Cool Beans, eh? OK… Well… If yesterday was Turn Around Tuesday as the writer said, I sure didn’t see it! We had a “stop the dollar at the 1.38 border” Tuesday… But a complete turn around from Monday’s sell off, after Russian Finance Minister, Kudrin, threw a cat among the pigeons? Not that I saw!

We do seem to be stuck in a trading range of 1.37 to 1.40… With probes below 1.37 and above 1.40 short-lived. That’s OK with me, at this point, but it had better not last too long, or traders will grow tired of the boring range… And, I will be yelling at the walls for some price action!

Well… The BRIC (Brazil, Russia, India and China) meeting didn’t really bring about the Thunder and lightening as I thought it would… The leaders of these countries did discuss the need for a “more diversified monetary system to reduce dependency on the world’s reserve currency.” (read the dollar!) They also discussed selling bonds and swapping currency among the group. Now if we rewind back to Monday, I said that I thought this could be what they would do… The crystal ball was bang on that day! HA!

I can’t believe the markets have allowed this to be swept under the rug… This could be colossal if it’s carried through… And this way, all of them can smile and say they believe in the dollar and U.S. Treasuries while not dealing with them! Personally, I think the reason the markets aren’t paying attention to these goings on, is that the media isn’t covering it… The grip that the administration has on the media is really beginning to show just how tight it is…

One other thing from the meeting… The BRIC nations announced that they wanted to take a more active role in the world’s financing system… And with $2.8 Trillion in currency reserves among the 4 of them… That would be more than a “kind gesture”…

Speaking of the media… I have to wonder what the media is thinking on this one… Here’s the skinny… First of all, this story came to me a week ago… But at first, I thought, I had better make certain this is not a hoax before talking about it… What am I talking about? I’m talking about the report that two Japanese men were caught at the Swiss-Italian border with $130 Billion in U.S. Treasuries!!!!!!! Now, Chris and I were talking about this yesterday, and Chris said, “But I thought all Treasuries were book entry for some time now”… Yes, since 1982 (a great year, with the Cardinals winning the World Series!) Treasuries have been book entry only… So… The question I had from the beginning is “are they real or fake?” Because I didn’t want to waste your time and mine if they were fake bonds… But apparently the someone believes them to be real…

Hmmm… $130 Billion in bearer bonds… Does this intrigue anyone? It sure does for yours truly. Does this mean that the U.S. Treasury has been printing bearer bonds and selling them under the cover of a dark night? That’s the only explanation I can come up, IF THEY ARE FOR SURE REAL!

I don’t know what to make of this except it has my attention, and I can’t believe I don’t see one story on cable news… But it’s all over the news in Europe and Asia… More later, as additional news comes to light on this…

OK… Yesterday, I talked about the Current Account Deficit, which is expected to be $85 Billion for the 1st QTR… What I didn’t talk about is that this would be the lowest level for the Current Account in a decade! And would represent just 1.5% of GDP. Now… I used to go out and talk about how the dollar entered the weak dollar trend in Feb. of 2002, after the Current Account Deficit reached 4% of GDP, which historically had been the line in the sand for currency issues…

But let’s put this in perspective, eh? Back in 2001 and 2002, our GDP was running at 4-5%… It’s now negative… So, maybe this won’t be the harbinger to reversing the weak dollar trend, that it looks like on the outside… Besides, as I’ve said over and over again lately, the whole deficit talk used to center on the Trade Deficit (which account for the majority of the Current Account), and with the global recession going on, the Trade Deficit, while still having issues, is no longer the focal point… Instead, the Budget Deficit (the 2nd of the Twin Deficits) has taken the reins of the focal point… If it’s not one thing it’s another, my mother used to tell me! (the you-know-what disturber in me just has to make this comment… “no wonder the Current Account is lower, we don’t report debts or the bonds that represent the debts!”… That’s in reaction to the $130 Billion in bearer bonds!)

