Is Oil Ready to Skyrocket?

by Jason Simpkins Associate Editor, Money Morning

Editor’s Note: Oil has been in the news a lot recently, from its roller-coaster movements, to the international issues. Russia and Israel are both helping OPEC bring prices back up. And if 2008 is any indication, oil might be ready for another climb. Our colleagues over at Money Morning think that might only be the tip of the iceberg.

Oil Prices Could be Ready to Rally if History is Any Indication

Last year’s 54% drop in oil prices may have set the table for a rally similar to the one experienced in 1999, when prices doubled after a similar decline.

The so-called “forward curve of futures contracts” traded on the New York Mercantile Exchange suggests prices will rise 28% this year, according to Bloomberg News.

The current curve looks almost the same as it did 10 years ago, when Russia’s

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Gold was under pressure right from the open of Globex trading in the Far East on Wednesday morning. It bottomed in Hong Kong and clawed its way back to unchanged by the time the Comex opened…but there was always someone there to make sure that the price didn’t get over $965 all through London trading. Every time it tried, it got shoved down. Its attempt to break through that price shortly after the Comex opened, met with a wall of selling that dropped the price by $25 in less than 90 minutes…and all of Tuesday’s gain of the same amount, disappeared. A rally attempt at the London close ran into big resistance at precisely 1:00 p.m. New York time yesterday. And as you might have expected…volume was huge as well…128,000 contracts, net of switches.

The shares got creamed.

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The base metals were all deep in the red on Wednesday. Copper fell from the pre-dawn hours straight through the New York day, finishing at its intraday low of $1.4696/lb., down more than 6 cents.

Nickel also plunged daylong, just coming off its intraday lows late to close at $5.4242/lb., down 42¼ cents. Zinc was steady until mid-morning, but then sagged to its intraday low of $0.5538/lb., down 2¾ cents. Aluminum dropped slowly but steadily, ending at $0.705/lb., down just under a penny and a half, while lead also plummeted, giving up nearly 2 2/3 cents, to $0.5139/lb.

Copper skidded the most in two weeks after the weak jobs data generated some major cracks in the optimism that had been lately felt about a possible economic recovery. The recent rally, which was linked to the rebalancing of commodity indices, was stopped cold, analysts said.

“Index rebalancing is not going to be a

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The fact that Hungary's National Bank did not decide to make an unexpected interest rate cut at its meeting earlier this week seems to have a href="http://www.bloomberg.com/apps/news?pid=newsarchiveamp;sid=a84zp9hh0af0"surprised some/a, but it really should not have done. According to James Morsink, head of the IMF delegation to Budapest, Hungary only has room to cut its benchmark interest rate a href="http://www.bloomberg.com/apps/news?pid=newsarchiveamp;sid=aW.6Yo1wzmp4"at a “gradual and cautious” pace/a. The reasoning behind this view is simple, any more rapid reduction in the bank's benchmark rate risks being accompanied by a devaluation of the forint, and and any such devaluation would inevitably lead to a rise in mortgage defaults and problems for the banking system as holders of Swiss Franc forex loans find themselves unable to maintain their payments as unemployment rises and wages and salaries fall.br /br /Thus it is that even though the Hungarian economy is now in its worst recession in over a decade ...

Last year’s 54% drop in oil prices may have set the table for a rally similar to the one experienced in 1999, when prices doubled after a similar decline. The so-called “forward curve of futures contracts” traded on the New York Mercantile Exchange suggests prices will rise 28% this year, according to Bloomberg News.

The current curve looks almost the same as it did 10 years ago, when Russia’s default drove oil prices to drop as low as $10.82 a barrel in late December 1998 - a decline of nearly 40% from where they began that year.

At that time, the Organization of Petroleum Exporting Countries (OPEC) responded by cutting output by 1.71 million barrels per day (bpd), an amount equal to 7% of the group’s total supply, setting the stage for a 1999 rally in which prices more than doubled.

