My Recent Articles on Gold, Silver, Oil and More

• Here is just the latest ...
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•         Why I’m Buying Silver - and Why You Should, Too
•          The Swiss Are Investigating 7 Banks for Gold Manipulation... Here’s What You Need To Know
•      The Golden Hour Is Here
•       Get Ready to Profit from Falling LNG Prices
•       Sucker Punch! Russia Could Join OPEC

Chart of the Day -- Winners and Losers from Low Oil Prices

The price of Brent crude fell over 25% from $115 a barrel in mid-July to under $85 in mid-October. Who wins and who loses from lower oil prices? This chart provides some answers ...

Source

• A 10% change in the oil price is associated with around a 0.2% change in global GDP. A price fall normally boosts GDP by shifting resources from producers to consumers.
• Saudi Arabia can survive low prices because, when oil was $100 a barrel, it saved more of the windfall than it spent. The biggest losers are countries that didn't. Notable among these are three vitriolic critics of America: Venezuela, Iran and Russia
• However,Russia now has reserves of $454 billion to cushion against oil-price fluctuations.
• China is the world's second-largest net importer of oil. Every $1 drop in the oil price saves it an annual $2.1 billion. The recent fall, if sustained, lowers its import bill by $60 billion, or 3%. Meanwhile, the cost of goods its exports should remain fairly stable. China is a big winner.
• Energy imports into the European Union cost $500 billion in 2013, of which 75% was oil. So if oil prices stay at $85, the overall import bill could fall to under $400 billion a year.
• America  is simultaneously the world's largest consumer, importer and producer of oil. Analysts at Goldman Sachs reckon that cheaper oil and lower interest rates should add about 0.1 percentage points to U.S. growth in 2015.
• A $20 drop in the world oil price reduces American producers' profits by 20%. Only four-fifths of shale reserves are economic to extract using current technology with Brent around $85. However, that's starting from scratch -- shale oil wells that are already producing will likely keep pumping even if the price falls.

More HERE

3 Stories on Gold

Story #1: Russia Says "Da" to Gold!

Russia's central bank is buying gold. A lot more gold. Take a look at the chart.

Russia's central bank purchased another 37.33 tonnes of gold in September, bringing its gold holdings to almost 1,150 tonnes and is the seventh month in a row it has increased it gold reserves, and noticeably its biggest monthly increase yet.

Story #2: Gold Miners Are Hedging Gold Production Forward.
This is mainly due to the Russians as well. The volume of gold sold forward by mining companies jumped 61 percent in the second quarter after Russia's Polyus Gold added a major new hedge position.

Story #3: China Consumed More Than Twice as Much Gold in 2013 as the World Gold Council Estimated.
The World Gold Council offered its assessment at 1,066 tonnes. Koos Jansen just translated the the 2014 China Gold yearbook by the China Gold Association, and he came up with 2,199 tonnes.
What's more, while China is consuming less gold this year, "the country’s gold demand this year looks to be heading for close to 1,900-2,000 tonnes a fall of perhaps around 10-15%, far short of some of the big decline figures quoted by non-gold-savvy media wonks."

Big D, Double O, Small M. That Spells 'Doom', Baby!

I've been away. I've been busy. The markets look toppy. Case in point ...

It is likely, though not required, that the small-cap Russell 2000 (tracked by IWM) will make an attempt to test its broken support as overhead resistance. If you are in a mind to go short, that might be a good time. In the bearish case, look for a test of 97, and probably 90. Anything under 83 is brown-trousers time.

Updated chart

I've drawn the Fibs from the 2011 pullback, the most recent big pullback. 2009 was deeper, of course. The question is, do you think we're in 2008-2009-type trouble, or 2011-type trouble? 2011 was mostly political. Europe was in a real pickle. Europe is in political trouble again today. The Germans refuse to do stimulus spending when it's obvious that it is required. I see other similarities between 2011 and now.

Just remember that every political crisis ends.

But for now, the euro is under pressure (as is the yen, as is the rouble) and the US dollar reigns supreme. This is happening despite widespread and ongoing "analysis" that the U.S. dollar is already sliding toward an abyss. This analysis is taking place in a background where the U.S. dollar is up 7% so far this year. And people are lapping it up.

