John Embry “The Current Financial System Will Be Totally Destroyed“

Mr. Embry, the perhaps best report I have ever read on the gold market was “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price,” written by Andrew Hepburn and you. (1) I would like to talk with you at the beginning about the findings of that report. First of all, why do you think it is relevant whether the gold price is free or not?

John Embry: Thank you for the very generous compliment. It is essential that the gold market be free. It functions as the so called “canary in the coal mine” and its price should be allowed to reflect excesses in a pure fiat monetary system. The continued suppression of the gold price was a key factor in the many financial bubbles which have essentially wrecked the monetary system as we know it.

What has the evidence been that the gold market isn’t a free market?

John Embry: Our report which was written 7 ½ years ago revealed all sorts of chicanery in the gold market and we only used evidence which could be corroborated. Considerable additional evidence has piled up subsequently but two smoking guns are the repetitive counter intuitive price action and evidence of widespread clandestine leasing of western central bank gold.

Who are the ones that don’t like a free gold market and which objectives do they have in mind by preventing a free gold market?

John Embry: The western governments, their central banks and the allied bullion banks are the culprits. They view gold as a mortal enemy of the fiat currency system. Gold has been real money for centuries and every paper money system in history has ultimately collapsed. This drives them to continuously denigrate and manipulate gold. (more)

Is Lithium The Next Big Trend?: FMC, LIT, ROC, SQM

The last few years brought a handful of new and interesting exchange-traded funds (ETFs) to the market, but one of the most interesting was the Global X Lithium ETF (NYSE:LIT). Because the ETF is the first to concentrate on the niche commodity, it gives investors a way to play the increasing demand for lithium. Lithium is not your typical fuel source, such as oil and coal, but it can be used to generate power in lithium-ion batteries that fuel everything from a cell phone to an automobile. Lithium is a highly reactive metal that currently is not traded on any commodity exchanges and therefore the new ETF is one of the only ways for investors to profit from higher lithium prices and demand.

Lithium ETF
Due to the small number of lithium stock plays available, the ETF is heavily weighted in a few big names. The top three holdings make up over 50% of the fund. Half of the ETF is invested in mining and the other half in battery-related companies. The top holding is the Chemical & Mining Company of Chile (NYSE:SQM) with 19.94% allocation, followed by FMC Corp (NYSE:FMC) at 18.23%, and Rockwood Holdings (NYSE:ROC) at 8.27%.

Lithium Stocks
Chemical & Mining Company of Chile is the largest lithium producer in the world, and is based close to Bolivia, which is the "Saudi Arabia of lithium." Even though SQM produces a large amount of lithium, the stock is not a pure play on the sector because the company has exposure to other areas in the chemical industry, such as fertilizers and iodine. The stock has struggled this year with the entire agricultural chemical sector, but a boost in the sector and the lithium story have the stock moving once again.

The Bottom Line
Keep in mind that lithium is a commodity, but at the same time it offers a clean alternative to fossil fuels in the future. Think Chevy Volt or the Tesla electronic car that uses thousands of small lithium-ion batteries, and do not forget about the millions of handheld devices that use lithium-ion batteries. This is a story that is quickly gaining momentum and could be one of the mega-trends of the next decade.

A Biotech That May Boost an Anemic Portfolio CELG in aggressive bull market; recently flashed another buy signal

Celgene Corp. (NASDAQ:CELG) – This company is considered by S&P to have “the brightest growth prospects among large-cap biotech companies.” Its impressive performance was led by its cancer products Revlimid and Vidaza. The company also has a number of other products in the pipeline awaiting FDA approval and is considered by many analysts to be a leader in cancer treatments.

Earnings for 2011 met adjusted estimates of $2.85, and S&P estimates earnings of $4.44 in 2012 and $5.11 in 2013. Gross margins are expected to maintain 93%. Street analysts predict a price target of $93 within 12 months.

The Trade of the Day has followed CELG since July, and recently recommended it on Feb. 3 at $74.16.

