An interview with Marin Katusa, Casey Research

In the past three years, Marin Katusa, senior energy analyst at Casey Research, has become one of the most respected and listened-to authorities in the investment advisory business. He spends the bulk of his time on airplanes and in far-off places studying the future of energy… and the best ways to make money from it.

Brian Hunt, editor in chief of Stansberry’s free online investment digest, The Daily Crux, interviewed Marin to get his take on where oil prices are headed for the long-term… the regions where investors and traders should focus their dollars… and some of his favorite energy companies with massive upside.

The Daily Crux: Marin… we noticed you guys at Casey Research are bullish on energy. Can you explain to us why?

Marin Katusa: Well, as we’ve mentioned in our Casey Energy letters, we’re short-term bears but long-term bulls.

I think there’s a very good chance oil will be knocked back down along with other markets in the short term, but I’d consider that a rare opportunity to buy the best companies at a steep discount. Long term, I’m very bullish on oil because I think the supply of cheap oil is running out.

The days of cheap and easy oil are over. Oil is getting harder and harder to extract because most of the easy-to-find deposits have already been found and extracted.

The best remaining deposits are deep underwater like in the Gulf of Mexico or offshore of Brazil, in state-controlled or politically unstable areas like Iran and Venezuela, or experiencing dramatically falling production like Mexico. There are also huge oil-sands deposits in Canada, but these are more expensive to extract – anywhere from $35-$40 per barrel for existing production, up to $65 or more for new production.

The simple fact is oil prices will eventually rise due to the increased costs involved in meeting existing demand.

On top of that, you’ve got developing countries beginning to significantly increase their own demand. Right now, you’ve got just 30 or so of the world’s most developed countries, known as the OECD, that consume about half of all the oil produced.

As emerging countries like China and India begin to increase their standard of living, they’ll start using a lot more oil. As you guys know, oil consumption per capita is tied very closely to GDP per capita of the country. So this means these emerging countries could be using multiples of the oil that they use now.

Today, China uses just under six barrels of oil per day for every thousand people. In India, it’s about two and a half barrels for every thousand. In the U.S., it’s just under 70 barrels for every thousand. Even if you figure just a 20% increase in China and India per person – those are huge, huge numbers. China alone has over a billion people. This is going to add tremendous upward pressure on prices.

And of course, I’m sure your readers are aware of the long-term threats to the U.S. dollar. Dollar depreciation will only make the problems I just mentioned that much worse.

That said, in the short term, I think oil is very vulnerable to pullbacks in the general stock market. So we’ve been telling our subscribers to be very cautious. In fact, a year ago, I decided to use $40 oil as the basis for all of our analyses for our newsletter. If a company we were looking at wouldn’t be profitable at $40 oil, then we wouldn’t go any further. The logic behind $40 was to provide a real margin of safety should we get the correction in oil I’m expecting.

But it also pushed me to look a lot deeper and be more selective, and it’s really paid off in our results – over 90% of my recommendations over the last year have delivered significant profits for our subscribers.

The funny thing is that by not using $70 or $80 oil, I started getting hate mail from people, saying, “Don’t you know oil’s at $73 and you’re using $40?” It was hilarious, but that’s exactly my point. If a company cannot be profitable at $40 per barrel of oil, it will underperform its peers even when oil is higher. When I use $40 oil and I like the financials – it’s gold.

A good example of this is what we did with Nexen. When I first wrote it up, it was trading at C$23 per share. After doing my analysis, I thought its intrinsic value was less. I said, “Buy under C$16 per share.” Of course, I got people writing in saying I was out of my mind for setting the buy price so low. Just over a month later, it was trading down below C$16 per share, and my subscribers ended up making about 50% within four months on a low-risk company.

So by using $40 oil, I get my true value, rather than the market value. There’s a difference between intrinsic value and the market value, and I go with intrinsic value. I don’t care what people are paying in the market right now. You might not get it today, you might not get it next week. You have to be patient. It’s what I call “stink bid investing.”

Crux: What else do you look for?

Katusa: Another factor I like to look at is what I call game changers. An example of a game changer is what has recently happened to the natural gas sector in the United States. Companies were victims of their own success, because they were so successful in using new technologies to retrieve gas from the shales, they drove the natural gas price down.