Why is the U.S. dollar so strong? As I've said many times this year, the U.S. dollar is winning a beauty contest in a leper colony. 

• It's not that our currency is so great, but the others look like hell.
• It helps that the U.S. deficit (not the national debt) is falling like a proverbial rock.
• Our economy is outperforming other economies.

So of course the US dollar is going up.

Source: New York F*cking Times

What does this kind of rally in the US dollar mean? Anything priced in dollars gets crushed. If you are a bit forward thinking, just remember that nothing goes up in a straight line. There will be a correction in the dollar. When that happens, a lot of things that have been under pressure are going to go ZOOM!

By the way, I have my own reasons for thinking the U.S. dollar is heading for a haircut in the longer term, and it has little to do with the reasons being pushed by the crackpot chorus. It has a lot to do with China, Russia and Saudi Arabia. More on that another time.

Next question: Would I play energy for a bounce here? My Gold & Resource Trader subscribers are long ProShares UltraShort Oil & Gas (DUG) ... again ... and it's a nice cushion considering what happened to some other positions. A while back, I gave my own target of $85 as a Come-to-Jesus moment for the oil industry, especially the Saudis (maybe a Come-to-Allah moment, then). And this past week, West Texas Intermediate, the U.S. oil benchmark, hit $85 and bounced (international oil prices remain higher, but way off their own highs).

So is that it for the oil pullback? Is this parade of pain finally over?

To put a floor under oil prices, two things need to happen. The US dollar needs to stop going up, though that is secondary. The main thing is that oil production needs to stop going up. Those sad sacks who write to me with frothy, fear-dripping tales about ISIS and the Iraqi oil fields -- zip it. No one cares about your theories about what ISIS will do, Field Marshall Monty. I'm sure you have a mainline to ISIS strategy HQ, right? Yeah, right.

In the real world, don't expect US oil companies to shut in any production until $70 or so. So that leaves Saudi Arabia. The central bank of oil. You might think the conservative Saudis would cut production to boost prices. That would be a costly assumption, at least so far. The House of Saud recently cut prices to match Brent Crude to preserve market share. What will the Saudis do now?

I thought pipelines would be a refuge in the oil pullback, because they make their money on oil flow (which is still going up), not prices. Clearly, I was wrong. When traders got scared, they dumped everything. I do think pipelines are a great buy on the pullback, because North American production is likely to keep rising if the price of oil stabilizes above $80.

By the way, lower oil prices are generally bullish for the non-oil economy.

But we shall see.

Other Reading

4 Forces That Are Driving Down Oil Prices -- and Could Drive It Lower (That's my original headline; the headline the editor put on this is WTF, but whatchagonnado). 

Russia is "Spear Phishing" -- and You're the Fish

Grumpy Gold Men

Friday Update -- Chart on the Dollar and More

Gold miners got hammered this week, and we had to take another round of gains in Gold & Resource Trader as another raised stop was hit.

I think gold's weakness has a lot to do with physical demand from China cooling off as that country's anti-corruption campaign heats up. They'll be back. And meanwhile, yesterday's dip spurred physical demand.

But the drop in gold prices also has to do with strength in the US dollar. Remember, gold is priced in dollars. As one goes up, the other usually goes down.

First, here's a chart of the US dollar ...

(Updated chart)

The US dollar is on the path to test its highs from last year. The wind beneath its wings is the collapse of the euro, triggered by eurozone stimulus.

August jobs numbers generally sucked. This was expected. And here's a big part of the reason why.

A major New England grocery store chain shut down last month due to a strike. The strike is over. One would think that will help the next round of job numbers.

Overseas, the population of Russia is plummeting like it is suffering a major catastrophe or world war. And no, Ukraine doesn't count. People are generally miserable as the oligarchs squeeze them mercilessly.  A lesson for our own ruling class, not that they care.

Freeport McMoRan reached a deal with the government of Indonesia; laying out a roadmap for how the mining industry in that country could get back on track.

The US imported 878,000 barrels of Saudi crude a day in August, the least since 2009. This chart from InvestmentU tells the real story.

 I'll have more on America's energy production tomorrow. Have a good weekend.

