Market News Sep 3

Contrary to what I anticipated Gustav didnt hit the Gulf of Mexico coast and left the oil rich region unscathed. Well, oil was down sharp, trading at 105 at one point, but settled at 109.. The market action - overselling every commodity stock in sight.. Oil stocks were down, Nat gas stocks were down, Airlines were up and there ends the rational behaviour.. Coal stocks were down, commodities like corn, wheat, soybean were off, fertilizers were down, Mining equipment stocks were down, agricultural stocks were down.. Part of the reason for is the liquidation of a commodity hedge fund. My opinion, the same stocks that are down, would gain their normal trading levels in a couple of weeks time. I would be long in all the over sold stocks.. ACI, POT, MOS, CF, BTU, KOL, BUCY, JOYG to name a few..

That brings a question what is the fundamental price of oil.. what would it be 1 month, 1 year, 5 years down the line.. Well,, I do not know the exact answer to this, but in my view of fundamentals, I guess oil would continue to trade above 100 levels for the near and far future.. Price of oil is a pure supply demand play.. Supply is supposed to have peaked at 85-90 mn barrels a day.. and with the current demand destrcution in play, the demand might seem to have not outstripped the suply.. But the key to the oil supply is held in the hands of a few.. OPEC to be precise.. It is not in their best interest to keep the production at the current levels and see the prices go down.. I bet they would curtail the production in their spet meeting.

Oil denad in US spiked from 17.7 M barrels in 1995 to 20.7 mbd - 17% increase. China’s consumption vaulted from 3.4 million bpd to 7 million bpd – a 106% increase. India’s oil imports are expected to more than triple from 2005 levels by 2020, rising to 5 million bpd. well is the trend going to continue - you bet..

Another commodity that is down big in the last two days is Gold.. It shed over more than 45 dolls falling below 800 dolls for the second time in the last 6 months.. On the other hand, Dollar has gained strength against all the major currenies.. But the dollar gain can wear off in the near term, and gold being a seasonal metal, I believe the gold prices should reach 900 levels again..