Technically CELG broke from a compound top on Sept. 20 on heavy volume, then again from a double-top at $69, and again yesterday at $74.50 in spite of a very negative day for the stock market.

These breaks are called “step-up patterns” and mostly occur on stocks in an aggressive bull market. A bullish signal from our internal indicator, the Collins-Bollinger Reversal (CBR) occurred on Jan. 27, and a new stochastic buy was flashed on Feb. 13.

The trading target for CELG is $80 within 30 days and $100-plus longer term.

Click to Enlarge

The ONLY Dry-Bulk Shipping Stock You Should Own

Here are two numbers to consider: 25% and -60%. These numbers should be moving in tandem, so there's a really good chance the positive number will be sucked back down by the negative number.

I'm talking about the stunning rally for dry-bulk shipping stocks and the sharp plunge in daily lease rates for these ships. The shipping rates have been plunging on concerns that too many newly-built dry-bulk ships are about to enter service. And with the supply of ships already overwhelming demand, the addition of new supply has put a lot of pressure on lease pricing, as you can see in the chart below.

The slumping Baltic Dry Index (BDI) [1], which reflects daily bulk ship lease rates, should be crushing the sector's stocks. Instead, a number of them are posting sharp gains. Credit goes to the rising stock market [2], which is leading short sellers to cover their positions. Several of these stocks have short positions that are equivalent to more than five days' wor9.9th of trading volume [3]...

In effect, these stocks are up for the wrong reasons. And in coming months, their shares [4] are likely to slide to fresh lows, since the prospects of a rebounding BDI are quite dim and company-specific debt burdens are coming home to roost.

Watch the balance sheets
Many companies in this niche are undergoing pretty severe financial distress. They decided to ramp up spending by ordering new ships a few years ago, when industry conditions were stronger. Now, they're taking delivery of those ships, though they would prefer not to.

Let's take a look at Genco Shipping (NYSE: GNK [5]) as an example. Roughly 20% of its stock was held by short sellers as of the end of 2011. Look at what's happened to this stock as short sellers have grown nervous about a rising-tide-lifts-all-boats rally.

The fact that the BDI has been plunging in recent weeks actually bolsters the case that short sellers were making. Low lease rates imperil Genco because they limit the cash flow [6] generation that would be used to pay upcoming loans.

In December 2011, Genco was able to convince its lenders to hold off foreclosing on loans, even though the company had begun to breach debt covenants. The deal caused Genco to pay another $28 million ($0.78 a share) in annual interest, which has just created more headaches.

#-ad_banner-#"We believe Genco is less likely to be able to service its debt amortization [7] of $131 million in 2012 and $215 million in 2013. As such, we view the current amendment as only the next step in the path toward an ultimate restructuring, which is unlikely to be accretive to GNK holders," note analysts at Citigroup. This is a fancy way of saying that either a lot of dilution [8], or outright bankruptcy likely looms.

With a fully-tapped out $1.2 billion credit line -- which will need to be repaid or rolled over by July 2014 -- Eagle Bulk Shipping (Nasdaq: EGLE [9]) can't afford to see cash flow drop, either. Yet the plunge in the BDI in recent weeks means the company may garner less revenue and income in 2012 than it had previously anticipated.

Just a month ago, analysts said Eagle Bulk would lose $0.17 a share this year. That loss forecast has now doubled, and unless industry conditions quickly improve, it's increasingly difficult to see how the dry-bulk carrier will avoid the clutches of bankruptcy court.

The silver lining
There is one clear beneficiary from the industry's distress: Diana Shipping (NYSE: DSX [10]). While other shippers were on a spending spree a few years ago, Diana decided to hoard its cash. That was a wise move: As of the end of last year's third quarter, Diana had nearly $400 million in gross cash. Management has expressed an interest in acquiring other firms' ships if those other firms need to unload assets at fire-sale prices. Diana Shipping reports 2011 fourth-quarter results on Feb. 28, 2012, and it will be curious to see how management is seeking to press the company's advantage while rivals are on the ropes.