6 Hot Stories & Charts on Gold & Silver

As we slide into a Good Friday weekend, I have some charts of gold and silver for you.

Let's start with two factoids from Frank Holmes at US Global ...

#1: China Continues to Accumulate Gold

China is now thought to hold 2,716 tonnes of gold, while the U.S. holds 8,812 tonnes. China would still need ten years for its gold holdings to catch up to the U.S., suggesting strong gold demand from China. With Russia on the offensive again, it too has the capacity to push oil prices higher, boost its revenue and purchase additional gold beyond domestic production.

XX Update -- thanks to sharp-eyed reader "Anonymous," I have corrected this figure.  US Global listed it as "million tonnes," and I didn't catch it. The World Gold Council lists more likely numbers. The chart is still wrong.


#2. India's Gold Trade Caught in Cash Bind.

India’s general election has negatively impacted gold trade in the country. Gold traders in India are used to cash transactions when buying and selling gold. With the election code of conduct in force, traders face severe restrictions on carrying physical cash in large denominations. According to Hasmukh Bafna, President of the Gold Chains & Jewellery Welfare Association, business has dropped by 70 to 80 percent since the first week in March.This low gold demand is expected to continue until the middle of May

#3. Russia Rising.

Russia has now overtaken the U.S. to become the world’s second-largest gold producer behind China. In fact, the Wall Street Journal reports that Russia's production of gold-containing concentrates increased in January-March by 12.3% compared with January-March 2013, and the country's gold output increased by 32.6% on the year.

#4. Silver Production at Primary Producers on a Slippery Slope

Steve at SRSRoccoReports.com says that for 2013, the top primary silver miners suffered the lowest average silver yield ever.

Read the rest of his analysis HERE.

#5. Gold Miner All-In Cost Blues

Deutsche Bank has released a chart showing all-in costs of some smaller gold producers.

Chart found HERE.

#6. Chart of Gold
Finally, here's an updated version of my gold chart.

(Updated chart)

 Clearly, this was a bearish week for the metal. Gold closed below $1,300 AND its 200-day moving average. A test of support seems likely.

I'm sorry if that's not bullish enough for you. If you want bullish, look at natural gas. I'll have more analysis on that next week.

Have a happy Good Friday and a Wonderful Easter.  By the way, do you wonder why it's called "Good" Friday. Wonder no more.

Peace be upon you.

7 Must-Read Stories and Charts for Thursday

1. US export uncertainty unsettles global LNG industry
Where once 10 LNG projects worldwide were predicted to get sanctioned for construction in 2013, just one actually did, Yamal LNG in Russia.

A variety of forecasts agree more LNG plants are needed to meet global gas demand in the coming decade. A rough consensus is that 150 million metric tons of additional production -- about 20 billion cubic feet a day -- will be needed worldwide.

"Demand is rising strongly. There are many new markets. ...  As an industry, we are failing, year-on-year, to meet the targets we set ourselves," Houston told some 1,200 conference attendees from across the globe.

2. EIA: US natgas storage up 24 Bcf to 850 Bcf for week ended Apr 11. 
This is below expectations.  Natgas in storage is below a year ago and below the 5-year avearage. Year ago: 25 Bcf injection. 5 year avg: 37 Bcf build.

Note: It’s possible that late season heating demand is holding up better than expected.

3. The gold held by the SPDR Gold Shares ETF (GLD) has dropped below 800 metric tonnes again for the first time since February 12th. IKN has the chart ...

And from the GoldCore blog: Assets in the largest gold-backed exchange-traded product sank the most this year. New York's SPDR Gold Shares, reported outflows of 8.39 tonnes on Wednesday, the largest one day decline in its holdings since December 23. That has erased almost its entire inflow for the year, with its holdings currently at 798.4 tonnes, against 798.22 on December 31.

4. Is Putin’s Next Move to Take Over Odessa?
There are increasing signs that the unrest in eastern Ukraine is spreading, and Odessa, the country’s third-largest city, could be the next to fall.

5. Ukraine Currency Collapses Nearly 70% Against Gold In 4 Months
In Ukraine, the economy is nearing collapse and the currency is in free fall. The Hryvnia has been the world’s worst performing currency in 2014. This week alone the currency has fallen by 7% against gold.