I came across a news story yesterday morning that caught my attention… It seems that the Gov’t of Australia, has decided to put Government backing on state issued bonds like the QTC’s (Queensland Treasury). This is HUGE for these issues, especially since the states in Australia were seeing downgrades in ratings! Now, the country of Australia has a higher rating, and these bonds will carry that rating, since they are now backed by the Gov.! The one thing it will do though, is tighten up the yield on these bonds… Probably by about 10-15 Basis points…

Why am I talking about this? Because… If the QTC bonds now have a higher rating, more institutions will be able to buy them, and the more investment in Australia, the more flows into Aussie dollars! The news brought the A$ back to 80-cents yesterday briefly… But this is going to take some time to work through. The thing here is that in the long run, this is good for the A$!

In China overnight, we had an announcement that could really become a problem with protectionism… China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus program in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

Now, long time readers know that I’ve always banged on 1. the Bush administration when they placed tariffs on Japanese Steel about 8 years ago, 2. Schumer and Graham for introducing a bill to place tariffs on Chinese exports to the U.S. Because… Both represent protectionism… And a currency will normally get taken to the woodshed for being associated with a country that takes protectionism measures…

So… Will this hurt the Chinese renminbi? Ahhh grasshopper, remember, the Chinese renminbi is a “manipulated currency”. The Chinese Gov. decides what value the renminbi will be… So… In a regular floating currency scenario, yes, this would hurt the currency… But in China’s situation, it’s all different.

However, the reason I make a big deal out of this is that this announcement could lead to other countries placing their own protectionism measures to offset China… One protectionism measure, begets another, and another, and another… Oh boy! NOT!

Talk about smashing a bug! This would be just like doing that to the promises of a global recovery… Somebody stop them for they know not what they are doing! Or maybe the Chinese do…

Yesterday, Housing Starts in the U.S. surprised on the upside, and so did Building Permits… I don’t like this for the simple reason that we already have an “inventory” issue with houses that have been built and not bought or occupied. But, the media was all over this new, because… It’s the opposite from what I told you the day before that economists, Shiller, Roubini and Whitney had to say about housing! And the Housing Starts and Building Permits data flies opposite of the report this morning that mortgage applications fell 15.8% this month!

We also saw that Industrial Production fell -1.1% in May… So output was off sharply at factories, utilities and mines, in May, which is completely opposite of those that are saying the recession is over…

Today, in addition to the Current Account data, we’ll also see the stupid CPI data for May… You never know what that data has in store for us, because the Gov’t doesn’t know what they want it to show for us yet! HAHAHAHAHAHAHA! Of course that’s my feeling toward CPI, and I’ve explained it all many times over the years… But, in a nutshell, CPI is kept artificially low by the Gov’t by re-weighting things that get too expensive, or substituting things that get too expensive… We all know why CPI is kept artificially low too, don’t we? Yes… We do…

Now… I spent more time on CPI this month than I care to! It’s just a dumb report that the media will be all over like a cheap suit!

I heard a great old song on the radio this morning that pretty much puts my feelings toward the direction of the country into words… “but you tell me over and over and over again my friend, ah, you don’t believe we’re on the eve of destruction.” – Barry McGuire

And then, I see where the President is going to announce his sweeping regulatory changes today… Hmmm… Do you see what I see? This is a shift from markets driven regulation to Political regulation… Markets to politics… Somebody stop the madness! Serenity now!

Currencies today 6/17/09: A$ .7925, kiwi .6295, C$ .8805, euro 1.3865, sterling 1.6260, Swiss .9190, rand 8.0530, krone 6.4115, SEK 7.8350, forint 204, zloty 3.2580, koruna 19.2570, yen 96.40, sing 1.4580, HKD 7.7505, INR 48.08, China 6.8370, pesos 13.45, BRL 1.9735, dollar index 80.72, Oil $69.69, 10-year 3.67%, Silver $14.10, and Gold… $932

That’s it for today… A pretty busy day for yours truly yesterday, with the monthly Review & Focus due, and the regular daily stuff all rolled into one day… Thank goodness, Chris and Mike help me with the Review & Focus these days! Speaking of the Review & Focus, I did a story on whether inflation or deflation is worse for an economy… You’ll want to check that out, when it shows up in your mailbox! Hey! My beloved Cardinals scored more than 2 runs in a game last night… YAHOO! It’s been a tough month for the redbirds, a June Swoon, if you will. Last night’s game VS the Tigers reminded me of the 2006 World Series match-up, and we all know the outcome of that series! 10th World Championship for the Cardinals! OK, enough of that, time is a wastin’! I hope your Wednesday is Wonderful!