Risks to Consider: This industry is quite fluid at the moment, seeing that share prices surge even as the BDI slumps. Any target for short-selling needs to be guarded against balance-sheet restructurings that preserve the equity.

Action to Take --> Diana Shipping is the proverbial "best house in a bad neighborhood." The entire dry-bulk shipping group will need to ration its fleet, probably with several players going into bankruptcy, which could create a much more robust long-term backdrop for Diana Shipping.

How To Be A Trader - Part 2, Rockwell Trading

In the first article of the series "How To Be A Trader" we talked about the mindset of a trader and the importance of having realistic goals. You have learned that consistency is more important than windfall profits every now and then, and that a weekly target of only $100 - $200 can compound to very nice yearly returns. If you haven't had a chance to read the first article of this series, click here to read "How To Be A Trader - Part 1"

Today we will talk about the most important skill of a trader. And it doesn't matter whether you are day trading or swing trading. It doesn't matter whether you are trading stocks, forex, options or futures. It doesn't matter whether you are new to trading or have been trading for a while. The skill I am going to talk about in this article is the foundation that EVERY TRADER needs. If you cannot master THIS, your chances of making money with trading are slim to none.

So here is the most important skill of a trader:

Step 2: How To Determine The Direction Of The Market

You MUST be able to read a chart and determine whether the market is going up, down or sideways.

Trading is not that complicated: If the market is going up, you BUY. And if the market is going down, you SELL. If the market is going sideways, you either stay out of the market and wait until it is trending again, or you apply a more advanced trend-fading strategy.

Let me explain:

In the previous article we talked about a trading strategy with a positive reward/risk ratio. We used the example of a reward/risk ratio of 1.5 to 1, i.e. you risk $100 to make $150.

Understanding Reward/Risk Ratio And Winning Percentage

You need to understand that there's a strong correlation between the winning percentage and the reward/risk ratio. The higher the reward/risk ratio, the lower the winning percentage.

Here's an example:

You might have heard about so-called "Home Run Strategies". When using a "Home Run Strategy" you use a small stop loss and a quite large profit target. Often these strategies have a reward/risk ratio of 5 to 1, i.e. you risk $100 to make $500.

If you choose to trade such a strategy, it is not unusual to have a winning percentage of only 25% - 35%. But you would still be profitable, since you will make MUCH more money on your winning trades than you lose on your losing trade. In fact, only ONE winning trade would make back all the money you lost on FIVE losing trades. So as long as you winning percentage stays above 20%, you're good.

When trading such a strategy, you obviously need a trending market. You want to make sure that prices are moving in your favor for a long time. That's why these kind of trading strategies are called trend-following strategies.

Trend-following strategies typically have a reward/risk ratio above 1.

In contrast, there are trend-fading strategies. These kind of strategies work best in sideways markets. The idea is to SELL at resistance, hoping that prices will retrace and you can BUY back lower. As an example, in sideways markets many traders like to SELL at the Upper Bollinger Band and BUY at the Lower Bollinger Band.

When using these kind of strategies, you typically have a reward/risk ratio of 1 to 1, i.e. you are risking $100 trying to make $100. Therefore you need a winning percentage greater than 50%, otherwise you won't be profitable. Often trend-fading strategies have a winning percentage between 55% and 75%.

And then there are scalping strategies. When using a scalping strategy, you apply a rather large stop loss and use a small profit target. It is not unusual for a scalping strategy to have a reward/risk ratio of only 0.5 to 1 or even less, i.e. you are risking $100 to make $50. Obviously you need a high winning percentage for this strategy to work. That's why often scalping strategies have a winning percentage of 80% and more.

Here's an extreme example of a scalping strategy:

Just BUY the e-mini Dow tomorrow morning at the open. Do NOT set a stop loss. Use a profit target of 10 points.

This trading strategy has a winning percentage of 99.9%, because how likely is it that the Dow Jones moves to ZERO? - Next to nothing, right?

