned, in my opinion. If not, you are missing out on a remarkable opportunity.
A quick personal note. One of the unexpected benefits of being involved in silver, has been the opportunity to come to know some delightful people, because of a shared interest in silver. I had the occasion to visit (with my wife) such a friend recently, who has had a rough patch, health-wise. Here’s a wish and a prayer for a speedy recovery to my special friend Larry O and best regards to his lovely bride Judy.
http://news.silverseek.com/TedButler/1213640342.php
NEW YORK - Crude oil futures hit a record close to $140 a barrel Monday as the dollar weakened against the euro. Retail gas prices rose to a record $4.08 a gallon.
Light, sweet crude for July delivery rose to $139.89 before retreating to trade up $3.62 at $138.48 a barrel on the New York Mercantile Exchange.
Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is a major factor behind oil's doubling in price over the past year.
The euro bought $1.5504, a sizable increase from $1.5354 late Friday in New York. The British pound rose to $1.9668 versus $1.9469 in New York.
Also supporting prices was an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil production, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn.
But prices of North Sea-produced Brent crude oil, while higher, were lagging Nymex crude's advance, suggesting to analysts that the dollar was the main driver of Monday's rally.
"We have a weaker U.S. dollar, and the buyers are out in force right now," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.
Saudi Arabia, the world's largest oil producer, told U.N. chief Ban Ki-moon over the weekend that it would boost output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day. That increase was largely ignored by traders amid strong global demand and falling production elsewhere.
It appeared as if the same thing happened Monday.
"They have to increase by north of 1 million barrels per day (in order to have an impact on prices), and the market doesn't think they have it," Cordier said.
At the pump, meanwhile, the national average price of a gallon of gas rose 0.3 cent overnight to its latest milestone, according to AAA and the Oil Price Information Service. Gas prices are following crude prices higher, and likely have several more cents to rise before catching up with oil's latest advance. If oil prices pass $140 and head even higher, the pain consumers are feeling at the pump will intensify.
___
Associated Press writers George Jahn in Vienna, Austria, and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.
Fed.1day RP + 11.00B [All net Add ]
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
CHAPMAN: Gold, Silver, Economy & More
By: Bob Chapman
The International Forecaster
Sunday, 15 June 2008
US MARKETS
The acceleration of inflation is baked into the economic cake for, at minimum, the next 12 to 18 months worldwide. Fed jawboning won't change that. Phony PPT dollar rallies won't change that. Fed rate hikes won't change that. The reduction of money and credit won't change that. Falling oil prices won't change that. Lies about economic statistics, and especially about inflation data, won't change that. So, why can't the rate of inflation be changed for the next 12 to 18 months, you might ask? The reason is because inflation is not determined by smoke and mirrors, or by gimmicks and false data. It is determined by the rate at which the total supply of money and credit is being expanded or contracted (what economists call M3), which is measured by determining how much money and credit is being fed into, or subtracted from, each nation's financial system by its central bank over the course of a given month, as compared with the amount determined for the previous month. That figure is then annualized. Basically, the annualized rate of M3 that is determined for any nation becomes that nation's rate of inflation (expansion) or deflation (contraction), with a delay that usually runs about 6 to 18 months.
Contrary to what the fane-stream media, pusillanimous pundits and Wall Street shills might tell you, inflation is caused by too much money and credit chasing after too few goods, and today's oil and food crisis is now providing everyone with a textbook example of how profligate expansion of money and credit can ruin an economy in a frighteningly short period of time. The baked-in inflation rate for the US will run from its current 12.625% to as high as 18% over the next 12 to 18 months, even if the Fed totally cuts off all money and credit tomorrow and then throws rate hikes in for good measure! Our current actual (as opposed to official) rate of inflation of 12.625% is running at a lag of about one year from the time M3 had reached the 12.625% level, and that is why we see 12 to 18 more months of 12.625% to 18% inflation. We have extended our projection out to 18 months because we do not see M3 going below 12% any time soon.
If the Fed and the traitors in the White House and Congress want to see stagflation gone wild, just go ahead and let the Fed raise rates and/or contract the supply of money and credit. The baked-in inflation will then continue even as the economy goes into a thermonuclear meltdown! The Dow will lose 500 to 1000 points on each .25% rate hike as de-leveraging accelerates, margins are tightened and liquidity is drained from the system. Bond markets will be destroyed as principal plummets. The situation is now so bad that even a substantially weaker yen cannot bring enough carry trade liquidity into the system to hold up the general stock markets. It now takes 3.5 more yen to buy a dollar or a euro than it did with the Dow was just over 13,000, yet the Dow is now at just over 12,300. Part of the current stock market weakness is due to the lack of support from the PPT, which is trying to minimize the liquidity and profits available to large specs that could be used to rally metals. Hence, the need for protective derivatives.
Further, any dollar strength achieved by any such Fed rate hikes will have little impact on gold and silver because the resulting destruction of the economy will send everyone to gold and silver as the safe-haven of choice. Treasuries and money markets will still be yielding negative rates of return while the banks are getting hammered by the next round of the ongoing real estate debacle. As attention moves from the hundreds of billions of toxic waste held by banks in off-balance sheet SIV's to the hundreds of billions in toxic waste held by banks in off-balance sheet VIE's (Variable Interest Entities), any dollar-denominated treasuries and money markets aren't going to cut it any more as the real estate market drops into an even deeper, darker pit, sending the various real estate derivatives, and bank balance sheets, further down into the depths of the abyss. You will then watch precious metals go up with the dollar instead of running contrary to one another, and food and energy commodities might keep going up as stocks, bonds and other paper assets continue to be shunned by traders despite the stronger dollar. Throw in bank failures, heavy toxic waste write-downs, earnings disappointments, a consumer spending crisis, a credit default swap crisis, a new false-flag attack and/or a new theatre of conflict, and only precious metals will be going up with oil as the dollar gets taken out by the ensuing recession.
Rate hikes, coupled with weaker real estate values, and thus huge declines in both bond principal value and bond collateral value, could set off a bear market in bonds that could take the whole system down even more quickly than the credit-crunch and subprime debacles combined.