Source: Stuck In A Range

One day I told my lovely wife to get her passport ready because we were going to Moscow.  She was quite excited because Moscow is a shopping mecca with many historical sites to see.  But, I assure you—I was there for business.

We traveled to Russia in December of last year and I saw firsthand how the country operates.  I observed that the Russians are a hard working and productive people that just want the best for their families.  Russians are striving for a better quality of life just like anyone else.  I knew right away that the country offers investor’s high profit potential.

I assure you that Russia is still a super power and their society is quite advanced.  The energy sector in Russia is still a powerful force in the world.  Plus, Russia is one of the biggest producers of palladium, platinum, diamonds, nickel and gold.  Russia is a natural resource power house and should do great as commodity prices skyrocket.

When I got back to America I watched the Russian markets for some time and waited for the right moment to tell you to invest.

Then on 04/09/09 in this column, I wrote:

“the Russian market is way oversold and now is a good time to be a contrarian investor and invest when no one else will.”

I told you to buy the Market Vectors Russia ETF (RSX).  This Exchange Traded Fund holds a basket of Russian stocks and seeks to mirror the Russian stock market as measured by the DAX Global Russia+ Index.

I hope you took the advice.  If so, you’re sitting on a 39% gain in just 53 days.  And that’s not the only profitable advice you’ve received for free in these pages…

In fact, just this year I sent you lots of big winners including:

7% SPDR Gold Shares (GLD)
21% iShares Silver Trust (SLV)
85% Freeport-McMoRan Copper & Gold Inc. (FCX)
45% Plum Creek Timber (PCL)
13% PowerShares DB Agriculture ETF (DBA)
26% iShares MSCI Brazil Index (EWZ)
39% Market Vectors Russia ETF (RSX)
29% PowerShares India ETF (PIN)
18% iShares FTSE/Xinhua China 25 Index ETF (FXI)
13% The Coca-Cola Company (KO)
11% Market Vectors Agribusiness ETF (MOO)

If you missed this opportunity to get into any of the above positions, it’s not too late.  Each one of these picks has the potential to run much higher.

I’m sure you are happy we deliver these great ideas for FREE in this Investor’s Daily Edge daily newsletter.  Our staff here at Investor’s Daily Edge strives to give you information that can help you accumulate wealth and enhance your financial well-being.

Now I have an important favor to ask of you.  I need you to tell your friends and family to sign up for our free daily newsletter.  Simply just tell them to go to http://www.investorsdailyedge.com/ and sign up.  Or forward this email to everyone in your address book.

We currently have over 300,000 elite members like you getting Investor’s Daily Edge on a daily basis.  Our goal is to get to one million subscribers.

Tell your friends and family that can benefit from independent and profitable financial insight.

Thank You,

Ted Peroulakis

Source: The Russia Pick I Recommended to You Is Up 39 in 53 Days

Platinum really hit the skids, plummeting straight through with little interruption, ending at $1140, down $35. Overnight, platinum is sharply lower.

Silver fared much better than its sister metals and, even though it too peaked in early far East trading, it managed to hold above $13 all the way through the Comex, before easing on the Globex to close at $12.90/oz., up a penny. Overnight, silver has fallen steeply. (Click here for charts)

Precious metals fanciers couldn’t have been too disappointed with yesterday’s action, given that silver held steady and gold fell only modestly in the face of both a rising dollar and slumping oil.

Most of the market talk yesterday centered on China’s surprise announcement late last week that it has been quietly building its gold reserves for years. And though officially it has bolstered stockpiles by 34 million ounces, many observers believe that the actual figure could be much higher than that.

Even if we’re getting the straight dope, “The Chinese government’s decision further demonstrates the leadership it is increasingly taking and its public recognition of gold’s proven role as a store of value and portfolio diversifier,” wrote Aram Shishmanian, CEO of the World Gold Council.

Julian Phillips, of Goldforecaster.com, went further: “By publicizing this information one has to ask, are they going to buy local supply in larger quantities? Will they take all the local production? If so this will mean a drop in supplies to the open market of a substantial amount. This will be extremely gold positive!