Using advanced technologies to discover big offshore deposits is an example of a game changer in oil. But what you’re going to see is a lot of the big finds are going to be drilled by the major oil companies – what I call the super majors – because it’s just so expensive to drill these targets.

Crux: Nobody else has the money.

Katusa: That’s right. So the only frontiers left for conventional oil production that can be extracted easily and cheaply, like I mentioned before, are in politically unstable countries like Iran, Iraq, Libya.

These countries are fully aware of the potential of their resources locked within their borders. They’re increasing the royalties they charge, including the gradual increase in the use of service fee contracts.

We spent a whole issue talking about this in our Casey Energy Report, in the October issue. In countries where the governments hold the ownership of the oil – such as south central Iraq, Kuwait, even potentially Mexico – these are places that you want to watch out for, because they are constitutionally barred from giving foreign oil companies ownership of the oil in the ground. They’re not as positive as people think they are.

A reliable and friendly oil source to the United States, such as the Alberta oil sands, is not cheap to produce. The oil sands require at least $35-$40 per barrel at the very minimum to extract, compared to less than $5 per barrel in places like Saudi Arabia, Iraq, and Kuwait.

Proven reserves in politically stable parts of the world unfortunately will cost the U.S. consumer a lot more money per barrel. We spent a lot of time in our latest issue of Casey’s Energy Opportunities looking at all of the national oil companies. Of those, you’ve really only got three you can possibly invest in, if you dare.

Crux: How about your take on the likelihood of big takeovers and buyouts? Do you see oil-hungry nations like China coming in to buy up a lot of reserves?

Katusa: Absolutely, but it’s not just going to be the Chinese, it’s also going to be big oil companies who want to replace their production with proven reserves in the ground.

An advantage the Chinese companies will have over the Western oil companies is the Chinese ability to leverage their political and economic muscle in places such as Africa, Venezuela, and Bolivia.

These countries potentially hold world-class oil deposits, but it’s much riskier for a Western company to explore these regions than the powerful Chinese oil companies.

Crux: China is already in a bidding war with ExxonMobil for African oil…

Katusa: Right. What our angle is, if you’re looking to invest in Africa, you’re looking for elephant-size deposits – what they call “world class deposits.”

The company needs to go in with a crew able to maneuver in politically unstable parts of the world. We had a big and fast win on a company called Tanganyika Oil, using just that concept. They went in, they built up production, then sold the company to the Chinese.

We’re doing it again right now on a company called Africa Oil – ticker symbol is AOI on the Toronto Venture Exchange – that’s partnering with the Chinese.

The man behind AOI is the same person behind Tanganyika Oil, Lukas Lundin.

Lukas Lundin, like his father before him, has a long record of going into politically unstable parts of the world and succeeding in developing world-class deposits and selling them at huge gains for the investors. So you’re going to see a lot of this type of partnering going on where the Chinese want the North American expertise, and in return, the Chinese add value by political clout and financial clout, helping to pay the costs of development.

We wrote up Africa Oil as a buy under C$1, and when it popped up to about C$1.50, we told our subscribers to take a Casey Free Ride [a profit-taking strategy] when the stock was trading above C$1.30, and it subsequently went as high as C$1.70. Currently we have AOI as a buy under C$1, and it’s trading at C$0.87, which we view as a very cheap cost for this stock.

Crux: Are there any other countries you’re interested in right now? Are you interested in Iraq?

Katusa: In northern Iraq in the Kurdistan region, there are some good onshore blocks with decent royalty rates.

A company called ShaMaran (ticker symbol is SNM on the Venture Exchange) we think has huge potential. It’s totally cashed up. I wrote it up as a buy under C$0.20 and put two buy signals on it. It’s trading at C$0.57 now. It went as high as C$0.80.

And they’ve got about C$0.25 in cash per share. This was a company that was trading less than cash – they had more cash than the market cap. Our shareholders bought millions of shares, because we were the only ones writing it up. And it had zero interest – there was nothing going on with it. And they’re now in northern Iraq in the area of Kurdistan, which has huge, huge potential.