"Once again, the lucky few who own physical gold are being protected from the currency collapse. They are in a position to buy food, water, property, land, businesses and other income generating and life sustaining essentials."

6. The 1% Wants to Ban Sleeping in Cars Because It Hurts Their 'Quality of Life’
Across the United States, many local governments are responding to skyrocketing levels of inequality and the now decades-long crisis of homelessness among the very poor ... by passing laws making it a crime to sleep in a parked car.

7. Fascinating Chart from Jesse's Cafe Americain ...

Why Gold Is Higher Today -- China and Russia

Gold is up to $1,318 as I write this. What's behind the move? The general consensus is that minutes from the Federal Reserve's policy meeting suggested officials will be cautious on increasing interest rates. Certainly, the news sent the dollar lower -- and you'll remember my chart on the dollar from early yesterday morning.

But if the Fed news is the main driver of gold's move, why didn't gold take off yesterday, after the minutes came out?

The Fed may have something to do with it. But I believe the main answer lies in China.

China’s exports unexpectedly fell in March -- down 6.6% from a year earlier. Imports fell 11.3% at the same time.

Source

And remember, this is on the heels of a terrible month in February. China’s exports fell 18.1% in February from a year earlier, the biggest drop since the global financial crisis.

So obviously, China is in a slump. The question becomes, what will China do about it?

Premier Li Keqiang said the nation will roll out more policies to support growth while avoiding stronger stimulus.

But what many suspect is that the central government will slash the reserve requirement ratio (RRR) for banks, and tell them to start lending -- or else!

In other words, we could see a flood of liquidity come on to the market. And that could be tremendously bullish for commodity prices.

The Russian Part of The Equation

One more thing. The Russian central bank has changed its logo into a Golden Ruble, according to articles on Silver Doctors and In Gold We Trust.

Officials stated: Golden Badge of the Russian national currency, officially adopted by the Central Bank of Russia, will symbolize a sign of stability and security of the ruble gold reserves of the country.

Why did this happen? Part of the US response to the Russian takeover of Crimea is sanctions on Russian banks. This included Visa and Master Card refusing to conduct non-cash transactions through Russian credit cards.  It  worsening outlook on the banks and raised the potential of suspension of rating actions.

This ticked off the Russians the way cutting off anyone's credit cards would. 

So, on friday, Russia's Central Bank announced that it will only work in Russia, and only with rubles. Russia now set on creating a new national payment system (NPS) to replace Visa and MasterCard.

And it's brandishing gold as its symbol. That's a big F-U to the Western powers, and to the New York banking elite in particular.

Gold Charts, Energy Charts, The Russians Are Coming!

As Broader Fears Fade, Gold Is Tarnished
Some investors are backing away from gold, as the prospect of higher U.S. interest rates and an easing of tension in Ukraine sends them in search of riskier assets.

On the other hand ...

10 Indicators Russia Might Invade Ukraine
Sean's note: Many of these seem spot-on. However, the author makes a point of referring to Russia as the "Fatherland." While Russia is sometimes formally referred to as Otechestvo (отечество) or Otchizna (отчизна), both of which mean "fatherland," the more colloquial and widespread word used is Rodina (birthland). And Rodina is a feminine words and typically personified as a mother (Sometimes referred to as birthland-mother). Hence, "Mother Russia."

My point is, the author has an ax to grind, and is willing to bend facts to make his point. That said, I gave a natural gas presentation this week in which I lay out my case for Russia invading Ukraine. Interestingly, my point -- that Russia covets the energy-rich areas in Eastern Ukraine -- was not among his points. So I guess now there are ELEVEN indicators/reasons why Russia could invade Ukraine. Holy crap!

See also: Ukraine: Divvying Up The Breadbasket Of Europe for a fascinating read. And it brings us to one more fascinating map of Russia ..

So, let's make it 12 reasons why Russia could invade Ukraine -- the last being to get China on its side.  Do you hear about any of this from the mainstream media? No.  And that brings me to one more story ...

State of Journalism: The Lost Art of Fact Checking 

Even by the end of the 1990s, the fact checker model was fading at Time Inc. At that time, it wasn’t so much financial pressure, I don’t think, as it was the need for speed. What piece could afford to sit with a fact checker for two weeks before publication? 

