OPEC

So what's driving these high ass oil prices? Fundamentals, paper pushing derivatives, fraud, or fear? A common sense discussion ensues...

Gold’s seasonality is seen in the above charts which show how March, June and October are gold’s weakest months with actual losses being incurred on average in these months. Buying gold during the so-called summer doldrums has been a winning trade for most of the last 34 years. This is especially the case in the last eight years as gold averaged a gain of nearly 14% in just six months after the summer low. We tend to advise a buy and hold strategy for the majority of clients. For those who have a bit more of a risk appetite, an interesting strategy would be to buy at the start of September, sell at end of September and then buy back in on  October 31st. 

The real damage came before the actual announcement as like most things on Wall Street inside information runs rampant when so much money is involved.

With a price hovering around $1,600 an ounce and the prospect of "additional monetary accommodation" hinted to in the latest meeting of the FOMC, gold is once again becoming a hot topic of discussion. Krugman, praising 'The Atlantic's recent blustering anti-Gold-standard riff, points to gold's volatility, its relationship with interest rates (and general levels of asset prices - which we discussed here), and the number of 'financial panics' that occurred during gold-standards. These criticisms, while containing empirical data, are grossly deceptive.  The information provided doesn’t support Krugman’s assertions whatsoever.  Instead of utilizing sound economic theory as an interpreter of the data, Krugman and his Keynesian colleagues use it to prove their claims.  Their methodological positivism has lead them to fallacious conclusions which just so happen to support their favored policies of state domination over money.  The reality is that not only has gold held its value over time, those panics which Krugman refers to occurred because of government intervention; not the gold standard. Keynes himself was contemptuous of the middle class throughout his professional career.  This is perhaps why he held such disdain for gold.

The biggest geostrategic change of the past decade overlooked by Washington policy wonks in their fixation on their self-proclaimed “war on terror” is that Latin America has been throwing off the shackles of the Monroe Doctrine. These ignored developments may well soon refocus Washington’s attention on the Southern Hemisphere, as Venezuela’s President Hugo Chavez reorients his country’s to China. So, where does Washington go from here? If it wants to preserve its increasingly tenuous foothold in a nation with the world’s largest oil reserves, it might begin by engaging in some honest diplomacy.

The Organization of Petroleum Economies, in its August report, said Iranian crude oil production in part led to a decline in overall output from the Vienna-based cartel. OPEC said crude oil production for its members, not including Iraq, was reported at 28.1 million barrels per day in July, a decline of 270,000 bpd compared with the previous month.  The decline in OPEC oil production in part was led by Iran, which saw its export options curtailed by sanctions imposed by the U.S. and European governments. Tehran announced it still had a viable consumer base in China, however, which received about 12 percent of its oil needs from Iran. The Indian government, meanwhile, said it would circumvent EU sanctions by extending government-backed insurance to tankers carrying Iranian crude because of the "definite need" for oil.

• 'Pussy Riot' band members found guilty (Al Jazeera)
• Merkel Says Germany Backs Draghi’s ECB Aid Conditionality (Bloomberg)
• Now, the reverse psychology: Hilsenrath: Fed 'Hawks' Weigh In Against More Action (WSJ)
• London Firings Seen Surging As Finance Firms Add NY Jobs (Bloomberg)
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• Kocherlakota Says FOMC Goes Too Far With 2014 Rate Pledge (Bloomberg)
• China Said to Order Action by Banks as Developer Loans Sour (Bloomberg)
• Australian Treasury Dismisses AUD Intervention Calls (Dow Jones)
• Brevan Howard Loses Third Founder As Rokos Said To Leave (Bloomberg)
• Japan eyes end to decades long deflation (Reuters)... for 30 years now
• Ex-Morgan Stanley Executive Gets Nine Months in China Case (Bloomberg)

Think the US has it bad with its "soaring" gas price, which is now back to $3.75 per gallon? Think again. Here, courtesy of Bloomberg, is a list of the countries whose gasoline cost puts what Americans pay at the pump to shame. In order of descending gas prices, below are the 20 places in the world where one does not want to "fill 'er up."

