Oil rises 2 percent as Goldman boosts price forecast

(Reuters) - Oil rose 2 percent on Tuesday in choppy trading after Goldman Sachs raised its price forecasts for Brent crude, saying demand from economic growth will eat into stockpiles and OPEC spare capacity.

Goldman raised its Brent price forecast to $115, $120 and $130 a barrel on a three-, six-, and 12-month horizon and boosted its year-end target for Brent to $120 per barrel from $105 and its 2012 forecast to $140 from $120.

A weaker dollar also supported oil prices, which had declined 2 percent the previous session.

The euro edged up from a two-year low against the dollar on German data that was better than expected, though nagging fears about Europe's debt crisis were expected to check euro gains.

Brent crude for July delivery rose $2.43 to settle at $112.53 a barrel, having swung between $109.50 and $112.65.

U.S. July crude rose $1.89 to settle at $99.59 a barrel, having pushed intraday as high as $100.09 and ending above its 100-day moving average of $98.80.

Crude futures trading volumes remained tepid, with total U.S. volumes 23 percent below and Brent volumes 18 percent under their 30-day averages, according to Reuters data.

"Data showing U.S. home sales rose in April was supportive to the market, in addition to the buying encouragement prompted by the Goldman Sachs forecast for higher Brent crude prices," said Joe Posillico, broker at MF Global in New York.

New U.S. single-family home sales rose a second straight month in April, but an overhang of previously owned homes was expected to limit any market recovery.

The view that the U.S. economy is mired in a soft patch was reinforced by a Richmond Federal Reserve survey showing central Atlantic region manufacturing activity stalled in May.

Oil prices showed little immediate reaction to news the United States announced new sanctions on OPEC-member Venezuela's state oil company PDVSA and six other smaller oil and shipping companies for trading with Iran.

The sanctions are narrowly targeted and will not affect PDVSA's sales of oil to the United States or the activities of its subsidiaries including U.S.-based CITGO.

U.S. front-month June gasoline and heating oil futures helped lead the complex up early and posted higher settlements, though gains were pared when trade sources said a gasoline-making unit at Irving Oil's Canadian refinery had restarted.

Also curbing gasoline gains was a report that U.S. retail gasoline demand fell last week against both the previous week and the year-ago period, even as fuel prices began to recede, according to a MasterCard report.

GOLDMAN PRICE TARGET SHIFTS

Goldman Sachs in April predicted a sharp oil price correction that materialized the first week of May, then issued a note in early May saying oil could surpass recent highs by 2012, before issuing raised targets for Brent on Tuesday.

Morgan Stanley on Tuesday also raised its Brent crude price forecast for 2011 and 2012.

Citing improved demand coupled with production lost to Libya's conflict, Morgan Stanley raised its 2011 Brent crude price forecast to $120 per barrel from $100 a barrel, and its 2012 forecast to $130 from $105.

U.S. OIL INVENTORIES

U.S. crude oil inventories fell 860,000 barrels last week, according to the weekly report from the industry group American Petroleum Institute, released late on Tuesday.

Crude stocks increased slightly at the key Cushing, Oklahoma, hub, but gasoline stocks rose 2.4 million barrels and distillate stockpiles fell 846,000 barrels, the API said.

Oil prices pared gains slightly after the report in post-settlement trading.

Ahead of the report, a Reuters poll of analysts yielded a forecast for U.S. crude stocks to have fallen 1.3 million barrels. Distillate stocks were expected to be near flat, up only 100,000 barrels, while gasoline stockpiles were estimated to be up by 300,000 barrels.

The weekly inventory report from the U.S. Energy Information Administration will follow on Wednesday at 10:30 a.m. EDT (1430 GMT).

Cramer: A Practically Unstoppable Stock

In this difficult market, home gamers need to look for long-term themes that they can count on regardless of what’s happening in the global economy, Cramer said Tuesday.

That’s why he likes Weight Watchers [WTW 83.57 -0.50 (-0.59%) ]. With two-thirds of Americans overweight and one-third of that population considered obese, the weight management business is booming. So with all the diets out there, why does Cramer like WTW?

“Weight Watchers is not just some faddish diet,” the “Mad Money” host said. “They’re more like an anti-fad diet, a lifestyle company that's a medical company, frankly, all about helping people change their behavior to lose weight and keep it off.”

The New York-based company has taken off since rolling out its new points system after Thanksgiving. In February, it reported a stellar quarter and raised guidance, which caused the stock to skyrocket 46 percent in a single day. In May, Weight Watchers reported another beat and raise, causing the stock to jump another 14 percent. In fact, the company has gained 219 percent sinceCramer recommended it in June of 2010, and Cramer thinks there’s more upside to come.

To find out more about what’s in store for Weight Watchers, Cramer spoke with CEO David Kirchhoff.

Troubled home market creates generation of renters

A growing number of Americans can't afford a home or don't want to own one, a trend that's spawning a generation of renters and a rise in apartment construction.