I’ve also been looking at Colombia. I think that’s a country that people have to pay attention to. In the last month, a lot of the smart money, the big, big players in Vancouver – Frank Giustra and Sam Magid – have been putting huge money, their own personal money, into a bunch of oil plays in Colombia. I would recommend your readers take a look at some Colombia plays. One that I really like is Petroamerica, symbol PTA on the Venture Exchange.

Crux: Great. Any parting thoughts?

Katusa: I think what you have to emphasize to people is to buy at a discount to intrinsic value when it’s unpopular, and sell at market value when it’s popular.

That’s not just being a contrarian. A contrarian is just buying something that’s unpopular. Buy something unpopular that has a great discount to its intrinsic value, and when you sell, sell when it’s popular and trading at the market value, not at its intrinsic value. So those are the two rules that I have.

Crux: Thanks for your time.

Katusa: My pleasure.

As mentioned above, Marin’s track record for profiting in resources like crude oil, natural gas, and uranium is unmatched in the industry.

If you’re interested in reading a monthly analysis on the trends and stocks Marin likes, you can get on board as a Casey Energy Opportunities subscriber for only $39 per year. It’s an incredible deal and completely risk-free, with our 3-month, 100% money-back guarantee. You can learn more about a subscription here.

The dollar gave up most of its earlier gain against a basket of currencies, boosting the appeal of oil and commodities to investors. European stocks firmed and U.S. equity futures pointed to a higher opening.

“It’s making some progress back up, largely due to the dollar,” said Rob Montefusco of Sucden Financial. “At the same time, we haven’t seen demand pick up and we need that to draw strength back into this sector at the moment.”

U.S crude was up 8 cents to $66.10 a barrel by 1308 GMT, after earlier falling as far as $65.41. London Brentwas down 11 cents to $65.00.

Iran test-fired a type of missile on Monday which defence analysts have said could hit Israel and U.S. bases in the Gulf region, state television reported.

The drills coincide with increased tension in Iran’s nuclear dispute with the West, after last week’s disclosure by Tehran that it is building a second uranium enrichment plant.

Tensions over Tehran’s nuclear programme have supported oil prices in recent years. The country is the second-largest oil producer in the Middle East.

In late 2008, Iran threatened to block the Strait of Hormuz, through which about 40 percent of the world’s globally traded oil passes, when tensions rose in another row with the United States around the nuclear work.

Even so, sluggish oil demand, reinforced by some lacklustre economic data from the United States last week, continued to command investors’ attention.

“The Iranian situation is not having much influence. If it was, we’d be back towards $70 again,” said Christopher Bellew, a broker at Bache Commodities in London.

Oil prices posted their largest weekly decline in around 2-3 months last week, pressured by government data showing U.S. crude oil inventories had risen, suggesting demand remains weak.

U.S. durable goods orders dropped by the largest amount in seven months while a rise in new home sales was less than forecast, according to data from the U.S. Commerce Department on Friday.

Sept 28 (Reuters)

Oil prices continue to hover around $70 a barrel, and gold is in the mid-$900 range. Meanwhile the CRB Continuous Commodity Price Index has surged to a level 30% above its March low.

Finally, copper, supposedly a barometer of the global economy, went above $6,000 per metric ton – up more than 96% this year.

And while prices for most commodities are still well below last year’s peaks, the price spike is more dangerous than it looks.

Normally, commodities prices zoom at the top of a global inflationary boom, as in 1973, 1980, or last summer. This time, the surge is happening at the bottom of a recession. If it continues, the commodities price resurgence could cut off global recovery before it really gets going.

Commodities prices usually take off at the top of a normal business cycle, as inflation is accelerating. The price rise then causes commodity consumers to feel poorer. This reduces demand and brings on a recession. Then, new production capacity comes on stream after demand has fallen back, causing prices to remain depressed for several years.

That’s what happened in 1973, with the first Organization of Petroleum Exporting Countries (OPEC) oil price rise, and again in 1980, with the second. After 1980, we didn’t see a real commodities price surge until the middle 2000s. That’s because the tech revolution caused consumer demand to move to things like computer chips that used fewer raw materials than traditional products.

Last summer, we had a similar price peak. Given the depth of the current recession, you’d expect commodities prices to stay low for several years, as new production capacity comes on stream. But that hasn’t happened. Instead, prices have rebounded sharply.