Note that when the Fed was on its rate hike campaign that terminated at 5.25%, inflation continued to grow because M3 was wildly expanded during the entire rate hike campaign. That is what separates the current inflationary debacle from all other periods of inflation. During all other periods of high inflation, the cure for an overheated economy was applied by either an increase in interest rates or by a contraction in M3, or by both. The current inflationary cycle is the first period of high inflation where interest rate hikes were totally offset, and overwhelmed by, the expansion of money and credit which totally negated any slowing of the economy that might have been achieved by the rate hikes. The Fed, Wall Street and our bought-off and compromised government officials conspired to keep up the speculation that was used to power the ongoing derivatives fraud by pumping out prodigious amounts of money and credit while lying to us about inflation, which was skyrocketing as a result. That is the precise reason why the Fed's rate hikes failed to cool the economy and to slow inflation. Instead, the derivatives fraud led to the credit-crunch, which then cooled our economy. Then, in order to attempt to save our economy, rates had to be cut back by the Fed while money and credit were expanded even further, the perfect formula for hyperinflation which you are now witnessing as we write this issue of the IF. In addition, the economy was not saved, and now inflation is getting worse as the direct outcome of the failed measures to save our economy, thus causing further and additional damage to our economy as food and energy costs skyrocket and US consumers are tapped out. That, in turn, is the perfect formula for hyperstagflation.
Note that our economy was destroyed already before the credit-crunch by free trade, globalization, off-shoring, outsourcing and both legal and illegal immigration, and now we have rampant inflation to boot. Precious metals and their related shares, professionally managed Forex accounts and Swiss franc-denominated government bonds are your only options at this point to avoid being beggared and impoverished by the Illuminati.
As mentioned above, an orgy of Wall Street fraud has brought us an economy-killing credit-crunch. That credit-crunch has forced the Fed to initiate a maniacal expansion of money and credit to keep Illuminist insider financial institutions from imploding. Much of the money and credit from that maniacal expansion is not being re-loaned because all confidence in the system has been lost due to rampant, rampaging fraud, much of which was committed by Illuminist insiders against other Illuminist insiders, proving once again that there is no honor among thieves. So where is this huge portion of all that money and credit going if it is not being re-loaned? A very large portion is being used to make substantial, speculative profits from a whole bevy of commodities, especially from crude oil and agricultural products, by virtue of a loophole provided by the depraved group of village idiots who run our country (Congress), a loophole that allows big banks to operate in the commodities markets without position limits, allowing them to run amok in those markets with privileges that are not extended to other, non-elitist players. Our government regulators always provide us with such a level playing field, don't they? What an absolute disgrace.
Inflation is destroying the world economy as central banks around the globe pump out money and credit until it inundates everything, and the leading creator of inflation and destroyer of the world economy is the Federal Reserve, a private banking concern, a majority of which is owned by two shareholders, namely, JP Morgan Chase and Citigroup, the main fraudsters of Wall Street. Wherever you see financial chicanery, these two malfeasants are usually somewhere in the mix. Ask Enron and Bear Stearns shareholders. And now the Fed's machinations, in cahoots with elitist banks around the world, have caused a worldwide stock market crash and have sent the world financial system into an inflationary quagmire, perhaps to pave the way for world government. You have already seen us drop from a high last year of about 14,200 on the Dow to today's roughly 12,300, a 13%+ loss. That would have been triple or quadruple were it not for the PPT. Then there is China, whose stock market has shed 50% from its peak, India, whose markets have shed 27% from their peak, Japan, whose stock markets have been in a state of implosion for two decades and Brazil, which is about to watch its currency implode for the second time in a decade. China uses 5 times more oil per unit of GDP produced than does the US. What do you think oil prices are doing to them? So much for free trade and globalism, and so much for the hypothesis that emerging markets can carry the world financial markets while the US and other western economies in Canada and Europe go under. What you have is a worldwide disaster in the making, with food shortages, starvation, social upheaval and revolution on their way. The would-be lords of the universe have really done it this time. We expect that very few of them will survive when people find out what they have done.
Robert the Bruce stopped the British Black Nobility from imposing their draconian feudal system on Scotland in 1314 at the Battle of Bannockburn. Our Founding Fathers fought and won two wars against the perfidious British Black Nobility to keep them from imposing their mercantilism and European-style, debt-based, private fractional reserve banking system on America with victories in the Revolutionary War and the War of 1812. Now we can add Ireland, whose citizens have stopped the European Union and its free trade, globalist agenda, both supported by the British Black Nobility and the other Black Nobility of Europe, dead in their tracks with a vote against the Lisbon Treaty, which was the EU's attempt to short circuit the common folk of Europe to establish their regional dictatorship and regional currency in preparation for a diabolical one-world government and one-world currency. Let's hope that the citizens of the US do the same with the clandestine North American Union and the Amero. This adds to the EU's woes as a one-interest-rate-fits-all policy continues to alienate the weaker EU members from the EU's economic powerhouse, Germany, the vast majority of whose citizens want their old Deutsche Marks back. While that group of weaker members may include Ireland, and while Ireland has shown considerable weakness from an economic point of view lately, that weakness does not appear to extend to their political wisdom. Let's hear it for the Irish! ERIN GO BRAGH!!!
Retail sales rose 1.0% for the month of May. Big whoop! That figure is not adjusted for the actual rate of inflation, which also just happens to be approximately 1.0% per month here in the US. That means retail sales were actually flat, with all growth attributed to price increases and not a smidgeon to an increase in the amount of goods which consumers purchased. Thus, our 160 billion-stimulus package netted a big fat goose egg. Perfect.
It is clear that oil and food are being driven up while gold and silver are being suppressed, so that when it comes time for the next precious metals rally, everything else will be hit and the dollar will be talked up. Apparently the cartel has not yet figured out that all the money from the sell-off of oil and other commodities will have to find a home somewhere, and precious metals are a very likely resting place. No one believes anything emanating from Bernanke, the Fed or our Treasury anymore. They have been dead wrong about every prediction they have made, and have lied pathologically. We will likely see rate cuts before we ever see rate hikes. The next debacle is on its way, and as soon as Ben the Bear Killer gets wind of it, he'll drop rates faster than JP Morgan Chase took over Bear Stearns with a big, juicy taxpayer gift courtesy of the Fed. Meanwhile, we must endure the poppycock drivel that the Fed and our Treasury support a strong dollar, with M3 still over 16% and ongoing, unbridled speculation by banks in the commodities markets with easy cash and credit from the Fed, received in exchange for toxic waste collateral. Again, perfect.