Enough of that. Let's move on to less fear and more greed.

White House strategy to cut methane takes aim at oil industry
he first big target is the oil industry, with new Interior Department regulations coming later this year to curb venting and flaring of natural gas at wells on public lands and wider air mandates possible from the Environmental Protection Agency in 2016.

In other news, natural gas storage in the U.S. is at a 10-year low.

That has big implications for prices for the remainder of the year.


And also interestingly, US oil & liquids production hit 10.58 million barrels per day in January, the 2nd most since March of 1986 

So, we must be swimming in oil, right?  Not exactly. In fact Crude oil inventories at Cushing, Oklahoma, hub are down 32% over the past two months

But where did all the oil go? Well, US exports of petroleum products rose to 245,000 barrels per day, according to the EIA

Finally, China is now the world’s largest net importer of petroleum and other liquid fuels

That's food for thought, eh?

Have a great weekend.

Gold Struggles Despite Big Purchases

Gold looks like it's going to go down and test $1,300 today.  If support breaks, I wouldn't be surprised to see $1,280.  However, there are a lot of bids waiting for gold at $1,300. That could be the next bottom.

In this next chart, you can see how gold is testing support.

Now, this is expiration day for April gold options, and so that may have something to do with it -- the market makers are simply screwing with option buyers. So maybe we'll see movement in price tomorrow.

Short-term price action aside, the news on gold SEEMS to be bullish. Let's start with the huge amount of gold that China bought in February.

China imports of gold through Hong Kong for February were 30% higher than in the previous month, AND 79% higher than in February 2013 according to calculations from Bloomberg based on the latest Hong Kong official data. You can read a more in-depth examination of Chinese gold demand from Koos Jansen HERE.

And it's not just China.

• Iraq bought 36 metric tonnes of gold this month valued at about $1.56 billion in the largest purchase by a nation in three years.
• Russia has increased its gold holdings by 7.247 tonnes to 1,042 metric tonnes in February.
• Turkey and Kazakhstan also raised their bullion reserves, according to IMF data. Turkey's gold holdings rose 9.292 tonnes to 497.869 tonnes, the data showed.

Remember, this is the year that central bank buying of gold was supposed to slow down. Apparently, that's not happening.

Also, gold held by exchange-traded products jumped 6.9% in February, the first increase in 14 months. That's also according to Bloomberg data. You'll remember it was massive selling of gold by the ETFs that hammered the yellow metal lower last year. More recently, ETFs bought gold on Monday and sold it on Tuesday. Maybe they're confused.

The Bearish View

Still, the bears will tell you that the fact that gold is NOT rallying on the back of all this bullish news is, in itself, bearish.

Are they right? We'll see. I would remind you that 90% of the contracts on the COMEX are never delivered; they're just paper.  Meanwhile, people in China take delivery on 95% of the contracts on the Shanghai exchange. 

Meanwhile, the prices of most gold mining equities are at the lowest levels they have been since the depths of the previous gold bear market in 1997-2002, according to research from CPM Group. So if you're looking to buy gold miners on the cheap, now is a good time. More on the recent carnage in miners here.

If your'e trading short-term, I hope you raised stops on positions you have gains in. If you're trading longer-term, this probably won't amount to much. The lows of last summer are probably the lows for gold. And that means pullbacks like this should be buying opportunities.

Why the Ukraine and Crimea Are More Complex Than TV Wants You to Believe

Russian nationalists appear to be staging a takeover of the Crimea Penninsula, or at least the Russian bits of it. But this is much more complicated than it looks.  The Crimean peninsula was conquered by Russia in the 18th century under Catherine the Great. Crimea wasn't part of the Ukraine until the 1950s, when Nikita Kruschev -- himself Ukrainian -- then head of the USSR, assigned Crimea to the Ukraine. This map shows the percentage of population that are native speakers of Ukrainian (orange) and Russian (blue) ...

Source

Source

Ethnic Russians make up the majority of Crimea’s population. Some, including retired navy officers and their families, clustered around the huge Russian naval bases there, have Russian citizenship. The peninsula’s nearly two million people includes 60% Russian speakers, as well as 12% who are Crimean Tatars, the original inhabitants of Crimea. 