There are three possible reasons for this year’s surge.

First, it could be the result of very low interest rates and loose monetary policy. In that case, it will soon lead to a rise in general inflation.

It could also be due to the worldwide fiscal stimulus – in the United States, China, the United Kingdom, India and most other economies. Much of the stimulus - particularly in China – consists of infrastructure spending. Infrastructure development requires lots of steel, copper, cement and other commodities. If that’s the case, the resulting budget deficits are likely to cause bond market problems. That would restrict the supply of funding for capital investment and other private sector needs.

Finally, the surge in commodities prices could be due to continued rapid growth in India and China. The 2.4 billion citizens of those countries, as they get richer, are demanding more goods that require a lot of commodities to produce, like automobiles.

Thus, when India and China grow faster than the rich West, we can expect commodities demand to surge more than global gross domestic product (GDP). If this is the cause, rapid commodities demand will lead to a rise in general inflation and spot commodities prices that will accompany shortages and price spikes. That would have a deflationary effect on output.

We saw this effect in 2008’s third quarter, when real U.S. GDP dropped 2.7%. That drop must have been the effect of $147 oil in July, since the financial crisis did not hit home until the very end of that quarter.

It’s impossible to tell which of these three is really causing the current commodities price surge. We can, however, be sure that it will choke off global recovery if it carries on much longer.

That’s a miserable possibility, especially if it means we also get inflation and higher interest rates. However, as investors we can make some money from the commodities surge.

Here are some ideas:

Powershares DB Base Metals Fund (NYSE: DBB): This exchange-traded fund (ETF) tracks the Deutsche Bank AG (DB) base metals index, allowing you to invest directly in the price movements of non-precious metals. With a market capitalization of $308 million, it is reasonably liquid. Plus, a lot of money has been flowing into it recently.

Vale S.A. (NYSE ADR:VALE): Vale is the world’s largest iron ore producer and a key supplier to China’s exuberant infrastructure growth. Historical P/E of less than 10; will benefit hugely from price run-ups in steel.

iShares Silver Trust (NYSE: SLV): This ETF Invests directly in silver bullion, which has been left behind somewhat in its relationship to gold’s price rise and can be expected to move up as gold does, possibly by a much greater percentage.

Market vectors Gold Miners (NYSE: GDX): Gold miners benefit disproportionately from a rise in the gold price because their production costs are fixed. They are thus a more leveraged way to play it than the metal itself, particularly as surging speculative demand can increase mining companies’ price-to-earnings (P/E) ratios.

Four Ways to Profit From Resurgent Commodities Prices

Source: Investment News Briefs Thursday, August 13, 2009

That will all change beginning today with the Nonfarm Productivity report for the 2nd QTR… Long time readers know my dislike for this data, as I believe it simply shows that one person works longer hours! The Fed Heads used to be all over this data like a cheap suit, and probably still trip over themselves to see the data when it prints… But to me, it’s not what Big Al Greenspan made it out to be…

Tomorrow is the big data day this week with both the Trade & Monthly Budget Balances printing for July… The Trade Deficit should tick up some, as Oil prices have gained in recent weeks, and the Monthly Budget Deficit? Oh my! It is forecast to be $180 Billion in the red! Which annualized would be more than $2.1 Trillion! But don’t worry about it folks, no biggie according to the folks in Washington D.C. The Treasury will just issue more bonds, and the Fed will buy up any that don’t get bought, and pay for them with money they printed up fresh that day!

You know that I’m be facetious with the “don’t worry” talk… I’ve been talking about this deficit spending for quite a few years now… I like the fact that others have joined in now that the numbers have gotten so large they are as obvious as a man with a hatchet in his forehead, but at least they’ve joined the “stop the deficit spending movement”…

Speaking of The Treasury issuing Bonds… This week alone the Treasury will auction $37 Billion of 3-year Notes, $23 Billion of 10-year notes, and $15 Billion of 30-year bonds… Even using “new math” that brings this week’s issuance to $75 Billion! That sound? That sound you hear is foreigners choking on all this issuance! Does anyone know how to apply the Heimlich maneuver?

The “got yield” scenario I talked about yesterday, didn’t play out yesterday, as stocks came back… The A$ saw some selling along with kiwi, reals, and any other “high yielder”… The selling wasn’t bad, so we can probably put it down to profit taking.