Not only does the nominal price of gold and silver tell you how desperate we are financially, but the degree of manipulation should also be considered. If gold and silver are used as hedges, especially gold, then why do they go down when everything else is going up? Oil was only at 112 when gold was over 1000. Now we have 870 gold with oil at 135 and many food commodities doubling, tripling and quadrupling. Does that make any sense to anyone? If it does, then they are either a cartel insider, or they are just plain dumb. Three cheers for ETF's and mint certificates, backed by the gold and silver of the proletariat which is now being used by the elitists to suppress precious metals by selling and leasing the very gold and silver which the duped proletariat think they own, while resource shares are ignored or naked-shorted. This transpires as bullion banks are paid to take out short-term silver leases and as specs continue to gamble in rigged casinos owned by the elitists while refusing to purchase and take possession of their gold and silver for cash. Welcome to corporatist, fascist America, where the sheople continue to confirm P. T. Barnum's famous quote. Detach yourself from the Matrix, or get reamed.
If you think employment is bad now, wait until thousands of municipalities go bankrupt. They are the only ones making any significant contributions of good-paying jobs at this point. Their tax receipts are dropping into the tank as their bond insurers go belly up, as their ratings drop off a cliff, as their lending rates double, triple or more, and as the auction rate municipal bond market goes the way of the dodo bird, while the 330 billion owned by auction rate municipal bondholders goes up in flames since there exists no market where they can be sold, and bank's do not intend to revive the old one. The state and local governments are about to join consumers in the big "Sorry-We're-All-Tapped-Out" final binge party as they make appointments to have consultations with their bankruptcy attorneys. This transpires as they are forced to take over houses that have been abandoned by people who should never have owned them in the first place and as they make accommodations for the tent cities that are growing in size and number by the hour. Wonder what corporate earnings will look like when the municipal tits are shut off?
Published and Edited by: Bob Chapman
E-Mail Addresses:
Capstone Receives $1.5 Million in New Units, Equipment Upgrades, Spare Parts and Service Orders from Pemex
Monday June 16, 5:00 am ET
CHATSWORTH, Calif.--(BUSINESS WIRE)--Capstone Turbine Corporation (www.microturbine.com) (Nasdaq: CPST - News), the world’s leading clean technology manufacturer of microturbine energy systems, today announced that it has received orders for new microturbine systems for deployment on a Petroleos Mexicanos (PEMEX) offshore oil platform in the Gulf of Mexico and equipment upgrades to existing platform systems, spare parts and training.
MORE: http://biz.yahoo.com/bw/080616/20080616005363.html?.v=1
Don Coxe: Fridays weekly audio program.
http://events.startcast.com/events/199/B0003/#
Chart faxed was of corn and titled "The Rain Stays Mainly In The Plain."
Corn & grains
central banks more risk to save system
re-plant & re-fert crops in flood planes
Ag stocks still in play
long oil & Ag
sell off gold - rally Bonds [briefly]
sees signif bear market bonds
Much more, Q/A starts 27min into broadcast
Full-Bore Quest For Oil, Gas Alan R. Elliott
Fri Jun 13, 6:00 PM ET
http://news.yahoo.com/s/ibd/20080613/bs_ibd_ibd/20080613industry
When BP announced on June 10 that its massive Thunder Horse offshore oil and gas production facility would ease into operation June 14, the milestone came both ahead and woefully behind schedule.
At 120,000 tons, the Thunder Horse platform is arguably the largest moored semisubmersible vessel in the world. It reaches through mile-deep seas to 25 wells on the ocean floor. Each well bores another three miles down through ice, mud and rock.
Equipment from companies like FMC Technologies (NYSE:FTI - News) links the wells into a subsea complex roughly the size of Houston.
Hurricane Dennis dealt Thunder Horse a critical blow in July 2005, leaving the platform listing wildly into the Gulf. The blow stalled the project's original 2005 start date.
A year later, further delays. Tests revealed cracks in one of FMC's massive manifolds on the seafloor. Equipment engineered to take on scorching hot oil grew brittle as it sat dormant at super-chilled sea-floor temperatures.
BP (NYSE:BP - News) pulled all its ocean bed hardware and re-engineered it to higher specs. The glitch pushed the planned launch date back to late this year. A startup this weekend would put production well ahead of that delayed timetable.
In spite of costs estimated in the tens of millions of dollars to lift and re-manufacture the equipment, BP said the biggest loss would be in delayed production.
Thunder Horse is designed to process 250,000 barrels of oil a day, worth about $32 million.
The project and its challenges spotlight an industry banking on untested technology.
As super-major oil operators move further into ultra-deep-water projects -- seeking large-scale oil and natural gas reserves beyond the influence of political upheaval -- FMC and its peers are outfitting what is probably the most ambitious undertaking since the space program.
"What we are seeing offshore represents the greatest technical achievement of our civilization," said Richard Mason, publisher of the Land Rig Newsletter. "I think it is actually more complicated than trying to send something to the planet Mars."
1. Business
The race this time is not into space. Oil production in many key regions is declining from dwindling reserves or from exploration and development shortfalls caused by government takeovers.
Large, integrated producers are in a race to provide fuel for heat, electricity and transportation to consumers in the U.S., Europe, China, India and Brazil.
They are racing to increase production, to prevent energy prices from spiraling beyond reach and to keep nations that are net oil importers from becoming more deeply beholden to the oil exporters of the world.
They are also racing to boost profit for their shareholders as oil prices arc into record territory.
FMC and peers including National Oilwell Varco (NYSE:NOV - News), Weatherford International (NYSE:WFT - News) and Cameron International (NYSE:CAM - News) are the enablers of this race. They serve the major oil producers in much the same way that aerospace contractors served the Mercury and Apollo space missions -- providing engineering and research expertise, and the ability to manufacture to demanding specifications.
The group also supplies mid- and smaller-tier producers with the compressors, mud pumps, blowout valves and drill pipe needed to drill and develop oil and natural gas fields.
