OPEC mulls oil supply target hike to calm prices

OPEC is considering raising oil supply targets for the first time since 2007 in a move that could weaken $100 oil prices and lessen the drag of high energy costs on global economic growth.

The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, may raise supply targets by as much as 1.5 million barrels per day (bpd) when ministers meet on June 8, two Gulf oil sources told Reuters on Thursday.

"There is a need for an increase to replace the loss from Libya," one delegate said. "Oil prices are too high. $100 oil is scaring people."

The most likely outcome would be for a rise of 1 million bpd: "That would be calming for prices," the delegate said.

A rise of 1 million bpd in OPEC's output target would result in only a small increase in actual oil supply from the group, the delegate said. That was because part of the rise would simply absorb above-target supply that some members were already pumping, the delegate added.

The 11 members of the group bound by OPEC production targets -- all except Iraq -- pumped 26.23 million bpd in May, nearly 1.4 million bpd above their 24.84 million bpd target.

MEANINGLESS?

"If this is 1 million bpd on top of the targets from over two years ago, then it's meaningless. If it's 1 million bpd above current production levels, then it's exactly what the market needs," said David Wech, analyst at JBC Energy in Vienna.

Raising formal output targets would force OPEC to confront tough issues. Saudi Arabia holds most of the group's spare capacity so is likely produce most of any extra oil supply.

Saudi energy minister Ali Al-Naimi said on Thursday the country would up production if there was demand for more crude.

But other members would also want a share of any rise in supply targets, even if they were already at full capacity.

OPEC members Iran, Libya and Venezuela could resist any rise in targets, industry publication Energy Intelligence reported on Wednesday, citing an OPEC insider.

Iranian OPEC governor Mohammad Ali Khatibi declined to comment on whether the group would agree a production increase.

"We will discuss it in the next meeting," Khatibi said at a gas exporters group meeting in Cairo. "We should see all fundamentals ... all indicators."

Algeria's energy minister said on Thursday he did not expect OPEC to raise output at its meeting in Vienna.

"I do not think so," Energy and Mines Minister Youcef Yousfi said when asked if he expected an OPEC output hike next week.

"We will discuss the matter but I don't think we will be increasing production," he said.

Libya, whose top oil official recently defected, would not want other OPEC members to divide officially its share of the targets, the delegate said. Civil war has cut its exports.

Another delegate saw no need for a formal change and said OPEC members could simply flout official targets to meet demand.

"Why bother?" he said. "Everybody is pumping what they want anyway and getting the money they want and more."

Oil prices were slightly firmer on Thursday with Brent crude up 85 cents at $115.37 a barrel at 1317 GMT.

Brent has traded above $100 since early February, prompting consuming governments to warn of the impact of high oil prices on economies still fragile after the global financial crisis.

SOOTHING CONCERNS

The West's energy watchdog, the International Energy Agency, last month urged producers to boost supplies to help lower fuel costs and protect the economic recovery.

Data this week from top oil consumer the United States has exacerbated concerns that the recovery in the world's largest economy is running out of steam.

Factory output growth in China, the engine of global demand growth for more than a decade, is also slowing.

But fuel costs were only part of a wide list of factors impacting economic expansion, the delegate said: "Some of it is the oil price, but that is not the whole story."

Even if a target increase results in few extra barrels of oil on the market, it could soothe concerns over Libyan supply and high fuel costs, JP Morgan oil analyst Lawrence Eagles said.

"This would be a positive policy step as far as consuming countries are concerned," Eagles said.

Top oil exporter Saudi Arabia boosted oil supply in February to plug the gap left by Libya. But Saudi Arabia reduced supply again in March, citing a lack of demand.

OPEC has taken no formal decision to supply more oil to compensate for Libya's supply disruption or to ease prices.

Saudi Arabia and other Gulf producers are wary of the impact high oil prices might have on the economy and on demand. As recently as February, Saudi Oil Minister Ali al-Naimi said a $70-$80 per barrel was fair to both producers and consumers.

A slightly wider range of $70-$90 per barrel would still be good for both, an OPEC delegate said on Thursday.

Saudi Arabia's oil price needs have risen as it has offered $130 billion in handouts to avoid any chance of the sort of unrest that has rocked much of the Arab world.

OPEC has kept formal supply policy unchanged since late 2008, when the group agreed record cuts to match the sharp fall in demand as the financial crisis engulfed the economy.

Source

Visions Of A Mad Gold Stock Speculator

by Adam Brochert - Gold Versus Paper

24hgold.com

A series of long-term charts suggests to me that we are getting ready for a Gold stock explosion higher that should begin before the summer is over. I am biased due to being rabidly bullish on Gold stocks right now, both intellectually and financially. Please take the following technical analysis smorgasbord with a grain of salt given my greedy dreams of speculative riches, which clearly bias my perspective.

Technical analysis should be objective, but the reality is that one person's bullish chart is another's bearish warning chart. This is what makes markets and why it ain'talways easy to make money as a trader. In any case, I believe we are on the cusp of a major move higher in Gold stocks as a sector.