I’m doing some research on the years around the depression, looking at market movements, and confidence levels… It’s amazing the things that were being said right up and to the stock market crash about how everything was fine… Then skip ahead to the 80’s and you had the same things going on with lofty praises for the S&L industry, especially one by Big Al Greenspan, and then the S&L industry circled the bowl… Makes you wonder, and I’m not talking about wondering who wrote the book of love… No, I’m talking about how this should make you wonder, or question, what’s being said about how great stocks are right now… When the President makes comments about “a good time to buy stocks”, you’ve got to stop and think folks… Just stop!

OK… I wanted to give everyone an update on the popularity of the BRIC MarketSafe CD we introduced last month… With over a week to go until we reach the funding deadline, this CD has received a ton of newsletter writer coverage, and interest… The funding has gone quite well, and we expect to open this CD with a very large amount of cash… That’s exciting for me, as I saw this as an opportunity to deal in “speculative” investments, without market risk, and jumped on getting this available to our customers…

I also wanted to follow up on the Jobs Jamboree data we talked about yesterday morning… I had a very nice reader tell me that I “hadn’t fallen off turnip truck” as the participation rate fell! That’s right! As she said to me… “So, all those poor men and women that were hit at the beginning of the recession have the great pleasure of no longer being counted as either employed or unemployed.”

I also wanted to follow up on last week’s talk on the Weekly Initial Jobless Claims that fell for the previous week… I had a reader who recently became unemployed in California tell me the problems with trying to file as unemployed! Let’s listen in to him explain his attempt to file as unemployed…

“Filled out the unemployment application on-line the day I was laid off.
About four days latter they send you another form to fill out and return. If not returned immediately, you lose your benefits.

Received a letter indicating they would call me 7 weeks after applying, to determine eligibility. It is scheduled for September 27th at 1 PM to
3 PM.

About two weeks afterwards, found there is no way to reach a human. The only way to reach them is EMAIL, which takes a couple of days to respond. EMAIL has a canned response, we will contact you on Sept 27th.”

OK… Enough of that! China came out with some data today… While exports continue to suffer the stimulus that the Gov’t put into the economy, which made sense due to the fact that the Gov’t had a war chest of cash to put into the economy, which is the exact opposite of the situation in most countries including the U.S. Chinese Industrial Production growth was strong, marking three consecutive months of improvement in Industrial Production. The ongoing recovery of domestic demand is good, while consumer demand keeps holding up well with July retail sales growth up 15.2% year-on-year…

Now, I fully understand how there can be questions about the validity of Chinese data… But come on! We don’t live there, we have no idea! And they don’t have a John Williams (Shadow Stats) to show everyone that the Gov’t’s official data prints are misleading and most times inaccurate!

I saw this report on the Bloomie this morning from Zillow… “Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb.”

That’s depressing stuff… Very depressing… So! Before I go to the Big Finish, I’ve got to find a “feel good” story… Of course if I were the Gov’t I would have a pocket full of those, to pull out whenever the consumers needed one! HA! But, I’m not the Gov’t! thank goodness! Whenever I think of the Gov’t, I think of those words that Ronald Reagan spoke regarding the scariest words a person can hear… “I’m from the Gov’t and I’m here to help”

OK… The euro looks to be catching some wind in its sails this morning, as it has gained 1/4 euro since I came in… I know that’s chicken feed, but Hey! You’ve got to start somewhere, and after Friday’s bloodletting, the tourniquet was applied on Monday, and today maybe we’ll see it gain back lost ground… For… It is “Turn-around Tuesday!” (well hopefully it will be!)

And if the risk assets (like stocks) are rebounding, Gold and Silver should be on the docket to rally too… And a quick look at the Bloomie tells me they are indeed, rebounding… So, now, let’s go to the Big Finish!