Name Of The Game: Global reach and best-in-class engineering and manufacturing capabilities are key in the offshore market. The land business is more close-knit, more regional, but still relies on top-shelf technologies, equipment and services.
2. Market
Drilling activity is a huge driver of demand. In North America, about 80% of the active rigs are pursuing natural gas; 20% are chasing oil. Modest shifts in natural gas prices can make or break a boom.
Offshore and overseas, projects tend to be more durable. That's particularly true with the major producers, who set spending plans based on long-term production horizons.
Offshore exploration and drilling have also been the biggest drivers of growth in recent years, especially in the U.S. Gulf of Mexico, Latin America, Asia and the Middle East. West Africa has become a bigger market, too.
3. Climate
We have entered an age where oil price forecasts are worthless. The Energy Information Administration's May 2007 energy outlook called for a steady increase in oil prices to $100 a barrel by 2015. Its short-term outlook, released June 10, called for an average of $122.15 a barrel this year, climbing to $126 in 2009.
Crude oil futures climbed to near $138 a barrel last week.
No one knows what happens next. The real possibility of further declines in the dollar have top-flight investment names like Goldman Sachs (NYSE:GS - News) banking on oil making further gains. But the oil industry is led by old hands that have watched prices crash repeatedly through the years. Once crashed, prices have sometimes taken as long as a decade to recover.
Still, oil companies have to forecast prices to plan investment and book production-sharing contracts. Each operator determines their own price to use as a guideline, says Joseph Stanislaw, senior adviser to Deloitte & Touche's Energy & Resources practice. But all show a healthy skepticism toward the current boom.
"If I had to plan future developments, I would plan a field around $75 oil," Stanislaw said. "If I were budgeting my current cash flow for this year, I would say $85 maybe $90."
4. Technology
Deep-water development may be the industry's most inspiring feat. But evolving technology and grasp of geology are also fueling dramatic onshore advances.
Drillers once limited to boring straight down can now drill down a mile, out horizontally another mile and nail a target the size of a coffee can. This means reserves once chased through multiple, straight-down well bores can be drained from a single shaft.
In addition, the industry is rapidly gaining experience in extracting gas and oil once thought inaccessible in "unconventional" formations like shale.
The Barnett shale beneath Houston became a kind of laboratory for shale production research, spinning off technologies and techniques now being put to use across North America.
Those include fracture and stimulation methods that require equipment, materials and services supplied by companies in the machinery and equipment group.
"We are still very early on the learning curve," Mason said. "Our ability to produce natural gas from ever-crummier rocks and more difficult formations is going to improve, and maybe improve dramatically over time."
5. Outlook
Soaring energy prices have launched a bonanza among drillers in North America and overseas. Explorers and producers are sinking more wells. Drilling contractors are building more rigs.
"Initially we were estimating the (land rig) fleet would add four or five dozen units this year," Mason said. "Now it looks like it's going to nearly double that."
Supplies are tight and prices are climbing for rigs, materials and, above all, skilled labor.
The latest Upstream Capital Cost Index -- the consumer price index for the oil field -- from IHS/Cambridge Energy Research Associates shows the costs of developing a new oil or natural gas field more than doubled in four years.
The cost of a deep-water drill ship rose from $125,000 per day four years ago to more than $600,000.
That inflation is cramping the expansion of many smaller players.
A stream of new offshore rigs set to come on line later this year will give the shallow-water segment of the market its biggest boost in 15 years, placing downward pressure on rig rates, according to offshore rig analyst Jeremy Antonini with Rigzone. But supply of and prices for deep-water rigs and equipment will remain tight for the foreseeable future.
In the land market, new shale finds and more producers entering the game have kept pricing firm.
But Mason cautions that demand hinges on natural gas prices. Natural gas prices are tightly linked to supply vs. demand.
And the threat of oversupply increases as rig counts swell and producers crowd into the market. That balances the North American natural gas industry on a tight rope between boom and bust.
"The difference between a tight market and $12 gas vs. a very loose market and $6 gas is really about four weeks of activity," Mason said.
Upside: Most analysts see continued demand for hard-to-reach oil and gas as emerging economies such as India and China grow.
Risks: Oversupply remains a concern among many oil-industry veterans, especially as more rigs and producers crowd the market.
Full-Bore Quest For Oil, Gas Alan R. Elliott
Fri Jun 13, 6:00 PM ET
http://news.yahoo.com/s/ibd/20080613/bs_ibd_ibd/20080613industry
When BP announced on June 10 that its massive Thunder Horse offshore oil and gas production facility would ease into operation June 14, the milestone came both ahead and woefully behind schedule.
At 120,000 tons, the Thunder Horse platform is arguably the largest moored semisubmersible vessel in the world. It reaches through mile-deep seas to 25 wells on the ocean floor. Each well bores another three miles down through ice, mud and rock.
Equipment from companies like FMC Technologies (NYSE:FTI - News) links the wells into a subsea complex roughly the size of Houston.
Hurricane Dennis dealt Thunder Horse a critical blow in July 2005, leaving the platform listing wildly into the Gulf. The blow stalled the project's original 2005 start date.
A year later, further delays. Tests revealed cracks in one of FMC's massive manifolds on the seafloor. Equipment engineered to take on scorching hot oil grew brittle as it sat dormant at super-chilled sea-floor temperatures.
BP (NYSE:BP - News) pulled all its ocean bed hardware and re-engineered it to higher specs. The glitch pushed the planned launch date back to late this year. A startup this weekend would put production well ahead of that delayed timetable.
In spite of costs estimated in the tens of millions of dollars to lift and re-manufacture the equipment, BP said the biggest loss would be in delayed production.
Thunder Horse is designed to process 250,000 barrels of oil a day, worth about $32 million.
The project and its challenges spotlight an industry banking on untested technology.
As super-major oil operators move further into ultra-deep-water projects -- seeking large-scale oil and natural gas reserves beyond the influence of political upheaval -- FMC and its peers are outfitting what is probably the most ambitious undertaking since the space program.
"What we are seeing offshore represents the greatest technical achievement of our civilization," said Richard Mason, publisher of the Land Rig Newsletter. "I think it is actually more complicated than trying to send something to the planet Mars."
1. Business
The race this time is not into space. Oil production in many key regions is declining from dwindling reserves or from exploration and development shortfalls caused by government takeovers.