With the presidential elections fast approaching, the last thing the incumbent wants is for the one thing that can spoil the party - a surge in oil, and thus gas prices - to happen. Which is why despite a sharp return in Iran/Syria war rhetoric, we doubt that the trade off between a "wag the dog"-type transitory war euphoria and $5 gas will be an accretive one for the administration at least in the short-term. Others who certainly would prefer to avoid the record $140 WTI prices seen just before the Lehman collapse are the majors, where margin contraction can only be offset by very finite end-demand destruction. Yet there are those who not only would like to see a surge in oil prices, but in fact need it, to preserve their viability. Chief among them: Iran. Because according to a just released analysis by the Arab Petroleum Investments Corporation, the price at which oil (read Brent) must trade for Iran's budget to balance has soared to $127/barrel, the highest among all OPEC members, $20 higher than 2 years ago, and about $17 higher than the Friday closing price. And far more dangerously, the APIC study has also found that the cartel (which after last year's fiasco in Vienna is anything but) breakeven price has soared from just $77 two years ago to a whopping $99/barrel. Which means that any and every deflationary plunge in oil prices will inevitably be met with a supply collapse or else OPEC members are in danger of pricing themselves right into fiscal insolvency, and economic collapse.

Iran has been pushed into a corner and is fighting for its life.  The safest weapon in its arsenal is an economic strategy; and it is the one point where the United States is vulnerable. It is no secret that many governments object to the sanctions and are willing to deal outside of normal channels for a reduced price.  If the Iranians should use the new private traders to dump a few million barrels of oil onto the market at a sharply discounted price, they just might encourage one of these governments to openly defy the United States for a bargain. As a persecuted minority, the Shia have learned that the weaker in a conflict must employ cunning rather than muscle. It is the inherent weakness of the alliance that is Iran’s strength.  The unwillingness of Washington to pressure supposed allies and the simple fact that there are buyers willing to defy the sanctions secretly reveals the cracks in the system.

European equities are seen softer at the North American crossover as continued concerns regarding global demand remain stubborn ahead of tonight’s Chinese GDP release. Adding to the risk-aversion is continued caution surrounding the periphery, evident in the Spanish and Italian bourses underperforming today. A key catalyst for trade today has been the ECB’s daily liquidity update, wherein deposits, unsurprisingly, fell dramatically to EUR 324.9bln following the central bank’s cut to zero-deposit rates. The move by the ECB to boost credit flows and lending has slipped at the first hurdle, as the fall in deposits is matched almost exactly by an uptick in the ECB’s current account. As such, it is evident that the banks are still sitting on their cash reserves, reluctant to lend, as the real economy is yet to see a boost from the zero-deposit rate. As expected, the European banks’ share prices are showing the disappointment, with financials one of the worst performing sectors, and CDS’ on bank bonds seen markedly higher. A brief stint of risk appetite was observed following the release of positive money supply figures from China, particularly the new CNY loans number, however the effect was shortlived, as participants continue to eye the upcoming growth release as the next sign of health, or lack thereof, from the world’s second largest economy.

On occasion of the publication of his new gold report (read here), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: "financial repression"; market interventions; the oil-gold ratio;  the renaissance of gold in finance;  "Exeter’s Pyramid"; and what the true "value" of gold could actually look like. Via Matterhorn Asset Management.

Anticipating another leg-down in commodities (and mining stocks) before sufficient stress emerges in markets to force a decisive policy response - which will create an attractive buying opportunity - UBS joins our ranks of the anti-reflexive NEW QE front-running 'small-crowd'. Laying out five clear signals that keep them cautious: Equity valuations remain well above the October 2011 lows; Positioning is short in base metals and less long in oil and gold – improving this contrarian signal; China’s policy stance is not sufficiently stimulative to trigger restocking, and we see structural declines in commodity intensity there; and, Europe and emerging markets are in the early stages of destocking, with no stocking due in the US; UBS believes that investors will buy gold and gold equities early this cycle - correctly suggesting that it is right to move just ahead of the broader investor community, and buy gold and gold equities now. Clearly, buying gold early into a downturn carries greater risks and will be volatile – consequently, they advise investors wishing to go long gold and gold equities to hold a short or underweight copper and copper equity position against it. Interestingly within industrial commodities, they also like being long oil and short copper on a 3-year view.

Governments Don’t Manipulate the Price of Gold … Do They?

European equities have been grinding lower throughout the European morning, with basic materials seen underperforming following the release of a multi-month low Chinese CPI figure, coming in at 2.2%, below the expected 2.3% reading. The focus in Europe remains on the Mediterranean periphery, as weekend reports from Spanish press suggest that the heavily weighted Valencia region may be pressed into default unless it receives assistance from the central government. The sentiment is reflected in the Spanish debt market today, with the long-end of the curve showing record high yields, and the 10-yr bond yield remaining elevated above the 7% mark. News from an EU council draft, showing that Spain is to be given extra time to meet its deficit targets did bring the borrowing costs off their session highs, but they do remain stubbornly high at the North American crossover. The gap between the core European nations and their flagging partners continues to widen, as Germany sell 6-month bills at a record low of -0.0344%. As such, the 10-yr government bond yield spread between the Mediterranean and Germany is seen markedly wider on the day.