So often you will hit your profit target. The problem is TIME. It might take you days, weeks, months and maybe even years before your profit target is hit. But if you could sustain the drawdown while being in the trade, you would have an extremely high winning percentage.

Obviously this is just an example. Don't even THINK about doing it! But I'm sure you understand what I'm trying to explain here.

Why You MUST Be Able To Determine The Direction Of The Market

So why is it so important to learn to identify the direction of the market?

Because the direction of the market determines what kind of strategy you need to use!

• In a trending market, you use a trend-following strategy.
• And in a sideways market, you use a trend-fading strategy.

If you use a trend-following strategy in a sideways market, you will get whipsawed.

And if you use a trend-fading strategy is a trending market, you will get stopped out frequently.

Have you every experienced the following: You trade a strategy, and sometimes the strategy works great, but then there are other times when the strategy under-performs. If this ever happened to you, then you probably traded the wrong strategy for the current market conditions.

And that's why I like to use multiple trading strategies. I use trend-following strategies in a trending market, and trend-fading strategies in a sideways market. I explained what strategies I use in a previous article. Click here to read the article about "The Best Trading Strategy"

Summary of "How To Be A Trader - Part 2"

The most important skill of a trader is to determine the direction of the market, since the market condition determines what trading strategy you should use.

To date I haven't seen a strategy that performs equally well in trending and in sideways markets. Your strategy is either a trend-following strategy that performs well in trending markets. Or it is a trend-fading strategy that performs well in sideways markets.

If you apply the wrong strategy, you will be swimming against the stream. Or, as Hubert Senters likes to say "It's like hitting yourself with a hammer on the head. It feels good when you stop doing it."

In the next article I will show you some simple tricks how you can easily identify the direction of the market.

4 Ways To Trade The VIX : TVIX, VXX, VXZ, XIV, XXV

The one constant on the stock markets is change. Said differently, volatility is a constant companion to investors. Ever since the VIX Index was introduced, with futures and options following later, investors have had the option to trade this measurement of investor sentiment regarding future volatility. At the same time, realizing the generally negative correlation between volatility and stock market performance, many investors have looked to use volatility instruments to hedge their portfolios.

Unfortunately, it is not quite that simple and while investors have more alternatives than ever before, there are a lot of drawbacks to the entire class.

A Flawed Starting Point?
One significant factor in assessing exchange-traded funds (ETFs) and exchange-traded notes (ETNs) tied to VIX is VIX itself. VIX is the ticker symbol that refers to the Chicago Board Options Exchange Market Volatility Index. While often presented as an indicator of stock market volatility (and sometimes called the "Fear Index") that is not entirely accurate.

VIX is a weighted mix of the prices for a blend of S&P 500 index options, from which implied volatility is derived. In plain(er) English, VIX really measures how much people are willing pay to buy or sell the S&P 500, with the more they are willing pay suggesting more uncertainty. This is not the Black Scholes model, in other words, and it really needs to be emphasized that the VIX is all about "implied" volatility.

What's more, while VIX is most often talked about on a spot basis, none of the ETFs or ETNs out there represent spot VIX volatility. Instead, they are collections of futures on the VIX that only roughly approximate the performance of VIX.

A Host of Choices
The largest and most successful VIX product is the iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX). This ETN holds a long position in first and second month VIX futures contracts that roll daily. Because there is an insurance premium in longer-dated contracts, the VXX experiences a negative roll yield (basically, that means long-term holders will see a penalty to returns). What's more, because volatility is a mean-reverting phenomenon, VXX often trades higher than it otherwise should during periods of low present volatility (pricing in an expectation of increased volatility) and lower during periods of high present volatility (pricing a return to lower volatility).

The iPath S&P 500 VIX Mid-Term Futures ETN (NYSE:VXZ) is structurally similar to the VXX, but it holds positions in fourth, fifth, sixth and seventh month VIX futures. Accordingly, this is much more a measure of future volatility and it tends to be a much less volatile play on volatility. This ETN typically has an average duration of around five months and that same negative roll yield applies here - if the market is stable and volatility is low, the futures index will lose money.