Fast forward to the present.

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Emerging Market Funds Lose $48 Billion; Bank of America Sells China Bank Shares; Family Dollar Beats and Raises Forecasts; New CEO, Cost-Cutting at Orbitz; Russian Winter; Monsanto Reaps Profit; No Pain Means Gain for Sun; Oil Slides 12%

More than $48 billion was withdrawn from emerging market funds in 2008, with the largest chucks of change pulled from funds tracking Asia, according to EPFR Global. An emerging markets bellwether, the MSCI Emerging Markets Index, dropped 54% last year, its worst performance since it was created in 1987, Bloomberg reported. Bank of America Corp. (BAC) sold 5.62 billion of its China Construction Bank Corp. shares, raising $2.83 billion. Based on the Construction Bank’s IPO price, Bank of America realized a profit of about $1.13 billion, Reuters reported. Bargain retailer ...

In the energy market on Tuesday, oil broke over $50 but then retreated, with crude for February delivery closing at $48.58/barrel, down 23 cents. February reformulated gasoline gained less than ¾ of a cent, to $1.1892/gallon.

“The first attempt against the $50 psychological level is keeping a lid on this market,” said Burton Schlichter, of New World Trading.

But Phil Flynn, of Alaron Trading, was blunter. “Oil is running out of steam because at the end of the day the global crises have not cost the globe one drop of oil,” Flynn said.

Yet, one might add, as supply cuts haven’t really kicked in. Iran and Kuwait said they will deepen curbs on supplies to customers this month, joining OPEC peers in cutting back output, Reuters reported.

Source: Crude Little Changed

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Alcoa Cuts 13% of Workforce; Best Buy to Sell Used iPhones; Jobs’ Statement Earns Apple Upgrade; India Exports Slowing Dramatically; Europe Inflation at 2-Year Low; U.S. Still Innovation Leader; Belarus to Secure IMF Aid

Alcoa Inc. (AA) said late yesterday (Tuesday) that it will cut 13% of its global workforce. The company will also sell four business units, cut output, freeze salaries and hiring efforts, MarketWatch reported. The measures will result in a fourth-quarter charge of $900 million to $950 million after tax, or $1.13 to $1.19 a share. Electronics retail Best Buy Co. (BBY) said it will sell used Apple Inc’s (AAPL) iPhone 3G -returned 30 days of ...

The base metals were mostly in the red on Monday. Copper sank during the pre-dawn hours, but rallied through most of the New York session before slipping a little late in the day to finish at $1.4251/lb., down less than a quarter-cent.

Nickel pulled back a bit after last week’s charge, closing at $5.6283/lb., down 11 1/3 cents. Zinc was up and down, with a final late upthrust taking it to $0.5651/lb., up nearly a half-cent. Aluminum was off during the pre-dawn hours but rallied back the rest of the day to end at $0.6854/lb., down three-quarters of a cent, while lead regained most of its early lost ground, but still shed better than a half-cent, to $0.499/lb.

It was a desultory day for the industrial metals. Reuters summed up: “U.S. copper futures ended with marginal losses on Monday, after an overnight test of both ends of the trading range held,

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When China announced its colossal $600-billion stimulus package back in November, we cautioned investors against irrational exuberance on the overall impact it would have on commodities, stocks and heavy equipment.

Now that the dust has cleared, it appears that the China plan is not entirely as big as advertised — further diminishing the halo effect on the global economy.

When originally unveiled, China’s $600-billion plan proposed a massive infrastructure build-out through 2010 to help create jobs and shift the country away from it’s over-reliance on exports, which have suffered from the global recession.

The announcement was framed as a brand-new initiative. The blueprint China laid out before the world included projects for low-cost housing, airports, roads, highways and aid to farmers. Pundits saw the investment by China as an overnight boom for raw materials, although we took a wait-and-see approach.

Asian stock markets surged on news. Japan’s Nikkei index jumped 5.8% while Hong Kong’s

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