Large, integrated producers are in a race to provide fuel for heat, electricity and transportation to consumers in the U.S., Europe, China, India and Brazil.
They are racing to increase production, to prevent energy prices from spiraling beyond reach and to keep nations that are net oil importers from becoming more deeply beholden to the oil exporters of the world.
They are also racing to boost profit for their shareholders as oil prices arc into record territory.
FMC and peers including National Oilwell Varco (NYSE:NOV - News), Weatherford International (NYSE:WFT - News) and Cameron International (NYSE:CAM - News) are the enablers of this race. They serve the major oil producers in much the same way that aerospace contractors served the Mercury and Apollo space missions -- providing engineering and research expertise, and the ability to manufacture to demanding specifications.
The group also supplies mid- and smaller-tier producers with the compressors, mud pumps, blowout valves and drill pipe needed to drill and develop oil and natural gas fields.
Name Of The Game: Global reach and best-in-class engineering and manufacturing capabilities are key in the offshore market. The land business is more close-knit, more regional, but still relies on top-shelf technologies, equipment and services.
2. Market
Drilling activity is a huge driver of demand. In North America, about 80% of the active rigs are pursuing natural gas; 20% are chasing oil. Modest shifts in natural gas prices can make or break a boom.
Offshore and overseas, projects tend to be more durable. That's particularly true with the major producers, who set spending plans based on long-term production horizons.
Offshore exploration and drilling have also been the biggest drivers of growth in recent years, especially in the U.S. Gulf of Mexico, Latin America, Asia and the Middle East. West Africa has become a bigger market, too.
3. Climate
We have entered an age where oil price forecasts are worthless. The Energy Information Administration's May 2007 energy outlook called for a steady increase in oil prices to $100 a barrel by 2015. Its short-term outlook, released June 10, called for an average of $122.15 a barrel this year, climbing to $126 in 2009.
Crude oil futures climbed to near $138 a barrel last week.
No one knows what happens next. The real possibility of further declines in the dollar have top-flight investment names like Goldman Sachs (NYSE:GS - News) banking on oil making further gains. But the oil industry is led by old hands that have watched prices crash repeatedly through the years. Once crashed, prices have sometimes taken as long as a decade to recover.
Still, oil companies have to forecast prices to plan investment and book production-sharing contracts. Each operator determines their own price to use as a guideline, says Joseph Stanislaw, senior adviser to Deloitte & Touche's Energy & Resources practice. But all show a healthy skepticism toward the current boom.
"If I had to plan future developments, I would plan a field around $75 oil," Stanislaw said. "If I were budgeting my current cash flow for this year, I would say $85 maybe $90."
4. Technology
Deep-water development may be the industry's most inspiring feat. But evolving technology and grasp of geology are also fueling dramatic onshore advances.
Drillers once limited to boring straight down can now drill down a mile, out horizontally another mile and nail a target the size of a coffee can. This means reserves once chased through multiple, straight-down well bores can be drained from a single shaft.
In addition, the industry is rapidly gaining experience in extracting gas and oil once thought inaccessible in "unconventional" formations like shale.
The Barnett shale beneath Houston became a kind of laboratory for shale production research, spinning off technologies and techniques now being put to use across North America.
Those include fracture and stimulation methods that require equipment, materials and services supplied by companies in the machinery and equipment group.
"We are still very early on the learning curve," Mason said. "Our ability to produce natural gas from ever-crummier rocks and more difficult formations is going to improve, and maybe improve dramatically over time."
5. Outlook
Soaring energy prices have launched a bonanza among drillers in North America and overseas. Explorers and producers are sinking more wells. Drilling contractors are building more rigs.
"Initially we were estimating the (land rig) fleet would add four or five dozen units this year," Mason said. "Now it looks like it's going to nearly double that."
Supplies are tight and prices are climbing for rigs, materials and, above all, skilled labor.
The latest Upstream Capital Cost Index -- the consumer price index for the oil field -- from IHS/Cambridge Energy Research Associates shows the costs of developing a new oil or natural gas field more than doubled in four years.
The cost of a deep-water drill ship rose from $125,000 per day four years ago to more than $600,000.
That inflation is cramping the expansion of many smaller players.
A stream of new offshore rigs set to come on line later this year will give the shallow-water segment of the market its biggest boost in 15 years, placing downward pressure on rig rates, according to offshore rig analyst Jeremy Antonini with Rigzone. But supply of and prices for deep-water rigs and equipment will remain tight for the foreseeable future.
In the land market, new shale finds and more producers entering the game have kept pricing firm.
But Mason cautions that demand hinges on natural gas prices. Natural gas prices are tightly linked to supply vs. demand.
And the threat of oversupply increases as rig counts swell and producers crowd into the market. That balances the North American natural gas industry on a tight rope between boom and bust.
"The difference between a tight market and $12 gas vs. a very loose market and $6 gas is really about four weeks of activity," Mason said.
Upside: Most analysts see continued demand for hard-to-reach oil and gas as emerging economies such as India and China grow.
Risks: Oversupply remains a concern among many oil-industry veterans, especially as more rigs and producers crowd the market.
Why Oil Prices Are So High
A Weak Dollar, Bad Fed Policies and Hedge Fund Speculators
By PAUL CRAIG ROBERTS
How to explain the oil price? Why is it so high? Are we running out? Are supplies disrupted, or is the high price a reflection of oil company greed or OPEC greed. Are Chavez and the Saudis conspiring against us?
In my opinion, the two biggest factors in oil’s high price are the weakness in the US dollar’s exchange value and the liquidity that the Federal Reserve is pumping out.
The dollar is weak because of large trade and budget deficits, the closing of which is beyond American political will. As abuse wears out the US dollar’s reserve currency role, sellers demand more dollars as a hedge against its declining exchange value and ultimate loss of reserve currency status.
In an effort to forestall a serious recession and further crises in derivative instruments, the Federal Reserve is pouring out liquidity that is financing speculation in oil futures contracts. Hedge funds and investment banks are restoring their impaired capital structures with profits made by speculating in highly leveraged oil future contracts, just as real estate speculators flipping contracts pushed up home prices. The oil futures bubble, too, will pop, hopefully before new derivatives are created on the basis of high oil prices.