For investors looking for more risk, there are more highly leveraged alternatives. The VelocityShares Daily two-times VIX Short-Term ETN (Nasdaq:TVIX) does offer more leverage than the VXX, and that means higher returns when VIX moves up. On the other hand, this ETN has the same negative roll yield problem plus a volatility lag issue - in other words, this is an expensive position to buy-and-hold and even Credit Suisse's own product sheet on TVIX states "if you hold your ETN as a long-term investment, it is likely that you will lose all or a substantial portion of your investment."

Nevertheless, there are also ETFs and ETNs for investors looking to play the other side of the volatility coin. The iPath Inverse S&P 500 VIX Short-Term ETN (NYSE:XXV) basically looks to replicate the performance of shorting the VXX, while the VelocityShares Daily Inverse VIX Short-Term ETN (NYSE:XIV) likewise seeks to deliver the performance of going short a weighted average maturity of one month VIX futures.

Beware the Lag
Investors considering these ETFs and ETNs should realize that they are not great proxies for the performance of the spot VIX. In fact, studying recent periods of volatility in the S&P 500 SPDR (NYSE:SPY) and the changes in the spot VIX, the one-month ETN proxies captured about one-quarter to one-half of the daily VIX moves, while the mid-term products did even worse. The TVIX, with its two-times leverage, did better (matching about half to three-quarters of the performance), but consistently provided less than fully two-times the performance of the regular one-month instrument. Moreover, because of the negative roll and volatility lag in that ETN, holding on too long after the periods of volatility started to significantly erode returns.

The Bottom Line
If investors really want to place bets on equity market volatility or use them as hedges, the VIX-related ETF and ETN products are acceptable but highly-flawed instruments. They certainly have a strong convenience aspect to them, as they trade like any other stock. That said, investors looking to really play the volatility game should consider actual VIX options and futures, as well as more advanced options strategies like straddles and strangles on the S&P 500.

Chart of the Day - Crown Castle International (CCI)

The "Chart of the Day" is Crown Castle International (CCI), which showed up on Wednesday's Barchart "All Time High" and "Gap Up" lists. Crown Castle on Wednesday posted a new all-time high of $51.06 and closed up 2.49%. TrendSpotter has been Long since Dec 2 at $43.70. In recent news on the stock, Crown Castle on Jan 25 reported Q4 EPS of 16 cents, which was in line with the consensus. Stifel Nicolaus on Jan 4 initiated coverage on Crown Castle with a Buy and a target of $55. Crown Castle International, with a market cap of $14 billion, is a leading owner and operator of towers and transmission networks for wireless communications and broadcast transmission companies.

165 Banks On the Brink

With year-end data for 99% of the nation's savings and loan associations now available, there are 165 undercapitalized institutions on the TheStreet's Bank Watch List, which is 12 more than last quarter. This is despite 13 banks being shuttered by regulators since the final third-quarter watch list was published in November.

Based on fourth-quarter regulatory data supplied by HighlineFI for the nation's banks and savings and loan associations -- and factoring-in the 13 bank and thrift failures -- 155 institutions were undercapitalized at year-end, according to the regulatory guidelines that apply to most institutions.

Click the link below to see the full list:

It is important to note that any capital raised by institutions during the first quarter of 2012 will not be reflected on the Watch List.

Most banks and thrifts need to maintain Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 5%, 6% and 10% to be considered well-capitalized under regulatory guidelines. Some trust banks carry lower capital requirements. The ratios need to be at least 4%, 4% and 8% for most to be considered adequately capitalized.

Two banks on the fourth-quarter watch list was actually negatively capitalized as of Dec. 30. These included New City Bank of Chicago, with whose Tier 1 leverage ratio fell to -2.38%, after the bank posted a fourth-quarter net loss of $5.2 million, and Home Savings of America, with a Tier 1 leverage ratio of -2.25%, following a fourth-quarter net loss of $7.0 million.(more)

Investing In Sovereign Bonds

Investing in sovereign credit has been, and has become again, a dicey affair. Countries' resources have been taxed, in view of the financial unwind that has overtaken much of Europe and the United States, and there's been outright mismanagement and political discord. Arrangements to keep various nations' financial systems breathing has brought about a great deal of borrowing and not always sufficient resources to repay.