“It will also mean that not only is Russia buying around 4 tonnes a month for reserves but China is effectively buying over 6 1/2 tonnes of gold a month for reserves. Now add to that that the Central Bank Gold Agreement signatories are selling around 1 tonne of gold a month, with one signatory buying gold now, then it shows that Central Banks of importance are favoring gold far more than before. This does reflect [as the Bundesbank President said] that ‘gold is a useful counter to the swings in the $.’

“Certainly if the I.M.F. is to sell gold [not a foregone conclusion!] at an auction as they did in the past, then I would expect a central bank like Russia or China to be a buyer, at market prices. The implications for gold returning to a monetary role [reserve asset in support of currencies] are tremendous and gold price positive.”

Phillips then cautioned that, “If [gold] has such a role in the future then the possibility of governments taking over the gold market rears it ugly head.”

Source: Gold Off, But Silver Steady

“It’s all about OPEC,” said Phil Flynn, of Alaron Trading. Flynn also noted rumors that Russia is pressuring OPEC into a production cut. Russia, the second-biggest oil producer, is reportedly saying it will go along with any OPEC action to reduce supply.

“Of course the reality is that Russia probably has to cut back anyway to do maintenance, but the rumors do have influence,” Flynn said.

OPEC, which will meet in Vienna on Sunday, is experiencing some internal debate about whether or not to cut output further. Some members are apparently pushing for full compliance with their earlier cuts, rather than announcing more reductions.

However, “if nothing more substantial than pledges of vigilance come from the weekend’s meeting, the markets will show their disappointment,” said John Kilduff, of MF Global (NYSE:MF).

Source: Crude Soars

What makes him so confident?

The answer might lie in a fascinating article in the Moscow Times, an English-language daily.  Now I can’t speak to the publication’s credibility; according to Wikipedia, it’s under foreign ownership and isn’t afraid to take an anti-Kremlin line.  But the Wikipedia article is thin, to say the least.  So if all of what follows turns out to be a crock, I won’t be too surprised.  But it’s too intriguing to ignore.

The paper reports the president of Sakha Republic, in Siberia, came calling on Putin recently.  Vyacheslav Shtyrov brought ill tidings: The swoon in world energy markets has hit Sakha hard.  But rather than continue to paraphrase the article, l’ll let the rest of the story unfold on its own:

Sakha is having trouble keeping up with its investment goals for 2020 and the region’s labor market is suffering, Shtyrov said at the meeting.

Putin listened and then took a breath.

“Vyacheslav Anatolyevich,” he said, addressing him by his patronymic, “the global prices of coal, gas, metals and even diamonds have fallen. But the price of gold is rising — and gold is mined on your territory.”

When Shtyrov called attention to miners’ problems with creditors, he was once again rebuffed. “We’ll solve the problem with gold mining,” Putin said. “Especially since — I’ll say it again — I’m well aware that the price of gold is rising on world markets.”

The paper attributes this account to a transcript of the meeting released by the Kremlin.  Assuming this is correct, and the transcript is accurate, Putin is making a remarkable bet here, not just for Sakha, but for his whole country: What low energy prices have taken away, high gold prices will restore.

According to the article, Russian mining firms have been at least as attractive since last fall as names more familiar to Western goldbugs’ ears.  Shares in Polyus Gold have risen 172% since bottoming on November 18; Polymetal is up 207% since its low on November 20.  By comparison, the HUI index is up a little under 80% since its lows last October, the XAU up a little over 65%.

I have no idea whether Putin’s big bet is true, or whether it’s plausible.  But it’s out there.  And it’s fascinating.

Source: Putin’s Fascinating Bet

This week, Russian President Dmitry Medvedev and Georgian President Mikheil Saakashvili are already planning to sign a peace plan. But still the damage has already been done – particularly to the Russian ruble.

Honestly, what happened to the ruble this week is pretty common during wartimes. So this begs the question: How does a war affect a currency?

Well, as I often say: Money hates instability. There is nothing more unstable and unpredictable than a war where anything can happen. You also never know how long one will last, who will win, and what will be lost along the way.

As an investor, you’re left to suspect the worst. That’s why most investors grab their money and run to safer, more stable countries until the coast is clear.

Russia Declares War and
the Ruble Sinks 4% in 5 Days

To this day, Russia still has a bad reputation for decades of shady dealings. As such, investors never seem to fully trust the Russian markets. If a conflict breaks out, investors rush in and grab their cash even faster than they would another country.

