But, first, let me first dispel a couple of common myths about oil…

Oil Myth #1: Demand for oil will go down in a recession

Cobblers.

In the last 58 years, according to Worldwatch estimates (based on sources such as BP and the International Energy Agency), year-on-year demand for oil has grown every year, except for two brief periods. Between 1973 and 1975, amidst a global energy crisis, global demand decreased annually by a whopping 0.01%. And between 1979 and 1984 consumption growth levelled, the biggest annual decrease being in 79-80 – down a devastating 0.04%.

If you factor natural gas into the equation, these ‘declines’ were even smaller. I’m going to write it in bold letters. Demand for oil will not fall by any significant amount, even if the US goes into recession.

Oil Myth #2: Increased production will meet demand

Really? And where are these discoveries that will lead to new production?

The last major oil frontiers were discovered as long ago as the late 1960s – the North Sea, the North Slopes of Alaska and Western Siberia. Since then there has been some reduction in the number of discoveries, but, more significantly, a huge reduction in their size. In the 1960s over 500 fields were discovered; in the 1970s, over 700; in the 1980s, 856; the 1990s, 510. But in this decade just 65 oil fields have been discovered!

The chart says it all.

Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970/1, Indonesia in 1997, Australia in 2000, the North Sea in 2001, and Mexico in 2004.

We are not finding enough oil to replace the oil we consume. It is that simple. Only politicians and statisticians complicate it.

So what’s this imminent supply squeeze?

‘Zapata’ George points out that the extreme cold spell in February in Alberta in Canada meant that the tar sands couldn’t be mined. One refinery in Edmonton had no oil to refine, while the larger Strathcona Refinery was running at significantly reduced rates due to ‘operational problems’.

He then mentions Australia, where there are currently gasoline shortages. BP and Shell have apologised, citing ‘constraints on imports’ – ie they’re not getting the oil – leading to ‘unprecedented level of fuel shortages’. At the moment, the four biggest oil refineries in Australia are not operational.

Meanwhile, says George, the Chinese have done deals worldwide where they will agree to pay market rates, but have the right of first call on oil production. Chinese oil demand went up by 6.5% in February, and their oil imports have risen by 18.1%.

In brief, the Chinese are getting the oil, while Canada and Australia are going short.

Will ‘Zapata’ George be proved right? Watch this space …

Gold’s bull is intact – but this year may be turbulent

It’s widely accepted a proper bear market is defined as declines of at least 20% over two months or more. We also know that no politician wants a bear market on his or her watch, particularly during an election year. In October the S&P peaked at 1,576 and fell to a low of 1,270 in January and again in March. That is a decline of 19.4%. It’s amazing how the buyers stepped in at just above the 20% decline mark, isn’t it? Officially there’s no bear market. So what’s all the fuss been about?

It’s a different story in the gold mining sector however. That 19.4% decline in the S&P has taken about five months and put the financial world in crisis. Yet a fortnight ago the XAU, the index of the major gold and silver producers, went from 209 to 168 – a decline of 19.6% – in just four days! Gold is a volatile beast.

Moreover, that was the majors, the safe, steady ones. The juniors were even worse. The fact that we can see these huge sell-offs in gold and silver, that traders are so happy to get rid of their positions at the slightest suggestion of a correction, shows how much fear there is. People still don’t believe in gold. If they did, they’d hang on to their positions no matter what. This still prevalent fear suggests to me that in the grand scheme of things this bull market is still immature.

However, we might see some turbulence up ahead. As I’ve said before, gold tends to move up in phases – a six- to nine-month rise, followed by a year or so of consolidatory whipsawing action. Now that gold has touched $1000, but couldn’t break it, it may be that we are in for another such period: a traders’ market, a period of false breaks to the up and downside, before the next big leg up.

Maybe, but I’m not selling anything. If we do decline further, there’ll be strong support around $850, more at $800, and more at $725. The obvious point of resistance to the upside is the big $1,000.

I doubt any sell-off will be as severe as May 2006 as the run-up was less parabolic, even though the past fortnight has been pretty painful. But if gold returns to the 200 or 300-day moving averages (at the moment, around about $770-$780) that will be a major long-term entry-point for any purchasers of physical bullion.

Of course, I may be completely wrong. We might have already seen the bottom and be on our way to pastures new. I hope so. But I doubt it.

Turning to the wider markets…

In London, the FTSE 100 gained another 63 points to close at 5,915. South African insurer Old Mutual was among the main risers.

Across the Channel, the Paris CAC-40 jumped 45 points to end the day at 4,911. And in Frankfurt, the DAX-30 rose 57 points to 6,777.

On Wall Street, the Dow Jones slipped back, ending 51 points lower at 12,605, as Federal Reserve chief Ben Bernanke warned the US might go into recession. The broader S&P 500 fell 2 points, to 1,367, while the tech-heavy Nasdaq ended 1 point lower at 2,361.

In Asia, Japanese stocks bucked Wall Street, with the Nikkei rising 200 points to close at 13,389, with energy stocks buoyed by news that Toshiba is in talks to build nuclear reactors.

Crude oil was trading at around $104.46 this morning, while Brent spot was also higher, at $103.46.

Spot gold was trading at around $898 an ounce this morning. Platinum was a little higher at around $1,961, while silver was trading at $17.11.

Turning to forex, sterling was trading at 1.9832 against the dollar, and at 1.2692 against the euro. The dollar was last trading at 0.6401 against the euro and 102.80 against the Japanese yen.

And this morning, car and bike parts retailer Halfords said that sales at branches open for at least a year rose 4.2% in the year to March 28. Annual pre-tax profit is expected to meet analysts’ estimates of around £87m.