There are other factors affecting the price of oil. The prospect of an Israeli/US attack on Iran has increased current demand in order to build stocks against disruption. No one knows the consequence of such an ill-conceived act of aggression, and the uncertainty pushes up the price of oil as the entire Middle East could be engulfed in conflagration. However, storage facilities are limited, and the impact on price of larger inventories has a limit.
Saudi Oil Minister Ali al-Naimi recently stated, “There is no justification for the current rise in prices.” What the minister means is that there are no shortages or supply disruptions. He means no real reasons as distinct from speculative or psychological reasons.
The run up in oil price coincides with a period of heightened US and Israeli military aggression in the Middle East. However, the biggest jump has been in the last 18 months.
When Bush invaded Iraq in 2003, the average price of oil that year was about $27 per barrel, or about $31 in inflation adjusted 2007 dollars. The price rose another $10 in 2004 to an average annual price of $42 (in 2007 dollars), another $12 in 2005, $7 in 2006, and $4 in 2007 to $65. But in the last few months the price has more than doubled to about $135. It is difficult to explain a $70 jump in price in terms other than speculation.
Oil prices have been high in the past. Until 2008, the record monthly oil price was $104 in December 1979 (measured in December 2007 dollars). As recently as 1998 the real price of oil was lower than in 1946 when the nominal price of oil was $1.63 per barrel. During the Bush regime, the price of oil in 2007 dollars has risen from $27 to approximately $135.
Possibly, the rise in the oil price was held down, prior to the recent jump, by expectations that Democrats would eventually end the conflict and restrain Israel in the interest of Middle East peace and justice for the Palestinians.
Now that Obama has pledged allegiance to AIPAC and adopted Bush’s position toward Iran, the high oil price could be a forecast that US/Israeli policy is likely to result in substantial supply disruptions. Still, the recent Israeli statements that an attack on Iran was “inevitable” only jumped the oil price about $8.
Perhaps more difficult to understand than the high price of oil are the low US long-term interest rates. US interest rates are actually below the rate of inflation, to say nothing of the imperiled exchange value of the dollar. Economists who assume rational participants in rational markets cannot explain why lenders would indefinitely accept interest rates below the rate of inflation.
Of course, Americans don’t get real inflation numbers from their government and have not since the Consumer Price Index was rigged during the Clinton administration to hold down Social Security payments by denying retirees their full cost of living adjustments. According to statistician John Williams, using the pre-Clinton era measure of the CPI produces a current CPI of about 7.5%.
Understating inflation makes real GDP growth appear higher. If inflation were properly measured, the US has probably experienced no real GDP growth in the 21st century.
Williams reports that for decades political administrations have fiddled with the inflation and employment numbers to make themselves look slightly better. The cumulative effect has been to deprive these measurements of veracity. If I understand Williams, today both inflation and unemployment rates, as originally measured, are around 12 per cent.
By pumping out money in an effort to forestall recession and paper over balance sheet problems, the Federal Reserve is driving up commodity and food prices in general. Yet American real incomes are not growing. Even without jobs offshoring, US economic policy has put the bulk of the population on a path to lower living standards.
The crisis that looms for the US is the loss of world currency role. Once the dollar loses that role, the US government will not be able to finance its operations by borrowing abroad, and foreigners will cease to finance the massive US trade deficit. This crisis will eliminate the US as a world power.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com
http://www.counterpunch.com/roberts06112008.html
Earnings Calendar for the Week Ahead
#msg-30007540
Courtesy...Bullwinkle
The King Report
M. Ramsey King Securities, Inc.
Friday June 13, 2008
– Issue 3892 "Independent View of the News"
Bernanke proved on Thursday, by providing $32B of repos and $24.997B of TSLF juicing that he is trying to bs the markets with tough talk while he floods the system with credit because key financial firms are having ‘difficulties’. Some analysts might mitigate Ben’s Thursday repos by saying $33B of repos were expiring, but Thursday repos have been under $30B the past several weeks.
More importantly Ben did $31B of repos on Tuesday when only $9B was expected. So there was already a $22B repo ‘overhang’ in the market. Now add $32B of Thursday repos and $25B in TSLF (Notice that the Fed, like wily retailers that mark items at $1.99, kept the TSLF from a 25 handle) and you have $88B of credit in 3 days…MZM (+26% y/y) hit a new high.
http://research.stlouisfed.org/publications/usfd/page5.pdf
We must, until evidence proves otherwise, conclude that Ben began talking tough last week, because he had to hit the credit accelerator about three weeks ago due to a new round of system duress. And fearing inflation, or rather recriminations from other central bankers, including his brethren at the Fed, he’s trying to euchre the markets. So far he’s had mixed results – dollar up, bonds & stocks down, oil pausing. But some part of the dollar rally the best weekly gain since 2004 is due to today and tomorrow’s G8 soiree.
Ben’s repo madness generated an explosive stock market rally from the open. Unfortunately, the rally, like most recent rallies, could not hold. As we’ve stated, there are few real orders these days. And if not for the usual late SPU (Sept. now the front month) manipulation stocks would’ve posted negative results. This would’ve pushed technicals even more negative and frightened equity traders and possibly investors into a sickening Friday-Monday decline sequence.
While most people, particularly the media are transfixed on Lehman, they are missing possibly a bigger problem – Bank of America. The stock has tanked for 6 weeks. Bank officials keep asserting that they are committed to the Countrywide acquisition, but shareholders are punishing that stock.
We’d guess that there is deterioration in Countrywide’s financial condition or BAC has discovered things that were not easily apparent during early due diligence. Nevertheless, if BAC walks away from the CFC acquisition, all hell could break loose in the financial markets.
Over the past few months, astute operators have whispered among themselves and to confidants that if BAC walks away from Countrywide, look out! Solons know this, and that is why BAC officials keep surfacing to assuage the markets.
While major banks are threatening to breach their L’affaire Bear lows in March, BAC exploded is now substantially below its ‘almost Armageddon’ low and its January low.