And that’s exactly what happened when Russia declared war on Georgia.

Check out the chart of the U.S. dollar vs. the Russian ruble below. You’ll notice the ruble tanked over 4% in just 5 days after war broke out.

With Leverage, You Can Turn that 4% move into 400% Profits

Now that may not seem like much to you. But you have to remember that small movements in currencies add up to a lot in trading accounts.

Spot Forex accounts are commonly leveraged 100 to 1 or even 200 to 1. So a 4% move can be magnified to equal a 400% to 800% move in just 5 days.

If you bet against the ruble just as the Russians declared war, then you would be sitting on some healthy profits right now. However, if you bought the ruble formerly because it has done well in this “energy/commodity” boom, then you probably watched your account sink into the negative territory over the last few days.

Most trading accounts can’t take 400% to 800% losses on their positions over a five-day period and survive.

So ruble traders really had a wild ride since this began.

Is the War Over Yet?

Let’s suppose for a moment that the war truly is over and things somewhat revert back to normal (a Russian normal anyway). If that happens, then Forex traders will probably see it as a buying opportunity and grab the ruble once again at bargain prices.

However, if the conflict isn’t truly over, or if another one erupts, then you will see the rollercoaster ride begin again.

It takes a strong stomach to invest in the ruble right now. Much of the time it has been a very profitable “one way bet” against the buck since 2003. However, in times like these, you never know what the Russians are going to do.

On the other side of the coin, if you’re pulling money out of Russia, you’d better hide behind another BIG country. So many traders ran to the U.S. dollar since it’s the “Big Brother” that might be able to protect them and their money.

However, other traders chose to run to the “risk adverse” currencies of the Japanese yen and the Swiss franc. Both of these currencies have torn a chunk out of most currencies over these same five days with the exception of the U.S. dollar.

Right now, the buck can’t seem to do anything wrong and is rallying against any currency I have on my screen.

So war really “stirs the pot” because it not only causes money to run away from the country at war but also it has to find a hiding place. That hiding place won’t be the same for every investor. It may be two or three of the other biggest currencies in the market.

Bottom line: Money tends to run for cover at the first sign of conflict and tiptoes back in later after the conflict ends. Something to keep in mind the next time a war breaks out…

SEAN HYMAN, Currency Analyst

Source: Why a War Can Kill a Currency and ‘Also’ Hand You 400% or More

But here’s something the markets aren’t yet factoring in — the possibility that Georgia’s pro-Washington president launched an attack on ethnic Russian enclaves in Georgia to create a diversion for Russia in the event of a U.S. or Israeli attack on Iran.

Let’s back up for a moment. Middle East newspapers are buzzing with reports that two U.S. aircraft carriers, the Roosevelt and the Reagan, are heading toward the Persian Gulf. (The Lincoln is already there.) The Roosevelt took part in war games along with British and French vessels off the U.S. East Coast a few weeks ago — a fact that leads a blog called Europe Business to speculate all three of those nations are preparing a naval blockade of Iran. Here’s what makes that so interesting:

There is a great fear that Russia and China may oppose the naval and air/land blockade of Iran. If Russian and perhaps Chinese naval warships escort commercial tankers to Iran in violation of the blockade it could be the most dangerous at-sea confrontation since the Cuban Missile Crisis. The US and allied Navies, by front loading a Naval blockade force with very powerful guided missile warships and strike carriers is attempting to have a force so powerful that Russia and China will not be tempted to mess with. This is a most serious game of military brinkmanship with major nuclear armed powers that have profound objections to the neo-con grand strategy and to western control of all of the Middle East’s oil supply.

The Russian Navy this spring sent a major battle fleet into the Mediterranean headed by the modern aircraft carrier the Admiral Kuznetsov and the flagship of its Black Sea Fleet, the Guided Missile Heavy Cruiser Moskva. This powerful fleet has at least 11 surface ships and unknown numbers of subs and can use the Russian naval facility at Syria’s Tartous port for resupply. The Admiral Kuznetsov carries approximately 47 warplanes and 10 helicopters. . . .