I think the bottom in Gold stocks will roughly correspond with a cyclical top in general stock market indices, a la 2001-2003, 2007-early 2008 and 1973-1974. Many Gold stock investors equate general equity bear markets with Gold stocks getting slammed due to the 2008 fall crash fiasco that dragged down everything except the U.S. Dollar. Funny how memories are not only selective but also favor recent history over older history.

One thing is clear: when the stock market drops precipitously over a short period of time, babies get thrown out with the bathwater. But even the October, 2007 thru March, 2009 bear market saw Gold stocks advance significantly during more than half of this bear market period (i.e. October, 2007 thru March 2008 and October, 2008 thru March, 2009). Because bear markets make people nervous and because no one can say if the "wicked" part of the bear market will come up front or not, it takes nerves of steel to be a Gold stock bull when you are anticipating a general stock market cyclical bear.

However, I am suggesting that it is time to do precisely this. I would favor a deflationary-type bear market over an inflationary-type bear market, but I don't claim to know for certain. There is no reason the U.S. Dollar can't rally here against other worthless currencies, as all currencies are sinking relative to Gold (and silver). The paperbug game is to focus on the individual currencies and deliberate about whether a total overall government debt to GDP ratio of 200% versus an annual fiscal deficit of 10% of GDP is more important. I call a deadbeat a deadbeat and keep my savings in physical Gold, the only hard currency that can't be effectively issued by decree. It is for this reason that the GLD ETF is not a "safe" savings vehicle, but rather a short-term speculative vehicle, as it is designed to divert money from the physical Gold market and allow the paper game to continue for longer than it should.

I have been a hard-core bear on general equities over the past 2 years. I have been very, very wrong. But, there is a limit to what a bear market rally within the context of a secular equity bear market can achieve. We are fast approaching that limit. Now, I no longer think I know exactly when that top will occur, but I don't think we make it to the end of the year before the bear market begins. The topping process may take another few weeks or another few months. In the end, I don't really care.

The reason I don't care is because I think Gold stocks are going to rocket higher and more money can be made going long Gold stocks than going short the market, at least for the first 6 months or more of the looming cyclical stock bear market. And, as any seasoned Gold stock investor should know, Gold stocks can move awful fast - a gain of 100% or more in the Gold stock sector in 6 months is not a pie-in-the-sky proposition.

Anyhoo, onto my tea leaf tools. Here are some charts that I think are screaming for bulls to buy on the next dip. The last dip was a great buying opportunity and the next low may or may not be a lower low, but I think we'll get another significant pull-back in general Gold stock indices.

Here's a chart that compares the HUI Gold Bugs' Index ($HUI) to the Dow Jones Industrial Average ($INDU) Index (i.e. an $HUI:$INDU ratio chart) over the past 12 years thru Friday's close:

And I can't seem to do an analysis of the Gold sector without some form of Dow to Gold ratio chart. Here's a 12 year chart of the Gold to Dow Jones ratio chart thru Friday's close (i.e. a $GOLD:$INDU ratio chart):

And why does the Gold to Dow Jones ratio matter when it comes to Gold stocks? Well, let's look at the entire history of the current secular Gold bull market that began at the turn of the century. Here's the same Gold to Dow ratio chart (i.e. $GOLD:$INDU ratio chart, the candlestick plot) plotted along with the $HUI Gold Bugs Index (black straight line) on the same chart over the past 12 years:

And finally, the concept of the "real" price of Gold. I learned this concept from BobHoye and I think it is key to understanding Gold miner profitability. Profits eventually should be reflected in stock prices, though many Gold mining companies seem to do whatever is in their power to make sure this isn't the case... (e.g., share dilution, political struggles, Gold price hedging, etc.). When viewing Gold stocks as an overall sector, however, the real price of Gold is important and I use the Gold price divided by the $CCI or $CRB commodity indices. Because energy is an important cost to mining firms, the heavy oil weighting in the $CRB index may actually be a good thing. In any case, here is the $GOLD:$CRB ratio chart over the past 12 years:

I think Gold and Gold stocks could top on a short-term basis in the next week or so, then decline to a potential final low in June. Summer is rarely an exciting time for the Gold sector, but buying when things are quiet is often a way to reap rewards once the fall hits. We could have a summer spike lower like we did in August of 2007 or things could simply drift quietly lower in the Gold sector. In any case, we are getting to the point where the Gold bull market is going to outshine every other market. If it's a deflationary bear market with the US Dollar rallying, which I would favor, the Gold patch will be the only place to be. If it's an inflationary bear market with the US Dollar crashing, then silver will likely outperform Gold again. I don't claim to know for sure, as trying to pick the prettiest paper currency troll is not an interest of mine. Gold will win the Clash of the Titans battle in the currency arena, of this I am certain.

Stay long in physical Gold until the Dow to Gold ratio gets to 2, and we may get below 1 before this secular economic mess is over. Gold stocks are for the speculatively inclined, not the faint of heart. However, I believe this summer is a speculative buying opportunity in the Gold patch that will looked back upon as a "duh, of course I should have bought"-type opportunity. This mad Gold stock speculator couldn't have a more rosy view of the future, but only when the future is priced in Gold.

Adam Brochert