Many of the new renters are former owners who lost homes to foreclosure or bankruptcy. For others who could afford one, a home now feels too costly, too risky or unlikely to appreciate enough to make it a worthwhile investment.

The proportion of U.S. households that own homes is at its lowest point since 1998. When the housing bubble burst four years ago, 31.6 percent of households were renters. Now, it's at 33.6 percent and rising. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to census data analyzed by Harvard's Joint Center for Housing Studies and The Associated Press.

All told, nearly 38 million households are renters.

Among the signs of a rising rental market:

-- The pace of apartment construction has surged 115 percent from its October 2009 low. It's still well below a healthy level. But permits for apartments, a gauge of future construction, hit a two-year peak in March. By contrast, permits for single-family home are on pace for their lowest annual level on records dating to 1960.

-- The number of completed apartments averaged about 250,000 a year before the boom. They fell to 54,000 last year and will probably number around the same this year. But then the number will likely double to about 100,000 in 2012 and hit 250,000 by 2013 or 2014, according to the CoStar Group, a research firm. The lag is due to the time it takes for an apartment building to be completed: an average of 14 months.

-- Demand is driving up rents. The median price of advertised rents rose 4.1 percent between the end of 2009 and the end of 2010, census data shows. Few expect the higher prices to stem the flood of renters, though. One reason: Younger adults don't value homeownership as earlier generations did and many prefer to rent, studies show.

-- Rental housing is giving builders more work just as construction of single-family homes has dried up. Still, that economic lift won't make up for all the single-family houses not being built. Apartments account for only about one-fourth of homes. And renters are outspent roughly 2-to-1 by homeowners, who pay for items from lawn care to remodeling and help drive the economy.

Before the housing bust, mortgage rates were so low it was often cheaper to buy than rent. That was true a decade ago in more than half the 54 biggest metro areas, according to Moody's Analytics. Today, by contrast, it's cheaper to rent in about 72 percent of metro areas.

Consider Mason Hamilton, 26, an energy consultant who rents an apartment with his wife for $1,100 a month in Alexandria, Va., outside Washington. He'd like something bigger. But he says he doesn't plan to buy even though he could afford to.

"My parents always told me, `You need to buy a place; you need to buy property,'" he says. "But the housing market is insane."

Many younger Americans see owning as risky. It hardly seems the best way to build wealth, especially when prices are falling.

"There's been this idea for years, a part of the American dream, that owning a home improves and strengthens communities," said John McIlwain, a senior fellow at the nonprofit Urban Land Institute. "But what we've learned over the past few years is that many people simply are not ready to own a home."

From the 1940s until 2007, homes appreciated an average of nearly 5 percent a year, adjusted for inflation. In the past four years, the median price of a single-family home has sunk 37 percent, by $57,500, to its lowest since 2002. Yet in some areas, owning is still too expensive for many.

"It's becoming so difficult for most Americans to afford a home, with larger down payments and tighter credit, that it is creating a renter's nation," says Robert Shiller, a Yale economist and co-creator of the Case-Shiller home price index. "The home is no longer an investment; it's a burden."

Homeownership bestows its own financial advantages, of course. Each loan payment builds equity. Loan interest and property taxes provide tax deductions. And in normal housing markets, home values rise over time.

But for now, renting is more attractive. Hamilton, the energy consultant, says his father, a 58-year-old teacher in Richmond, Va., still owes nearly as much on his mortgage as his house is worth.

"He's stuck in that house," Hamilton says. "After telling me to buy for all of those years, he'd love to rent like me."

CHART OF THE DAY: Why An Italian Debt Crisis Should Scare The Crap Out Of Everyone

If the Greek debt crisis is a tough pickle to solve, it would be nothing compared to a crisis in Italy, which is falling hard after a warning on its debt from S&P.

This chart (via FT) confirms that bank exposure to Italy absolutely dwarfs exposure to Greece and even Spain.

Goldman Goes Long Crude, Raises 12 Month Brent Forecast To $130/bbl

Anyone remember that rapid succession of brent downgrades by Goldman last month which did nothing until the CME and the administration launched an all out war on speculators a relentless barage of crude margin hikes? Well, uber momo Goldman sure doesn't. Just out from David Greely: "While near-term downside risk remains as the oil market negotiates the slowdown in the pace of world economic growth, we believe that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand. Events in the Middle East and North Africa are having a persistent impact, which leads us to increase our oil price targets We expect that the ongoing loss of Libyan production and disappointing non-OPEC production will continue to tighten the oil market to critically tight levels in early 2012, with rising industry cost pressures likely to be felt this year. We are now embedding in our forecasts that Libyan production losses will lead to the effective exhaustion of OPEC spare capacity by early 2012. Consequently, we are raising our Brent crude oil price forecast to $115/bbl, $120/bbl, and $130/bbl on a 3, 6, and 12 month horizon." Welcome back volatility. CME petroleum product margin reduction in 5...4...3...