A strategic diversion has been created for Russia. The Republic of Georgia, with US backing, is actively preparing for war on South Ossetia. [Ed. note: This was written the day before the war broke out.] The South Ossetia capital has been shelled and a large Georgian tank force has been heading towards the border. Russia has stated that it will not sit by and allow the Georgians to attack South Ossetia. The Russians are great chess players and this game may not turn out so well for the neo-cons.

Of course, there’s no telling if this is how it will play out. The foreign-policy insider website Swoop ignores this scenario in its weekly Monday-morning briefing, focusing instead on what the lame-duck government in Israel might do.

At the July 30^th US-Israel strategic dialogue, US officials cautioned Israel against military action. However, they recognize that Israel will act according to its own interests, not in accordance with US instructions. A senior State Department official told us: “The reality is that we would not necessarily be able to detect an Israeli attack until shortly after it is launched.”

You’d think for $3 billion a year in aid, Washington might get a 48-hour heads-up to move forces into position. But maybe not.

In any event, either of these scenarios — a U.S. blockade or an Israeli attack — could quickly drive oil from $117 to $200. And of course, there are other scenarios under which it could happen, too. We’ll be keeping our eye on the ball here while establishment media focus on the Olympics and the extramarital affairs of former presidential candidates.

Source: $100 oil on hold

But, as you’ll see below, now could actually be the perfect time to invest in both of these countries.

Let’s take Russia first. The Georgian conflict helped wipe 6.5% off Russia’s stock market on Friday. It is the latest in a string of events that have damaged investor confidence recently.

One of these is the interminable TNK-BP saga. BP and a group of Russian oligarchs each own half the venture. The Russians have made life difficult for TNK-BP’s foreign employees. Visas have been refused. Chief executive Robert Dudley has quit the country. His finance director has resigned.

Understandably, this has spooked foreign investors.There was also Vladimir Putin’s comment about Mechel, the Russian coal and steel firm. In June, Putin denounced the firm’s pricing policy, and accused it of tax evasion. His comments helped wipe $60 billion off the stock market.

And now, of course, there is a war. So you’d expect us to advise investors to stay the hell away, right?

Wrong!

“Buy when you hear the gunfire” is a commonly-heard phrase in investment circles. When everyone else is panicking, cool heads can set themselves up for spectacular gains.

My colleague Manraaj Singh looks for investments where most others fear to tread. As it happens, his Profit Hunter service has previous in Georgia. Last year, Manraaj’s readers made a tidy profit on one Georgian investment.

As I write this, Manraaj is tucked away in his cubbyhole looking for a way to get back in!

Is he mad? See for yourself tomorrow when Manraaj reveals his latest thoughts on this prospective play.

Meanwhile, Garry White takes a look at Russia. He gives us the top five reasons why he likes the place — and tells you how you could get rich the Putin way…

Finding profits in an unpopular place

“Naturally, when people think of the Congo today, they remember the violence… the wars… the corruption… the extreme poverty,” writes Manraaj Singh in his latest investment report.

But, as Manraaj points out, it’s also one of the most mineral-rich places on earth. It is another example of a place most investors are scared by — much to their detriment.

Manraaj has found a unique mining company that could soon control nearly half the world supply of one critical metal.

“Investors are nervous because it operates in the Congo,” says Manraaj. “So its share price is still trading well below what it’s really worth.”

To make real money, you often have to completely ignore mainstream advice. If everyone knows about it, the opportunity has passed.

Manraaj’s latest report offers you the chance to buy against the grain. Read on to find out how much this one share could make you

Until tomorrow

Ben Traynor,

Editor

Source: Why Investors Shouldn’t Fear The Conflict In Georgia

Byron King in Energy and Oil looks at the reasons behind the TNK-BP dispute:

The Kremlin has invested heavily in Russia’s image as an energy superpower. During the recent Russian Victory Day celebrations on May 9, many commentators referred to Russia’s energy sector as one of the key elements of Russian power. Energy took a top billing, right along with Russia’s traditional military might and still-potent nuclear capabilities.

Russian leaders have pledged to continue increasing the country’s output to meet rising demand, especially in Asia. The first foreign trip by incoming Russian president Dimitri Medvedev was to China, where he made numerous announcements about energy cooperation between Russia and the Middle Kingdom.