All of this begs the question as to whether investment in sovereign obligations is worthwhile. Indeed, history is rife with examples of governmental financial mismanagement, with many a nation the victim (or perpetrator) of serial defaults over time.

Inherent Risk
To gain a sense of the challenges of investing in sovereign bonds, it helps to understand that embedded in them are several types of risk.

• Interest Rate Risk
  Bond prices and interest rates are inversely correlated. While this type of risk is common to most types of fixed income, changes in rates affect government bond prices, making their sale and purchase more precarious.
  
  
• Political Risk
  Multifaceted, this risk requires of the analyst an understanding of a nation's political process. How stable is the incumbent government? How influential is the opposition? Regime change could directly impact a government's willingness and/or ability to make good on its obligations. Do race and religion have a role in the political process? What is the strength of trade unions and other organized forces? To what extent are key industries nationalized or privatized?
  
  
• Economic Risk
  How well do a nation's current account earnings pay for its external debt and debt service? What are acceptable limits that allow it to meet its obligations while not sacrificing crucial services to its people (e.g. infrastructure, trash collection, electricity)? What is the level of foreign borrowing relative to current income? Who are its creditors? Does the nation have abundant natural resources and does it use them effectively? How well defined is its fiscal policy? What are the current and historical rates of unemployment and inflation, and why? What are the sources of growth and why?
  
  
• Foreign Exchange Risk
  Depending upon the currency in which the investor "keeps score" (reports returns), he or she could be subject to greater volatility and losses if the home currency is strong, relative to the foreign one, and the exposure is unhedged. The strength or weakness of a nation's currency is a function of its competitiveness, business climate, export diversification, source of foreign exchange, the degree of governmental control on it and protectionism.
  
  
• Default/Restructuring Risk
  This is no different than the risk that an individual might fail to pay his or her bills on time. Default risk embodies all of the foregoing considerations which, if they point to a lack in funds flowing to the coffers, may cause a nation to run afoul of its creditors, which often leads to a ratings downgrade and lack of confidence in that nation's ability to effectively manage its systemic risks. Sovereign creditors may not have recourse to a bankruptcy code to enforce repayment. Investors have used the credit default swap (CDS) to speculate, as well as hedge off the viability of a sovereign's obligations to its creditors, sometimes holding this form of insurance policy with no insurable interest.

Sovereign Debt or Sovereign Death?
Given the multiple risks inherent in government paper, a proper analysis needs to be forward looking. If officialdom is willing and ready to implement tough reforms to pare back debt through restructuring and/or fiscal means, then there could be hope. Too strict a diet, however, and the consequences could be harsh, if not altogether devastating. Consider the August 2011 fracas over the increase to the United States' debt ceiling, due to partisan bickering to the 11th hour, and a resultant credit downgrade from two ratings agencies. In this instance, U.S. paper "prevailed" in spite of itself, due to the dollar's globally recognized reserve status. However, the country's staggering debt load can be sustained for only so long.

The value of individual eurozone countries' debt is a function of its members' fiscal policy. Indeed, owing to its near death experience with hyperinflation in the 1920s, Germany has become the model of fiscal and monetary probity and the country is alternatively looked to or loathed by its fellow EU members in the ongoing mess in the European Monetary Union (EMU). By contrast, the peripheral eurozone nations of Greece, Portugal, Ireland, Spain and Italy have been accorded yields of varying punitive degree by the markets, as a function of their individual fiscal circumstances.