Currencies today 8/11/09: A$ .8365, kiwi .6715, C$ .9125, euro 1.4170, sterling 1.6475, Swiss .9250, rand 8.13, krone 6.2125, SEK 7.28, forint 191.80, zloty 2.9370, koruna 18.19, yen 96.50, sing 1.4460, HKD 7.7505, INR 48.02, China 6.8350, pesos 12.96, BRL 1.84, dollar index 79.12, Oil $70.73, 10-yr 3.78%, Silver $14.43, and Gold… $947.60

That’s it for today… I barely mentioned it yesterday, and have been remiss in not mentioning it before, but next week I head to San Francisco Money Show. San Francisco has always been one of my fave cities to visit, and last year I had a blast there, except for that red-eye I had to take home so I could be on the desk Monday morning! I played in San Francisco when I was a young man playing my guitar… Right there in the Cannery… Last year, we went across the peninsula to an awesome restaurant named the Cliff House… I hope to make it back there this year! But, the real reason I go there is to talk to audiences about diversifying, and what I see going on, and or happening in the future… It’s just my thoughts, but I seem to fill the rooms, so that’s a good thing! Nice win by my beloved Cardinals last night. I was in bed by the 6th inning when they scored all their runs! UGH! Time to go… Try to make your Tuesday Terrific!

Source: $75 Billion in New Treasuries this Week

U.S. crude rose as much as $2.37 to hit $71.82 a barrel, the highest since July 1. By 1351 GMT, it was trading $1.73 higher at $71.18.

Brent crude gained $1.46 to $73.16.

“We are getting close to the resistance area for crude oil and we need the continued support of equities,” said Olivier Jakob, an analyst at Petromatrix. “As long as this continues, the dips are going to be bought.”

European shares hit a new high for 2009, led by banks. U.S. stocks opened higher.

The latest gain in oil prices brings oil within sight of the 2009 high of $73.38 set in June, where Jakob and other analysts who use past price moves to predict direction see key resistance that prices could struggle to rally beyond.

On Friday, crude rallied almost 4 percent as data showed the U.S. economy shrank at a smaller-than-expected 1 percent annualised pace in the second quarter, raising hopes the recession was easing.

The market climbed about 2 percent last week — the third straight week of gains — which helped to reverse steep losses in the middle of the month and brought July’s monthly decline to a marginal 0.6 percent.

“The U.S. growth number has confirmed that the worst is behind us and the focus now is to find out how quick the recovery will be,” said Ben Westmore, a commodities analyst at the National Bank of Australia.

China’s crude stockpiles in June, including both state strategic and commercial reserves, declined 2.7 percent from a month earlier, the first fall in four months, China OGP, a newsletter run by Xinhua, reported on Monday.

Analysts said a weak dollar, which slid to its lowest point this year on Monday against a basket of currencies amid increased risk appetite, would offer support to oil.

Supply curbs by the Organization of the Petroleum Exporting Countries since last year in response to falling demand have helped crude rally from below $33 in December.

However, output from 11 members from the OPEC rose slightly in July, lowering its compliance rate to its agreed supply curb to 71 percent from 72 percent in June, a Reuters survey showed.

LONDON, Aug 3 (Reuters)

According to a July survey conducted by the European Commission (EC), expectations that prices will fall reached their highest level since the commission began tracking comparable data in 1985.

The same survey also showed that excess manufacturing capacity is at its highest point since at least 1990 – another indication that the 16-nation Eurozone region is flirting with a prolonged period of deflation where consumers are reluctant to spend and retailers are forced to keep cutting prices.

Prices in the Eurozone fell 0.1% year-over-year in June. Six Eurozone nations reported negative inflation for the month – Ireland, Portugal, Belgium, Spain, Luxembourg, and Austria. Prices in Ireland fell the furthest, sinking 2.2%, followed by Portugal, where prices fell 1.6%. Belgium, Spain, and Luxembourg all saw price declines of 1%.

Data set to be released tomorrow (Friday) is expected to show that prices slid a further 0.4% in July from a year ago, according to a survey conducted by Reuters.

However, weaker-than-expected price data from Germany released Wednesday could mean an even steeper drop in prices for the region. Consumer prices in the Eurozone’s largest economy fell 0.6% in July from a year earlier.  It’s the first time German inflation turned negative since comparable data was compiled in 1995.

Economists at BNP Paribas said in a research note that they expect Eurozone inflation will fall to –0.6% in July. But the bank also said that it expects the Eurozone’s deflationary period to be short-lived, as the price decline will be exacerbated by low oil prices and seasonal retail discounts.

