Random Thoughts On 17 November 2006

• I previously opined the OPEC would stick to its production cuts (see OPEC Cuts Production 1.2 MBPD), yet many (most?) do not believe OPEC. I have written before that traders were skeptical (see Traders Do Not Believe OPEC Cuts Will Stick), but today, according to a Bloomberg article Oil Falls to 17-Month Low on OPEC Skepticism, Warm U.S. Weather, tanker traffic appears to confirm traders' bias.

  "Some credit for the fall in prices has to be attributed to the tanker movement report, which raised fresh skepticism about OPEC's cuts," said Eoin O'Callaghan, an analyst with BNP Paribas SA in London. "It's more important to look at the wider context. There is a slower global economy and that's reducing liquidity in the markets."

  According to Bloomberg, WTI is now priced at $58.97, up $0.40. That price still seems reasonably strong. The question still remains, will WTI fall to $50 or lower?

  My thoughts were that oil supplies remained generally tight and that OPEC would toe the line. I remain bullish on oil. Day to day price fluctuations are extremely difficult to predict. And of course, OPEC might decide to let prices fall precipitously with the aim of derailing new projects around the world. After a year of low prices, oil companies would once again use a much lower price forecast for new projects and thus delay or shelve new and expensive production. The hard cold reality is that no one knows with complete certainty what to expect with regard to future oil prices. Looking at the NYMEX Oil Futures, we see that after August of 2007, the futures prices are north of $65. I view those prices as bullish.

• While on the topic of commodities, according to Kitco gold and silver ask prices are $622.80 $12.83 per ounce respectively. Both commodities are showing resilience so far. Again, many pundits had expected gold and silver to plunge. I remain bullish on both gold and silver, though I do expect both commodities to be volatile.

• According to a Wall Street Journal article New-Home Construction Slid 14.6% Last Month (subscription required).

  Construction of new homes slid to a six-year low in October, a sharper-than-expected drop that prompted some forecasters to revise downward their estimates of economic growth. On a more positive note, however, the drop in starts could help to stabilize a housing market suffering from a glut of supply.

  The Commerce Department reported that home builders started construction on new houses at a seasonally adjusted, annualized rate of 1.486 million in October, down 14.6% from September and the slowest pace since July 2000. Also, data for September and August were revised downward.

  New home-building activity may have reached its lowest level in six years, but economists were able to find some glimmers of hope in the housing report.

  Economists noted that the monthly housing-start numbers tend to be volatile and subject to revision. Still, the report led many to cut their estimates for economic growth in the current quarter, on concerns that construction activity could decline more sharply than previously thought -- meaning that areas such as business investment, exports and consumer spending will have to grow faster to keep the economy afloat.

  I have been commenting for some time, as have many others, that the housing situation has yet to play out.

The above picture is hosted at Flickr. If you click on the picture of Paula Anddrade, you will directed to a larger version of her picture at Flickr. She owns the copyright to the image, and she has many more pictures that are terrific at Paula Anddrade.