Bank of America – "Houston, we have a problem."…
http://www.lemetropolecafe.com/james_joyce_table.cfm?pid=6960
Fed. Ops: 57.25B Matures this week. *
Tue: 5.25B 4day
Wed: 20.00B 28day
Thu:
5.00B 14day
27.00B 7day
========================================================
Temp Ops:
Perm Ops:
========================================================
Public Debt:
Limit ~ $9,815 T
6/12 ~ $9,415 T
=========================================================
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
* Same ol same ol, just shifting about to flood US$ imo.
G-8 Says Economy Faces `Headwinds,' Oil a Threat
By Simon Kennedy
June 14 (Bloomberg) -- Finance ministers from the Group of Eight nations singled out spiraling food and fuel prices as their chief concern as they warned ``headwinds'' dog the global economy.
``The world economy continues to face uncertainty and downside risks persist,'' the officials said in a statement after meeting today in Osaka, Japan. ``Elevated commodity prices, especially of oil and food, pose a serious challenge.''
Inflation concern is mounting after the price of oil reached an unprecedented $139.12 a barrel last week and food costs from rice to soybeans set records this year. Central banks are already shifting toward tighter monetary policy even as expansion fades.
``The global focus for now has turned to the inflationary risk,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``The G-8 meeting affirmed that.''
The ministers stuck to their practice of not making a joint comment on currencies when central bankers are absent from the talks. Even so, U.S. Treasury Secretary Henry Paulson and French Finance Minister Christine Lagarde spoke in favor of a strong dollar.
`Strong Dollar'
``A strong dollar is in our nation's interest,'' Paulson told reporters. Lagarde said she was ``happy to hear'' that view.
The ministers cited further declines in U.S. house prices and stresses in financial markets as other risks to growth, while noting market conditions improved since they identified the credit squeeze as the major concern at their last meeting in April.
Mario Draghi, the head of the Financial Stability Forum, said there is ``fragile stability'' in markets and inflation has replaced tighter credit as the world economy's biggest obstacle.
The doubling in the price of oil in the past year was described as a ``strong'' concern by the officials, who urged producing nations to increase output and enhance their refinery capacity. Markets should promote transparency and consumers must use energy more efficiently, they said. Emerging markets were pushed to cease subsidizing food and fuel prices.
The International Monetary Fund predicts the fastest inflation in advanced economies since 1995 this year even as they grow at their slowest pace in seven years. Rising prices threaten to damp growth further by sapping household budgets and boosting production costs. They have also sparked protests from Malaysia to Spain.
Price Increases
UAL Corp.'s United Airlines, the world's second-largest carrier, this week said it will start charging passengers more to check luggage, while Dow Chemical Co., the largest U.S. chemical maker, said last month it will raise prices by the most in its 111-year history.
The inflationary outbreak is grabbing the attention of central banks after 10 months in which they focused on insulating growth from the credit squeeze. The Federal Reserve is set to leave its key interest rate at 2 percent this month after seven cuts since September. The European Central Bank may raise its main rate to 4.25 percent in July.
There were disagreements over what's driving the surge in commodity prices. Lagarde and Russian Finance Minister Alexei Kudrin argued investors are buying oil and food as a hedge against the dollar's drop. Paulson downplayed the link by noting oil's gain outpaced the dollar's decline since 2002.
Disagreement on Oil
The U.S. Treasury secretary also refused to blame speculators for higher prices, saying ``all the evidence'' points to tight supply and robust demand. Italian Finance Minister Giulio Tremonti disagreed by calling on governments to ``fight speculation.''
The G-8 has had limited success in tempering oil prices since first lobbying for more supply in 2004, when crude cost about $40 a barrel. Goldman Sachs Group Inc. and Morgan Stanley predict oil may soon pass $150.
Oil consuming and producing nations are to meet later this month in Saudi Arabia. While OPEC President Chakib Khelil this week said ``supply is more than enough,'' Saudi Oil Minister Ali al-Naimi yesterday called record prices ``unjustified'' and the state oil company signaled it may soon start pumping from a new field.
The dollar this week had its biggest weekly gain against the euro since 2005 on bets the G-8 governments would signal they favor further increases.
``A strong dollar is in our nation's interest,'' Paulson said after the meeting. Lagarde said she was ``happy to hear Paulson clearly say how much the strong-dollar policy is indispensable.'' Japanese Finance Minister Fukushiro Nukaga said there was no discussion of intervention among the G-8 ministers.
The G-8 is composed of the U.S., Japan, Russia, Germany, France, the U.K., Italy and Canada. Its finance ministers met to form an agenda for when leaders convene next month in Hokkaido.
To contact the reporter on this story: Simon Kennedy in Osaka, Japan, at skennedy4@bloomberg.net.
Last Updated: June 14, 2008 04:17 EDT
http://www.bloomberg.com/apps/news?pid=20601068&sid=aDDPW_0QU4Dg&refer=home
Great educational read...TY
Monthly Economic Calendar
Prepared by Dr. Scott Brown
Printer Friendly Version (PDF file)
http://www.rjf.com/econocal.htm
Exxon to exit U.S. retail gas business
By Michael Erman 1 hour, 18 minutes ago
NEW YORK (Reuters) - Exxon Mobil Corp (XOM.N) said on Thursday it is getting out of the retail gas business in the United States as sky-high crude oil prices squeeze margins.
Those branded service stations may be the most public aspect of Exxon's business, but they account for a small part of the company's profits.
Out of the roughly 12,000 Exxon Mobil branded stations in the United States, Exxon, the world's largest publicly-traded oil company, owns about 2,220.
Exxon plans to sell those service stations over several years. They include about 820 stations that it also operates.
The company will maintain the Exxon and Mobil brands, Exxon spokeswoman Prem Nair said.
Consumers will still be buying gasoline at stations that carry the Exxon and Mobil names, but they will not be owned by the company.
Service stations have struggled, even with $4-a-gallon plus gasoline prices because they have not been able to pass along to customers their additional costs from soaring crude oil.
According to federal data, gasoline prices are up about 31 percent over the last year, and oil prices have nearly doubled over the same period.
"We are in a very, very challenging market. Margins are reduced," said Nair. "We feel the best way for us to grow and compete is through our distributor network."
In the current environment, the company's profits from its retail unit are "somewhere close to a rounding error," said Mark Gilman, an analyst at the Benchmark Co.
