Why Crude Oil Prices May Not Affect Pump Prices

Since Oct. 4, the price of West Texas Intermediate (WTI) crude oil is up 33%, but the news media has barely given this story a second look. If the price of oil is up that much, presumably the price of gas should be crippling the wallets of consumers. So why haven't we noticed?

The reason is because the wholesale price of gasoline on Oct. 4 was $2.61 and two months later on Dec. 2 the average wholesale price had only risen 1 cent to $2.62. We've all learned that when oil rises in price so does the price of gas. So why not this time?

The Tale of Two Oils
There are actually 161 different types of oils traded according to the International Crude Oil Market Handbook, but if you ask an oil investor they will tell you about WTI and Brent Blend crude oil. WTI oil is refined in the Midwest and Gulf Coast area and is the traditional source of the majority of the oil used in the United States. If you want a high quality oil, you want it to be sweet and light and that comes from a low sulfur content and low specific gravity. WTI is lighter and sweeter than Brent Blend crude which makes it higher quality and more expensive in normal market conditions. WTI is the oil that is traded at the New York Mercantile Exchange (NYMEX) making it the traditional benchmark for oil traders around the world.

Brent Blend crude is a more sour oil because of its higher sulfur content. It is actually a mixture of multiple types of oil that come from the North Sea, and when oil markets are acting in a way that is considered normal, Brent Blend crude is largely used in Europe. It doesn't take much to knock the oil market out of balance. Because of changes in the North American oil landscape, European companies are finding it more profitable to export their oil to the United States.

That North American change is a shift in the way oil moves. In the past, oil has moved north from the Gulf Coast, but the recent discoveries in Northern states as well as Canada have sent oil moving south. Cushing, Okla. is where WTI is housed and priced. Because of these new flows, the Wall Street Journal recently called Cushing the "Roach Motel" of oil. Oil can get in but it can't get out. This, along with other geopolitical issues has caused a change in the oil markets; this is a change that is good for the consumer, at least for now.

We Love Brent!
Because of the problems with WTI oil, Brent Blend crude has become the benchmark for gas prices, at least for now. While WTI has seen a 33% increase since Oct. 4, Brent Blend crude has seen a modest 7% increase and because gasoline prices are not strictly correlated to oil prices, this has caused the consumer to see an average price at the pump of $3.29 as of Dec. 2.

The Bottom Line
The oil market is a volatile market. Wars, weather events and broken pipelines are just a few of the many factors that could make what we pay at the pump see a steep increase virtually overnight but for now, consumers are the beneficiaries of this recent changing of the guard in the oil market.

Housing Prices Will Bottom in 2012: Freddie Mac

Housing prices are likely to move lower and bottom out in 2012 with modest appreciation likely in 2013, Freddie Mac(FMCC.OB) Chief Economist Frank Nothaft said in his outlook on Wednesday.

The Freddie Mac Housing Price Index is forecast to dip by 1% in 2012, marking the sixth consecutive year of declines. The index is expected to move higher by 2% in 2013.

The economist said in his report that national indexes masked sizable variation in local house-price performance. "Some markets have appreciated over the past year and are likely to gain further in 2012, while those markets with higher vacancy rates and relatively large distressed sales will continue to see downward price pressure over the next year."

Mortgage rates are likely to stay "very low" at least till mid-2012 thanks to the Fed's "Operation Twist". The economist also expects housing market to be better in 2012 though not "robust".

Nothaft believes the rental market could provide some support to housing activity in 2012. "A full-fledged recovery in the housing sector will likely elude the U.S. in 2012, but new construction and home sales are expected to be greater than in 2011," he wrote, pointing to rising rents and falling vacancies in most markets. "Good rental market fundamentals and a dearth of new apartment completions should translate into more starts of rental buildings with five or more units, pushing total housing starts up slightly more than 10 percent in 2012."

The better fundamentals in the rental market could also drive up refinancing and origination volume of multi-family loans.

On the other hand single-family originations and refinancing activity might see a decline. "While single-family refinance volume is currently strong, many borrowers have already locked in relatively low rates, or are constrained (because of being underwater or having late payments) thus reducing refinance activity over time," according to Nothaft. " Further, somewhat higher mortgage rates in the second half of 2012 (after the expiration of 'Operation Twist') will reduce financial incentives to refinance."

The economist predicts economic growth will likely strengthen to about 2.5% in 2012, with the stronger-than-expected data in recent months providing evidence that momentum is beginning to pick up again. The unemployment rate will continue to edge lower but remain "uncomfortably above 8 percent", he wrote.