“The drag on inflation will reach its peak this month, given the favorable comparison with July last year, when oil prices reached their highs,” BNP said.

Still, the International Monetary Fund (IMF) has urged Eurozone policymakers to maintain fiscal stimulus next year and keep interest rates low, as an economic recovery is “highly uncertain.”

“It will be essential to maintain this stance as long as disinflationary pressures persist,” the IMF said.

The European Central Bank’s (ECB) main interest rate currently stands at a record low 1%, but analysts have criticized the bank for not loosening monetary policy quickly enough.

Other central banks “have their own responsibility and decisions and I have already said that as far as we are concerned, we would be very, very keen to avoid to be put in a situation which for us would not be appropriate, namely a liquidity trap,” ECB President Jean-Claude Trichet said last year after the U.S. Federal Reserve announced its decision to cut its benchmark rate to a range of 0%-0.25%.

Source: Eurozone Deflation Becoming a Bigger Concern

Of course that doesn’t mean that they aren’t still making money.

Exxon Mobil (NYSE: XOM) reported that profit dropped 66% last quarter. Although it still made $3.95 billion, it’s just not making money hand over fist like last year.

In a eerily similar report, Royal Dutch Shell ADR (NYSE: RDS.A) said that it’s profit dropped 67% to $3.82 billion. ConocoPhillips (NYSE: COP) fared even worse, with profits plummeting 76% to $1.3 billion.

Hard times indeed in the petroleum industry.

This all comes on the heels of a volatile market in oil prices, regulators considering limits on oil speculation, and oil stockpiles fluctuating.

The real reason oil supplies have been moving so much is the contango situation that caused millions of barrels of oil to be stored offshore in tankers. As the capacity has opened up some of this oil is migrating ashore – but not much.

This is skewing the supply numbers up and down depending upon the pricing and motivations of the sellers.

Oil is opening up at almost $67 a barrel today, and it’s easy to see how supply and demand pressures will keep that fluctuating for a good deal into the future.

Source: Oil Companies Still Making Piles of Money

Spot gold was bid at $935.10 an ounce at 1325 GMT, against $933.30 an ounce late in New York on Thursday. It earlier hit a session high of $939.65. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange edged up 50 cents to $935.40 an ounce.

The euro gave up ground against the U.S. currency after data released on Friday showed the U.S. economy contracted at a slower-than-expected pace in the second quarter, which analysts said backs views the recession is winding down.

“The U.S. GDP data was fairly good; it is still contracting but at a much slower pace, much better than the first quarter,” said Andrey Kryuchenkov, an analyst at VTB Capital.

“But the personal consumption data wasn’t so good,” he added. “Inflation is not there yet, that would weigh on gold.”

Gold is broadly tracking moves in the dollar within a narrow range. Dollar weakness tends to benefit gold, as it makes the metal cheaper for holders of other currencies.

The dollar fell versus a basket of currencies in earlier trade as a rise in stock markets sharpened appetite for currencies seen as higher risk.

But equity markets fell in Europe and stock index futures weakened in the United States after the data, which also showed the economy contracted more than previously reported in the first quarter of the year.

Oil prices also fell more than 2 percent as investors worried about demand weakness. Strength in crude can benefit gold, which is often bought as an inflation hedge.

DEMAND TAILS OFF

Underlying demand for gold remains weak, with a pick-up in sales in leading gold market India midweek tailing off towards the weekend and flows into gold-backed exchange-traded funds still stagnant.

But a World Gold Council official told Reuters India’s gold demand may pick up from August as pent-up demand is seen boosting sales.

Meanwhile Africa’s top gold producer AngloGold Ashanti said it will miss its output target for the year, adding that it will wind up its hedge book of forward sales by 2014.

Elsewhere silver was flat at $13.45 an ounce, platinum was at $1,184.50 an ounce against $1,179.50, and palladium was at $255.50 against $256.50.

Aquarius Platinum Ltd said on Friday its quarterly attributable production was up one percent from the previous quarter to 98,258 ounces.

Prices of platinum — consumed primarily by the car industry for use in catalytic converters — edged above $1,200 earlier this week on hopes economic stability would lift car demand.

But despite an expected fourth-quarter recovery in the European car market, analysts were cautious towards platinum.