As a reminder for those long ago days of April 12, 2011:

While prices are back at levels of spring 2008, supply-demand fundamentals are significantly less tight

The unfolding events in North Africa and the Middle East have pushed up Brent crude oil from $100/bbl in mid-February to over $125/bbl last Friday. These high prices levels invite comparison to the spring of 2008, when crude oil prices first breached these levels in May before peaking at over $145/bbl by early July. We believe that there are fundamental differences between now and the spring of 2008: Both inventories and spare capacity are much higher now and net speculative positions are four times as high as in June 2008.

And there you have it: so much has changed in the past 6 weeks. So much.

Goldman Crude 5.23

Technically Precious With Merv

For week ending 20 May 2011

It seems that speculators just are not sure where to go with gold. The continued Middle East upheaval has become sort of a ho-hum thing. What do we need next to move the darn metal? The hesitation suggests that the next major up move may still be some time away.

GOLD

LONG TERM

Despite the ho-hum nature of the recent action the long term prognosis for gold has not changed. We still have the price of gold above its positive moving average line. We still have the long term momentum indicator in its positive zone but still below its negative sloping trigger line. The volume indicator continues to track in a lateral direction and remains above its positive trigger line. Putting it all together the long term rating remains BULLISH.

INTERMEDIATE TERM

Things are not much different in the intermediate term, although it is much closer to a possible turn around. Although the price of gold had dropped below its intermediate term moving average line earlier in the week the line remained positive and the price quickly moved back above the line, where it closed on Friday. The intermediate term momentum indicator remained in its positive zone throughout the week but had been mostly below its negative sloping trigger line. On Friday it did move above the trigger but the trigger line slope remained negative. As for the volume indicator, it had been moving above and below its trigger line and closed on Friday just above the trigger. The trigger here has remained positive throughout. Putting it all together the intermediate term rating remains BULLISH. This is confirmed by the short term moving average line remaining just slightly above the intermediate term line.

SHORT TERM

The short term seems to have gone into a holding pattern once the first plunge was over. Although not a certainty I look at these plunges with a view to seeing if there is a bottom to them. Usually, if the plunge is not the precursor to something more serious, the low of the initial plunge and the high of its quick bounce set the stage for the boundaries of a lateral move. As I said, it’s not a certainty but something to start with. The chart shows these lower and upper limits. We are now waiting to see if the upper (resistance) level will hold or if the rebound goes even further. For now let’s see where we actually are.

The price of gold has been moving in a basic sideways drift for about two weeks now. As such it is inevitable that the price and the short term indicators will start to oscillate above and below their respective moving averages or trigger lines. As of the Friday close the price is once more crossed above its short term moving average line and the line has also just very slightly turned to the up side. The short term momentum indicator has once more moved into its positive zone and closed the week above a now positive trigger line. As for the daily volume activity, that is still relatively low although it looks like it is starting to perk up a little. Overall, the short

term rating is now BULLISH but could change very quickly with a day’s worth of negative market action. The very short term moving average line remains below the short term line and has not yet confirmed this short term bull.

As for the immediate direction of least resistance, today that looks very much like the up side but not too enthusiastically. It may have a day or two to goi before reaching that upper resistance level. After that, who knows?

SILVER

Silver seems to have taken a more critical plunge than gold and it is not rebounding as gold is. Maybe just too many speculators have jumped on silver and now are having second thoughts? The long term indicators are still in their positive zones but only slightly. The long term rating remains BULLISH for now.

The intermediate term, however, is not all that bright. The price remains below its negative sloping intermediate term moving average line and the momentum indicator remains in its negative zone just slightly below its negative trigger line. The volume indicator has now firmed up a bit but is still below its negative trigger line. The intermediate term rating isBEARISH, confirmed by the short term moving average line remaining below the intermediate term line.

On the short term we are in a transition phase. The price has just crossed back above its short term moving average line although the line has not yet turned to the up side. The momentum indicator has crossed above its trigger line with the line turning up but both are still inside the negative zone. The daily volume action remains low. For Friday, the short term rating has improved to a + NEUTRAL rating just below a full bull. The very short term moving average line remains just slightly below the short term line suggesting that a full bull rating was not yet appropriate.

PRECIOUS METAL STOCKS

I guess the Penny Arcade Index says just about all there is to say about the precious metal stocks. Not that they are all moving lower, most advanced during the week, but that with the pennies in a serious down trend the universe cannot be far behind. The speculative and gambling variety of stocks are usually the first to get dumped by the speculators before they start to dump their better variety of stocks. Anyway, this is a WARNING, not a forgone conclusion as to what will happen to the universe ahead.

Well, that’s it for this week. Comments are always welcome and should be addressed tomervburak@gmail.com.

Merv Burak, CMT

Bob Chapman - 05-23-2011

A good day for Gold today , the demonstrations in Spain are not political , unemployment amongst the youths is around 35% says Bob Chapman , there is a real trouble in Europe and it is going to get worse , the young people will not accept any austerity measures , it is not their fault it is the banks fault why should they pay for it , there will be a partial default in Greece , the Euro and Europe will break up in a couple of years , the Euro won't be the next reserve currency the dollar has a good chance to be the world currency again but it is going to be a very rocky road ahead ....