Tuesday, May 12, 2009
The Deer Don't Care If Oil is $59
It is 5:49 am and a doe just walked past my office window. The deer don't care if oil is $59 but some of us humans do. It is a crazy upside down world when you find yourself cheering for higher oil prices. The ole Colonel has been guilty of this lately because rising oil prices are another sign that the global recovery is picking up steam. Buckaroos, I'm leaving the bleachers at these prices! Supply/demand fundamentals are getting stomped again by speculation:
"Oil prices rose despite a continued lack of demand, evidenced by U.S. crude stocks that are near 19-year highs and expected to climb further. Prices have jumped from below $35 a barrel in February amid signs indicating that the pace of economic deterioration has slowed, setting the scene for an eventual recovery." (WSJ, 5/12/09)
Sound familiar? The good news is that this crowd of speculators don't have the cajones of last year's wild-eyed commodity gamblers. Watch for oil to head south in the next several weeks.
For miners, I think the sweet spot for oil is a price high enough to ensure we're on the mend but low enough to keep production costs from blowing out the mineshaft. Let's say $45-50 is a safe and sane range in our upsy-daisy world.
Copper is a bit more interesting in the month of May. Traditionally, the Chinese buy most of their raw materials during the first few months of the calendar year. If the copper rally continues through this month, higher prices may be a very positive indication of improving demand. I don't think deer give a damn about copper either unless it's coming at'em in the Fall.
Oh, who's the feller standing on his head? Why that's the Colonel turning the Utah salt flats upside down when he was a young pup!
Enough memory lane, let's walk the walk:
Oil is up $1.38 in early morning trading trading at $59.88 (June contract). Gold is up $8.3 to $921.8 (June contract); Silver breaks $14 at $14.210; Copper rallies 0.0555 to $2.1440 (July contract); Molybdenum gets a nice pop to $9.70.
The DOW is up 17 points to 8436.22; the S&P 500, down 0.47 points to 908.77. Miners are mostly happy today:
Barrick (ABX) $34.35 up 2.11%
Newmont (NEM) $43.19 up 1.12%
General Moly (Eureka Moly, LLC) (GMO) $1.85 up 2.21%
Freeport McMoran (FCX) $50.95 down 0.06% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are flat (a "tell" for General Moly):
Nucor (NUE) $42.83 up 0.08% - domestic steel manufacturing
ArcelorMittal (MT) $26.98 down 0.13% - global steel producer
POSCO (PKX) $85.64 down 0.04%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 0.42%