Now, ethnic Russians and Tartars don't like how things are going in the Ukraine, so they're acting up -- violently.  And if we're going to start parceling out bits of land according to history ...

From about 1050 Crimea came under Turkic rule, later Mongol, and later Turkic again. From 1441 until the late 1700s it was a Muslim Khanate that became an Ottoman vassal state. In the late 1700s it was annexed by the Tsarist Russian Empire. By 1900 Crimean Tatars, previously the major population, had been reduced to half of residents. After the Soviet revolution they were reduced to a quarter. Then Stalin forcibly deported many of them to Central Asia. So Crimea was over the two centuries after its incorporation into the Russian Empire largely russified and its indigenous Muslim population swamped or displaced. Hundreds of thousands of Muslim Tatars remained or have returned, but they are still a minority.

So whoever ends up owning Crimea, the odds favor them facing some kind of Islamic agitation.  

So here's the question. Do you think we should really get involved in this mess? My vote: Say "hell, no" and stay the hell out.

The problem is I see the same assholes idiots bad actors who agitated to get us into Iraq to stomp out Saddam's weapons of mass destruction now beating the drums for us to get involved in Ukraine. These fuckers dummies were so monumentally wrong on Iraq that they should never be allowed near politics or the media again.

Instead, they're running the show. Crazy world, eh?

The difference this time is that we shouldn't listen to them. We should be smart enough to know they don't have America's best interests at heart.

Aside from the potential waste of American lives and treasure, there are big risks from an extended conflict over Crimea. They include ...

1. Energy markets. Ukraine tensions can stoke energy-supply worries. Russia in 2006 and 2009 halted natural-gas exports to Ukraine, with the latter incident also serving to cut off supplies to Western European countries.

2. Grain markets. $17 billion of Ukraine's gross domestic product comes from agricultural exports. Ukraine is the world's third-biggest exporter of corn. Wheat is an even bigger part of Ukraine's agricultural exports, or can be when the crop isn't scorched by drought.

Source

3. The potential damage to the Russian economy. War, what is good for? Absolutely nothing.

And if you're thinking this will boost gold, well, maybe. But it will also boost the U.S. dollar, too, as a safe-haven, so I think those balance out. 

And if you want to take a deeper look into Pandora's box, remember that ethnic Russians comprise about a third of Ukraine’s 46 million people. And they didn't just move there recently. Russian control over eastern Ukraine began in 1654, when Tsar Alexei Mikhailovich intervened on behalf of an "insurrection" of Ukrainian Cossacks against the noble rulers of the Polish-Lithuanian Commonwealth.Further regions of Ukraine were added to the Russian Empire in 1792 and 1795.

And the difference isn't just language. Ukraine is split geographically between a predominantly Russian east and a predominantly Ukrainian west, separated by the Dnieper River.

So, the potential for civil war in Ukraine can't be understated. And THAT should be the thing we really worry about. Because that's the kind of thing that could drag Europe into another big war.

Yellen About the Yellow Metal

Gold is down a bit this morning. I have a new issue of Gold & Resource Trader going out to subscribers TODAY.

News links of interest...

In remarks released on Wednesday afternoon, Federal Reserve Chair nominee Janet Yellen made four critical points …

•  She believes the benefits of the QE program still outweigh the cost.

• She sees “meaningful progress” in the labor market but wants to see signs that the economy is growing fast enough to sustain them.

• There is no set time for removing the QE program. The Fed is assessing its progress at every meeting.

• The program can’t go on forever.

This was pretty “dovish,” meaning that those hoping for an early end to the QE program were disappointed. And that sent the US dollar lower and gold higher on Thursday.

Yellen's take on gold led to this notable Tweet from Merk Investments head Axel Merk: "Yellen may not understand gold, but gold understands Yellen. Gold up today."

Here is Barron's take on Gold and Yellen

WGC: China Already Tops Record For Full-Year Gold Demand
For the year through September, mainland Chinese gold demand was 797.8 metric tons, reported Marcus Grubb, managing director of investment for the World Gold Council. Demand for full-year 2012 was around 776 tons. India’s official demand was listed at 715.7 tons through September, compared to around 602 for the first nine months of 2012, Grubb said.