He said Exxon was following competitors like Royal Dutch Shell (RDSa.L) and BP Plc (BP.L) in moving away from ownership of service stations.
"The retail gasoline business is a highly volatile and typically low return kind of business and thus the decision," Gilman said.
Exxon made more than $40 billion in 2007, most of which came from its oil and gas production around the world.
"I think the decision came that it's more of a headache than its worth," said Oppenheimer & Co analyst Fadel Gheit.
Although the company does not release profit margin figures for its retail arm, Gheit estimated the stations' margin was between 10 percent and 15 percent, about one-third its margin on crude oil production.
"The question is who is going to buy them, and how much are they going to pay for them," Gheit said.
A good discussion on oil price:
give it some time to load.....
http://www.charlierose.com/shows/2008/06/10/1/a-discussion-about-the-price-of-oil
Commodity Prices Show No Letup
Daniel R. Patmore/Associated Press Published: June 12, 2008
CHICAGO — Commodity prices went wild on Wednesday, with the price of corn shooting through the $7 barrier for the first time, soybeans and wheat moving up sharply and oil jumping more than $5 a barrel.
Corn prices, which have been hitting new highs for a week, are reacting to six weeks of heavy rains and cool weather in the Midwest. That prevented planting in some areas, leading some farmers to abandon the crop in the last few days. It is still raining.
The bad weather comes as supplies of corn, wheat and other staples are already tight thanks to soaring global demand.
The higher commodity prices are likely to add to a worldwide inflationary picture that seems to worsen by the day. Prices of many grocery items in the United States have been rising briskly, with some goods like eggs and milk — produced from animals fed with corn — up by 13 to 30 percent in the past year.
“You know those complaints you’ve been hearing about high food prices? They’ve just begun,” said Jason Ward, an analyst with Northstar Commodity in Minneapolis.
Corn for July delivery closed on the Chicago Board of Trade at $7.03 a bushel, up 30 cents. Next year’s corn was trading even higher, finishing at $7.47 a bushel and above. Soybeans, which rose 70 cents, to $15.16 a bushel, are now less than a dollar short of their winter record.
Even wheat, which had fallen in recent months as traders and growers predicted a big crop, rose 60 cents to $8.69 a bushel.
Meanwhile, oil futures jumped $5.07 to close at $136.38 a barrel on the New York Mercantile Exchange. The immediate catalyst was an Energy Department report showing commercial oil stockpiles in the United States fell 4.56 million barrels, to 302.2 million last week, a much bigger drop than analysts had expected.
In the previous two days, oil prices had retreated from Friday’s record of $138.54 a barrel. Some traders say that the market is now gearing for a quick rise to $150 a barrel.
The high oil prices are translating into acute pain at the pump, with gasoline hitting a nationwide average of $4.05 a gallon on Wednesday, a record. Diesel hit $4.79 a gallon, also a record.
A steep drop in the dollar this year has pushed up prices for oil, gold and other commodities as investors seek assets that provide a hedge against the falling American currency. Not coincidentally, the dollar, which had appreciated in recent days, fell against the euro on Wednesday.
“This is just crazy volatility,” said Stephen Schork, an independent energy analyst. “At this point, this is absolutely a bubble. High prices have become a justification for higher prices and $150 a barrel is quickly turning into a self-fulfilling prophecy.”
Not all analysts believe the oil price is a bubble, however. Many point to frenzied growth in oil consumption in Asia, which they fear will outstrip the ability of oil companies to add new supplies.
While demand has been falling in the United States, global oil consumption is still expected to rise this year because of growing demand from emerging economies that subsidize fuel prices, like China and some Middle Eastern countries.
On Wednesday, China said that its crude oil imports had surged 25 percent last month as the country coped with the aftermath of the devastating earthquake that struck in May.
“What we’re seeing is a very painful experiment to see what price will get demand to slow down,” said Adam E. Sieminski, chief energy economist at Deutsche Bank. “Four dollars a gallon is slowing consumption in the United States. But there is an awful lot of people in the developing world and they all want a car and they all want a better diet. That is putting a lot of pressure on food and energy prices.”
After years of oversupply, there is now not enough food to go around. Expectations for the 2008 harvest are rapidly declining.
The Agriculture Department this week cut its yield expectations for corn by 5 bushels an acre, to 148.9 bushels, a big drop for a growing season that has just begun. It now estimates the 2008 crop at 11.7 billion bushels, down 390 million bushels from what it was expecting last month.
Since the rain has not yet let up, these figures could prove optimistic. In its weekly crop rating, the Agriculture Department said that the quality of the corn was notably lower this year, with the amount deemed “excellent” only half that of the 2007 crop.
Rick Corners of Centralia, Ill., had to replant all 500 acres of his corn after it rotted, something he had never done in 33 years of farming. He finished last week, a month behind schedule, and considered himself lucky.
“I heard about a farmer in northern Illinois who had to plant his corn three times, and now he’s under water again,” Mr. Corners said.
Soybeans are generally planted after corn but their price is also being pushed up by the weather and other developments, including a report that China increased its soybean imports in May by 45 percent from the previous month. A strike by Argentine farmers is also serving to limit the world’s supply.
Palle Pedersen, an agronomist at Iowa State University in Ames, said 20 percent of the soybean crop in the state still had to be planted or replanted.
“Every day it rains, the chances of an average crop get smaller and smaller,” Mr. Pedersen said.
The abundance of rain in the corn and soybean belt for the last six weeks — accompanied until recently by chilly temperatures that impeded crop progress — was highly unusual, said Dale Mohler, a meteorologist with AccuWeather.com. “A wet spell of this magnitude in the Midwest probably only happens once every 50 years,” he said.
However belated, relief might be on the way for beleaguered farmers. The meteorologist said he expected drier weather to prevail next week.
The crop news is not entirely bleak. This week, the Agriculture Department raised by 2 percent its forecast for the size of the winter wheat harvest, which is now under way.
http://www.nytimes.com/2008/06/12/business/12crop.html?_r=1&oref=slogin
Fed.(2) 7day RP + 27.00B [net sm drain -1.25B
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
http://www.ny.frb.org/markets/omo/dmm
Fed. 14day RP + 5.00B [ Sofar..
The Slosh Report:
http://www.gmtfo.com/RepoReader/OMOps.aspx
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=