Just when you thought oil prices were going to go down and stay down for a little while a regional flare-up between Russia and Georgia has led to the price per barrel of oil rising about $10.
Oil roared above the $120 a barrel level on Thursday and gold prices jumped amid mounting geopolitical tensions following Russia’s decision to suspend military co-operation activities with Nato in response to a missile shield agreement between the US and Poland.
Nymex October West Texas Intermediate touched a session high of $122.04 before easing back to trade $5.62 higher at $121.18 a barrel while ICE October Brent rose $5.80 to $120.16 a barrel.
Where is oil headed for the rest of the year?
Market speculation has been rampant that Vladimir Putin, Russia’s prime minister, has been infuriated by the US and European response on Georgia and has ordered oil exports to be reduced. The Energy Information Administration repeated on Wednesday its forecast that oil prices would trade in a $120-$130 range for the rest of the year.
Putin and the Russians know that they play a big part in the world’s oil supply web. If they threaten war, nuclear war actually, that means the price of oil is going to jump and Russia is going to get a lot more money.
BigT
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Let’s start out with a little background.
Senator Schumer writes a letter to federal bank regulators warning about the imminent failure of IndyMac.
The U.S. Senator who leads the Senate subcommittee that oversees the Federal Reserve and economic policy has written letters to federal bank regulators questioning the condition of IndyMac Bancorp Inc. of Pasadena, news services reported Friday.
Sen. Charles Schumer, a Democrat from New York, sent the letters to the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the Federal Housing Finance Board and the Federal Home Loan Bank of San Francisco. The letters reportedly said Schumer is concerned IndyMac “may have serious problems with its current loan holdings, and could face a failure if prescriptive measures are not taken quickly.”
IndyMac loses over $100 million after Schumer’s letter.
IndyMac Bancorp Inc. said it is working with regulators to “further improve” its safety and soundness after a senator’s letter last week raised concerns that the bank could collapse.
The Pasadena, Calif.-based mortgage lender said Monday that the letter, by Sen. Charles Schumer, D-N.Y., gave “the wrong impression” on several issues.
Depositors withdrew about $100 million from the bank in the wake of Schumer’s letter, company spokesman Grove Nichols said in a prepared statement. The withdrawals are equivalent to one-half of 1 percent of the bank’s deposits, he said.
IndyMac fails and is taken over because of the run on the bank that started with Mr. Schumer’s letter.
Here’s from the press release issued by IndyMac’s regulator, the Office of Thrift Supervision: “The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.
Now some IndyMac employees have sent a letter to California’s Attorney General asking him to look into any criminal violations Schumer may have done.
California’s attorney general is reviewing a request by former employees of IndyMac Bancorp Inc to investigate whether a New York senator triggered the bank’s collapse by releasing confidential information.
At issue is a much-publicized letter that Chuck Schumer, a Democrat, sent in June to the Federal Deposit Insurance Corp (FDIC) and Office of Thrift Supervision (OTS) questioning the company’s ability to survive.
The FDIC took control of IndyMac on July 11 after depositors withdrew more than $1.3 billion over 11 days. It was the third-largest bank failure in U.S. history. At the time, OTS Director John Reich blamed Schumer’s letter for causing the run on the bank.
Perceptions are very important in an economy. If you don’t think the economy is going to be strong in the next few years you probably won’t do things like start a business or buy a big home. And if you think your bank is going to fail you will run to that bank and take your money out.
A couple of notes I feel I must make.
IndyMac was federally insured. Theoretically, this means that it cannot fail and everyone’s money should have been safe. Obviously, one of the major reasons for this federal insurance failed because IndyMac still ended up failing.
My other point is that if Mr. Schumer was really concerned about IndyMac failing he would have had a private discussion with the right people. He’s not some junior Congressman from Alaska, he’s the senior senator from New York and serves on senate committees that deal with the housing market. Anything he says that becomes public will have a large affect on banks. So either he is stupid (probably) or he wanted the bank to fail. It became a fait accompli when he wrote that letter.
BigT
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Oil - down.
A rapidly cooling global economy and an increase in supply from Opec nations will see the price of oil ease next year.
In its latest monthly market report, the International Energy Agency looks to a “potential easing in fundamentals for the second half of 2008 and into 2009, before a renewed tightening thereafter”, a trend that seemed to be foreshadowed in oil trading yesterday. The price of a barrel of crude dropped again – US crude settled down $1.44 at $113.01 a barrel, almost $35 a barrel below the record high of $147.27 recorded in July. For now at least, fears of a $250 barrel can be set aside.
Gold - down.
Gold tumbled below $800 an ounce in Asian trading as the dollar headed for its longest winning streak in more than two years, reducing the appeal of the metal as an alternative investment to U.S. assets.
Dollar - up.
The dollar headed for a fifth weekly gain against the euro, its longest winning streak in more than two years, before a report forecast to show U.S. consumer confidence increased for a second month.
The greenback rose to a 5 1/2-month high versus the European single currency on speculation a drop in oil prices will support economic growth in the world’s largest consumer of the fuel. The euro and the pound headed for weekly declines on signs that Europe and the U.K. have fallen into a recession.
“The dollar could get a boost from positive economic data and falling energy prices,” said Akio Shimizu, chief manager of foreign-exchange trading at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The risks of an economic slowdown seem to be greater in Europe. That increases the relative appeal of the dollar.”
Against the euro, the dollar climbed to $1.4753, the strongest level since Feb. 21, before trading at $1.4781 as of 10:59 a.m. in Tokyo from $1.4826 yesterday. The dollar has risen 1.5 percent this week. The U.S. currency was at 110.12 yen from 109.74 yesterday and 110.18 on Aug. 8. The euro traded at 162.76 yen from 162.68 yesterday, for a 1.9 percent decline this week. The dollar may rise to 110.20 yen today, Shimizu forecast.
Sterling fell 2.9 percent this week to $1.8652 and yesterday touched $1.8619, the lowest since October 2006. The Bank of England cut its economic-growth forecast on Aug. 12, signaling it may reduce its 5 percent target lending rate.
I have to admit I didn’t think this was going to happen so quickly. It still may stop and turn around but it doesn’t look like we’re going to see $150 oil again soon. Things have changed significantly in the past month.
Mainly, the biggest change is in perceptions. A couple of weeks ago I did a piece where I blamed our problems on an overactive Federal Reserve (HERE). And I do think they do need to share some of the blame. Along with moronic homeowners, lenders, and investors in securities built on home loans. As some of the blame should be given to investors in oil (those evil speculators).
But things are beginning to right themselves.
The dollar’s intrinsic value is probably still higher than it’s at right now, which means we should expect it to continue its rise in the near future. Oil, gold, and all other commodities have just gone through a major boom. Those prices were just unsustainable.
Demand has started declining a little bit and production has increased because high oil prices meant that oil companies could make more money if they produced more. Even refinery capacity has increased and the US government is on its way to opening up off-shore drilling (the congress still stands in the way but probably not for much longer, hopefully).
In conclusion, the sky is no longer falling.
BigT
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