In fact, China has become the world's top gold buyer.

Central banks continue to be strong buyers of gold, albeit at a slower rate. Q3 2013 was the 11th consecutive quarter of net purchases of gold. And here is a chart of Russia's gold reserves ...

Source

Gold Seen Flowing East as Refiners Recasting Bars for Asia
Asian bullion demand will keep expanding as elevated inflation spurs purchases, HSBC Holdings Plc economists including Frederic Neumann wrote last month in a report that said the region is “going for gold.” A vault that can hold 2,000 tons was opened in Shanghai by Malca-Amit Global Ltd. this month to target increased demand for storage space.

India Paying an Equivalent $1,565 Per Ounce For Physical Gold Bullion

5 Terrifying Things The Oil Market Should REALLY Worry About

F@ck Syria. Syria is a country whose leader has killed 70,000 people in the last two years, and yet he is opposed by such brutal fanatics that he can still make mealy-mouthed excuses about it being justified.  Holy crap, there are no good sides in Syria.  It's like Sauron's orcs are taking on the Death Eaters, with helpless non-combatants caught in the middle.  Am I really supposed to root for someone in that match? Is my government really stupid enough to get involved and become, as one ex-Congressman put it, "Al Qaeda's air force"?

Wait, don't answer that last question. Washington continues to take cries of "how stupid are they" as some kind of dare.

But really, f@ck Syria when it comes to oil prices. The market CAN'T be worried about Syria's domestic oil production. Sure, Syria's output is now 40,000 barrels a day, down from its pre-crisis output of 350,000 barrels a day, but that's a drop in the bucket when it comes to global oil supply.

No, instead, the market is apparently bidding up crude on worries that Syria's bubbling cauldron of hate will overflow to neighboring countries that are more important to the oil market. Maybe.

On the other hand, if there is a resolution in Syria that DOESN'T involve Armageddon -- maybe by paying off all parties involved, like we sometimes do -- then oil prices should go down.

So in that event, let me give you 5 other things the oil market should be worried about instead of Syria.

Scary Thing #1: Oil Supply Outages Around the World.

Here's a map of global oil supply outages ...

You can see the trend on that chart and it's an ugly one. One of the biggest problems is in Libya. So let's talk about that.

Scary Thing #2: Libya is Descending Into Chaos

The overthrow of former Libyan leader Moammar Qadhafi in 2011 was seen by many as ushering in a new democratic era for the North African country, promising work for the people and a period of economic prosperity.

That just shows that "many" people don't know squat about the Middle East. Without its iron-fisted strongman, Libya is descending into its long traditions of tribalism, feudalism, and kleptocracy.

In a recent note, Geoff Porter, analyst at North Africa Risk Consulting, said Libya is "more lawless and chaotic than ever."

The East of the country is run by warlords.  Regional groups are pushing federalism, or seceding from the state and establishing autonomous regions within Libya.

With chaos comes thievery, of both oil and oil equipment. Result: Libyan oil production dropped to 400,000 barrels per day (bpd). That caused state oil company NOC to declare force majeure on exports from the four ports and there seems to be no let-up in the unrest.

Indeed, things are getting worse.  Deutche Bank put out a note saying in part:

Libya normally produces about 10x more oil than Syria. Libyan oil production has dropped to as little as about 200,000 bpd (from an average of 1.4 million barrels per day) as of the most recent reporting period as labour strikes disrupted port operations and consequently crude oil exports.

There's no reason to panic ... yet, anyway. Libya produces less than 2% of the world's oil. On the down side, Libyan crude is the light, sweet crude that European refiners crave. There doesn't seem to be an easy substitute. And the less Libyan crude there is on the market, the tighter global supply becomes.

And the problem is it isn't just Libya.

Scary Thing #3: Production in Multiple Countries Is Falling Like a Rock

As I pointed out yesterday, Many smaller (and not-so-small) oil producing countries around the world are seeing their production decline ...

This becomes problematic when oil revenue is a major source of government funding. For example, 30% of the Mexican budget comes from oil revenue, and Mexico's oil revenue is falling quickly.