VM Group analyst Matthew Turner said a third-quarter demand slump in Europe, a key market for platinum as its cars are usually diesel-fuelled and therefore use a higher proportion of the metal in their autocatalysts, could hurt prices.

“In the last few months car production has started to pick up again,” he said. “The problem is that a lot of the car sales in Europe are artificially boosted by government incentive schemes. That is probably bringing demand forward, it’s not increasing demand.”

LONDON, July 31 (Reuters)

• Verizon Communications (NYSE: VZ) will lay off 8,000 full-time and contract workers following a 21% profit drop in its second quarter, The Wall Street Journal reported. All of the job cuts will come from Verizon’s wireline business, which was hit by 630,000 residential phone subscribers canceling their service. This was offset by a rise in its fledgling fiber-optic television and Internet service called FiOS, which saw subscriber gains of 300,000 and 303,000, respectively. For the quarter ended June 30, Verizon posted a net income of $1.48 billion, or 52 cents a share on revenue of $26.86 billion. That compares to a net income of $1.88 billion, or 66 cents a share on revenue of $24.12 billion in the same quarter last year. The company’s wireless division, which is the No. 1 carrier in the United States, saw its revenue increase 28% thanks to its acquisition of Alltel Corp.

• The bulls were out in force on Wall Street yesterday (Monday) after all three markets posted gains. The Dow Jones Industrial Average rose 15.27 points, or 0.2% to close at 9108.51, theStandard & Poor’s 500 climbed 2.92 points, or 0.3% to close at 982.18 and the tech-laden Nasdaq Composite Index increased 1.93, or 0.1% to 1967.89. “The bottom line is that there are signs of life, and the market doesn’t want to go down. Buying late in the day and closing near the high of the day is more proof that the bulls are in control,” Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research told TheStreet.com.

• The Securities and Exchange Commission made permanent a temporary rule that seeks to limit “naked shorting” by requiring broker dealers to promptly purchase or borrow securities that they would use to deliver on a short sale, MarketWatch.com reported. “Until the SEC actually toughens its rules so that abusive short selling can be stopped effectively with enforceable standards, I am concerned that the abuses that took place last year that hastened the demise of Lehman Brothers and Bear Stearns could happen again,” said Sen. Ted Kaufman, D-Del. “Instead of proposing action today to deal with the problem, the SEC apparently is content to let potential solutions sit on the shelf for another two months,” he added.

• New single-family home sales rose 11% in June over the previous month to a seasonally adjusted rate of 384,000, the Commerce Department said yesterday (Monday). Still, year-over-year sales were down 21.3%. The Midwest saw 43% growth in the category, the sharpest increase in the category. Sales in the west were also strong, up 23%.

• Crude oil for September delivery rose 94 cents yesterday (Monday) to $68.99 a barrel in after-hours trading on the New York Mercantile Exchange (NYMEX), thanks to expectations thatgains in Asian equity markets will spur fuel demand, Bloomberg News reported. The rise was also spurred by investors seeking commodities as a hedge against inflation, as the dollar traded near a seven-week low against the euro. “Investors see the equity markets as a good lead for what you can expect oil demand to be going forward,” Ben Westmore, an energy and minerals economist at National Australia Bank Ltd. told Bloomberg. “At times when you’ve got high inflation expectations, investors tend to move toward real assets such as commodities.”

• Thirty-four percent of corporate chief information officers plan on upgrading their companies to Microsoft Corp.’s (NYSE: MSFT) Windows 7, and 75% also plan on refreshing their hardware investments according to MarketWatch.com, citing a Deutsche Bank AG (NYSE: DB) survey. The investment bank says the Oct. 22 release of its new operating system “could trigger significant new investment across the technology value chain.”

• A strong value proposition can’t stop the video game industry from suffering the wrath of the worst recession in more than 60 years.Software sales fell 29% from a year earlier, while console sales dropped 38%, The Wall Street Journal reported, citing data from market research firm The NPD Group Inc. The decline of the industry, which until the market’s March lows was thought of as recession-proof, has ripped to retailers such as Amazon.com Inc. (Nasdaq: AMZN), which blamed its weak quarterly results from its media business on falling game sales.

Source: Investment News Briefs Tuesday, July 28, 2009