But many experts have long pointed out that Russia’s petroleum industry is working under serious constraints:

Most Russian oil fields were discovered in the 1950s, 1960s and 1970s. During those energy-rich times, the then-Soviet developers skipped over all but the largest deposits. Later on, the smaller fields were developed, but these fields cannot make up for the fading giants of the past. New discoveries of any size are quite rare, even in the vastness of Russia.

Much of the equipment and technology in the Russian oil patch is outdated. In recent years, Russia has imported large amounts of Western equipment. Russia has also brought in Western personnel to help maintain oil output. Western oil service firms like Schlumberger and Baker Hughes have a large presence in Russia.

The private parties who acquired many energy Russian assets after the collapse of the Soviet Union made little in the way of long term investment. All along, there was serious doubt about the sanctity or security of the property rights these tycoons acquired in the wake of the collapse of the Soviet state. Hence there was a “boom” mentality that led to rapid exploitation of the easiest resources, with little thought for the long term.

The Russian government imposes confiscatory levels of taxation on the oil industry, with some marginal rates approaching 90%. Thus the high world prices for oil benefit the Russian treasury, but leave little in the hands of oil developers for new investment.

Despite all of this, Russian oil output has been growing at impressive rates for the past ten years or so — in the nature of 5% to 10% per year in some years. But in 2008 that growth has stopped abruptly. Output figures have actually reversed. In absolute erms, Russian oil output is down in the first four months of 2008. Russia may have reached its own “Peak Oil” point, much as the US did in 1970. This has grave implications for the growth of the Russian energy sector, and the larger Russian economy.

If Russian oil output has peaked, we can expect new kinds of both rhetoric and behavior from Russia in its domestic policies, as well as in its dealings with other nations. In all cases, you can expect to see Russia pursue its own security and national interests with a strong hand, if not with a vengeance.

So states a recent article in the Hundustan Times, another “go to” source for news about what is REALLY happening in the energy industry.

The Kremlin has invested heavily in Russia’s image as an energy superpower. During the recent Russian Victory Day celebrations on May 9, many commentators referred to Russia’s energy sector as one of the key elements of Russian power. Energy took a top billing, right along with Russia’s traditional military might and still-potent nuclear capabilities.

Russian leaders have pledged to continue increasing the country’s output to meet rising demand, especially in Asia. The first foreign trip by incoming Russian president Dimitri Medvedev was to China, where he made numerous announcements about energy cooperation between Russia and the Middle Kingdom.

But many experts have long pointed out that Russia’s petroleum industry is working under serious constraints:

Most Russian oil fields were discovered in the 1950s, 1960s and 1970s. During those energy-rich times, the then-Soviet developers skipped over all but the largest deposits. Later on, the smaller fields were developed, but these fields cannot make up for the fading giants of the past. New discoveries of any size are quite rare, even in the vastness of Russia.

Much of the equipment and technology in the Russian oil patch is outdated. In recent years, Russia has imported large amounts of Western equipment. Russia has also brought in Western personnel to help maintain oil output. Western oil service firms like Schlumberger and Baker Hughes have a large presence in Russia.

The private parties who acquired many energy Russian assets after the collapse of the Soviet Union made little in the way of long term investment. All along, there was serious doubt about the sanctity or security of the property rights these tycoons acquired in the wake of the collapse of the Soviet state. Hence there was a “boom” mentality that led to rapid exploitation of the easiest resources, with little thought for the long term.

The Russian government imposes confiscatory levels of taxation on the oil industry, with some marginal rates approaching 90%. Thus the high world prices for oil benefit the Russian treasury, but leave little in the hands of oil developers for new investment.

Despite all of this, Russian oil output has been growing at impressive rates for the past ten years or so — in the nature of 5% to 10% per year in some years. But in 2008 that growth has stopped abruptly. Output figures have actually reversed. In absolute erms, Russian oil output is down in the first four months of 2008. Russia may have reached its own “Peak Oil” point, much as the US did in 1970. This has grave implications for the growth of the Russian energy sector, and the larger Russian economy.

If Russian oil output has peaked, we can expect new kinds of both rhetoric and behavior from Russia in its domestic policies, as well as in its dealings with other nations. In all cases, you can expect to see Russia pursue its own security and national interests with a strong hand, if not with a vengeance.

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: Russian Oil, Under Serious Constraints