So, this could lead to more chaos around the world. If you think what is happening in Syria is fascinating, imagine if we get another dozen or so Syrias. Meanwhile, global supply will tighten all the while.

And global demand? As I mentioned yesterday, global oil consumption is just going up. Heck, the acceleration could be huge.

Scary Thing #4: Rising Oil Prices Stoke Inflation

Inflation is a beast that has been so tame and sleepy for years, many people have forgotten how badly it can bite. Many people think that inflation WON'T come back.

Those people are fools.

Sure, inflation can come back. And one of the things that can fuel inflation is rising oil prices.

We're already seeing this in India.  The Indian Rupee is falling so hard and fast -- the biggest decline in 20 years -- that fuel prices are rising and this is feeding into general inflation, inflation that is already heating up thanks to a falling currency.  Result: Some basic food items have tripled in price.

We shouldn't see that kind of hyperinflation in the U.S. But we could still see inflation. Even the Energy Information Administration says so ...

Over the past ten years, the Chained Consumer Price Index -- a measure of change in the cost of living -- for energy (the blue line in the top chart) has approximately tracked the movements of the international Brent crude oil price.

Source: http://www.eia.gov/todayinenergy/detail.cfm?id=8170

So, basically, if energy prices take off, expect inflation to heat up again.

Scary Thing #5: Uncle Sam Keeps Poking Russia's Angry Bear

Did you know that the U.S. recently passed Russia in oil production, measuring by total liquids produced? Do you think the Russians are happy about that?

Source

Saudi Arabia still leads the world in oil production, but the US has passed Russia for second place and is closing in on the Saudis. These are the latest figures from 2012 from the Energy Information Administration.

Total liquids also includes natural gas liquids. Russia is still the world’s biggest overall energy exporter: It’s the No. 1 oil producer and No. 2 in gas after the U.S. But the US oil production keeps growing.

In fact, US oil output has risen to the highest level since 1989.

To put that in perspective, the last time this happened, Phil Collins was at the top of the U.S.pop charts.

This jump in production, in turn, is sending US crude and petroleum product exports soaring.

As we export more oil and oil products, some of Russia's best customers are now shifting their purchases and buying from the U.S.

The problem is, Russian President Vladimir Putin largely relied on oil and gas production to fuel economic expansion during his first two presidential terms. But Russia’s overall economic growth slumped to just 1.2% in the second quarter, significantly lower than the economic ministry’s forecast of 1.9%.

Result: Russian energy giant Gazprom has lost more than $280 billion in market value since 2008. Experts on the country’s economy and governance attribute the decline to U.S. investment in the innovative oil and gas extraction technique of hydraulic fracturing, or “fracking,” which dampened U.S. demand for imports and exerted downward pressure on global gas prices and Gazprom’s profits.

According to sources, Putin has resisted modernization of Russia’s energy economy because of the alternatives. Less dependence on oil and gas revenue would translate into cuts to subsidies for Russia’s poorer regions, sharp reductions in military spending, and fewer tax breaks for the state’s “pet projects.”

And Bloomberg Businessweek reports:

America’s surprising return as an energy superpower is complicating life for the Russian petro state. The rise of a vibrant, global, and pipeline-free liquefied natural gas (LNG) market is a direct threat to Russia’s interests in Europe, where Gazprom, the state-owned energy giant, supplies about 25% of the gas. So is the shift in pricing power from suppliers to consumers as a result of the huge supply shock emanating from North America.

In other words, America's energy ascendance could really piss off the bear.

The good news for Putin is that Russia's  known oil reserves -- primarily between the Ural Mountains and the Central Siberian Plateau -- are enough to sustain current production levels for just 20 years. The bad news is that Russia might also be running out of cheap, easily accessible NEW sources of oil. This makes oil in the Arctic circle more of a prize, and that brings Russia into direct competition for resources with the U.S. and other western powers.

Hey, did I mention that Putin feels "infuriated" by Obama? So, yeah, the potential for tensions to rise between the two superpowers is quite good.

Bottom line: There are plenty of things for the oil market to worry about.  Syria is a distraction from the real problems. A resolution in Syria could send oil prices tumbling lower in the short-term.  Wise investors might use such a pullback to load up, as longer-term forces push prices higher.