Are Sovereign Bonds Worth Investing In?
Governments typically do not go out of business, but leadership often passes through a revolving door. Extensive and ongoing study of the risks earlier listed in this piece is essential. Individual and institutional investors must clearly define and articulate their objectives for purchase and understand the key contractual components of the debt: who holds it and how easy or difficult it is to trade or, if necessary, restructure, when holding it becomes untenable. Investors should focus on countries where growth (or its potential) is higher, aggregate indebtedness is lower, financial flexibility exists, the ability and willingness to repay is evident, public accounts are transparent and asset protection exists.

The Bottom Line
Finance has proven to be cyclical. There is progress followed by regression, succeeded by advancement yet again. Learning the lessons of history is a sine qua non. One thing is certain: the cycles do repeat themselves, providing ample fodder for study.

Oil continues its rise, threatening US growth

The price of oil has surged 12 percent the past six weeks, pushed up by tensions with Iran, a cold snap in Europe and rising demand from developing nations.

The surge is hitting home. Oil is raising the price of gasoline for American motorists. It's also making diesel and jet fuel costlier for shippers and travelers. That could crimp already modest growth in the economy.

"It's an additional burden on already burdened households." says Judith Dwarkin, Chief Energy Economist at ITG Investment Research.

Brent crude, used to price foreign oil imported by U.S. refineries, rose $1.08 to $120.01 per barrel on Thursday. It's up 12 percent so far this year and 15 percent from a year ago. West Texas Intermediate, the U.S. benchmark, rose 52 cents to $102.32 on Thursday. It's up 21 percent from a year ago.

The climb has been caused by fears that a military conflict will erupt in the Middle East and block oil supplies from reaching markets. The U.S. and Europe are tightening economic sanctions against Iran over what the West believes is Iran's attempt to build a nuclear bomb. World leaders fear Israel may be planning a strike against Iran.

In response, Iran, which is the world's third largest exporter, has threatened to withhold its own oil deliveries and to block the Strait of Hormuz, through which one-fifth of the world's oil flows.

While neither scenario is likely, it has prompted traders to buy oil as protection against a possible shortage. Phil Flynn, an analyst at PFG Best, says the Middle East tensions have added $20 per barrel to the oil price.

Also, a severe cold snap has gripped Central Europe this year, increasing demand for heating oil and helping push Brent prices higher. That in turn contributes to high gasoline prices in the U.S., since many refineries use Brent to make gasoline. Gas prices are up about 25 cents this year.

A 25-cent jump in gasoline prices, if sustained over a year, would cost the U.S. economy about $35 billion. That's only 0.2 percent of the total U.S. economy, but economists say it's a meaningful amount, especially at a time when growth is so weak. The economy grew 2.8 percent in the fourth quarter, a rate considered modest following a recession.

On Thursday, the government said weekly applications for jobless benefits fell for the fourth time in five weeks to the lowest point since March 2008. Lower unemployment could signal increased demand for oil. But U.S. oil demand fell last year, even during the second half when economic growth was stronger. Dwarkin expects it to fall again, both in the U.S. and in the rest of the developed world.

Instead, it is demand for oil in developing nations that is pushing up global demand, and prices.

Dwarkin expects demand to rise 1 million to 1.2 million barrels per day in developing countries in 2012. She thinks demand in developed countries will fall by 400,000 barrels per day. Together that would push global oil demand up slightly less than one percent for the year.

Oil prices spiked at this time last year with uprisings in several Middle East nations, particularly Libya. Investors who worried about major disruptions in supplies bought oil and drove up the price. WTI rose from $85 a barrel to $114 in two and a half months. Brent rose to almost $130 a barrel. Economists say last year's sudden price rise hurt economic growth in the U.S. during the first half of the year.

For the year, U.S. retail gasoline averaged its highest price ever, $3.51 per gallon.

In other energy trading Thursday, heating oil rose almost a penny to $3.20 per gallon and gasoline futures rose 2 cents to $3.02 per gallon.

Natural gas rose 12 cents, or 5 percent, to $2.55 per 1,000 cubic feet after the Energy Department reported the nation's gas supplies fell more than analysts expected last week.

At the pump, the national average for gasoline was unchanged at $3.52 a gallon.