Is the Gold Bull Really Dead?

by Greg Hunter’s USAWatchdog.com:

Economist Dennis Gartman announced in his newsletter, yesterday, that he has sold all of his gold. I don’t know if it was physical or paper gold in an ETF (exchange traded fund), but it is gone. According to Bloomberg, Gartman said, “Since the early autumn here in the Northern Hemisphere gold has failed to make a new high. . . . Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull.” Mr. Gartman thinks so much damage has been done to the price of gold and to market psychology that, in his words, “. . . wholesale liquidation, and perhaps forced liquidation, shall be the outcome.” (Click here to read the complete Bloomberg story featuring Mr. Gartman’s call on Au.)

I think Mr. Gartman is a trader at heart, but there is a big difference between a gold trader and a gold investor. Traders are usually looking at the short term, and in the short term, Gartman is probably correct. The price of gold will probably sell off some more before this move is through, but the gold bull is hardly finished. I say this because of two main reasons. Unprecedented global debt is reason number one. More debt has been created than ever before in human history.

Read More @ USAWatchdog.com

Eric Sprott Talks to James West

click here for video

Citi Predicts Gold At $3400 In "The Next Two Years", Potential For Move As High As $6000

Following today's margin call anticipating, liquidation-driven rout in gold, the weak hands are, as the saying goes, puking up blood. Which may not be a bad thing - after all, sometimes a catharsis is needed to get people away from potentially toxic paper exposure which very likely has been hypothecated repeatedly via the same channels we discussed last week when exposing the MF Global-HSBC "commingled gold" lawsuit. But what about the future? Well, nobody can ever predict it, but at least we can sometimes look at charts in an attempt to glean a pattern. Which is why we present the just released slide deck from Citi's FX Technicals group titled "The 12 Chart of Christmas" which has some blockbuster predictions about the coming year, chief among them is without doubt the firm's outlook on gold which they see at $2400 in the second half of 2012, and moving "toward $3400 over the next 2 years or so." So for those looking at today's price action, consider it an opportunity to roll out of paper exposure and into gold, because the more deflationary the environment gets, the more eager the central planning cabal will be to add a zero (which in our day and age of primarily electronic money can be done with the flip of a switch) to the end of every worthless piece of monetary equivalent paper in circulation. And that's a 100% certainty.

From Citi:

While we remain cautious on Gold in the near term and believe that we could correct lower towards $1,600 and possibly re-test the $1,550 area we continue to believe that the bull market remains intact. As with the Equity market we believe that 2012 may be reminiscent of 1978 when Gold rallied nearly 50% off the 1977 close. Such a move would likely put Gold in the $2,300-2,400 area in the 2nd half of 2012.

On a longer term basis we expect even higher levels and target a move towards $3,400 over the next 2 years or so. We are not yet on board with the idea of a move with the same magnitude as seen in 1970-1980 when the last spike in Dec 1979-Jan 1980 saw Gold almost double in price as Russia invaded Afghanistan. Such a dynamic would suggest a move above $6,000 but we prefer to take a more conservative stance and look for a move similar to that seen without that final event driven push at the high which was a “blowout top” in Jan. 1980.

Kyle Bass On Rehypothecation And Other Keynesian Endgame Scenarios

from ZeroHedge and CNBC:

If readers have the sense there has been a deluge of Kyle Bass reading (and viewing) materials on Zero Hedge in the past two weeks, it is because there has been: and why not – after all, unlike all other cheap talking heads, and know-nothing pundits who merely need a suit to make an appearance on one of the TV’s financial comedy channels, Kyle has been consistent in the most important thing – telling the truth. Today, he took his resurgent popularity to CNBC which always knows which way the winds blow, and told David Faber more or less everything that Zero Hedge readers know already about Europe’s collapse, on why the ECB will print but only after a default, and about the inevitable global debt restructuring. There was a twist: as most regulars here know, the key topic of the past week, of December, and potentially of 2011, is the limitless “fractional Prime Broker lending” of assets-cum-liabilities (and when it comes to the realization that one’s gold itself may be rehypothecated, via GLD, it is no surprise why paper gold is plunging, with the expected delayed effect of slow comprehension) in an infinite loop of daisy chained counterparty exposure, also known as rehypothecation. Which is precisely what what Bass touches on 9 minutes 30 seconds into the interview when the discussion shifts to “shortening collateral chains.” Must watch for everyone who enjoys not being lied to.

Original Source @ ZeroHedge.com

Gold Stocks: Still a Bargain

By Jeff Clark, Casey Research

We've been saying since September that gold producers are undervalued, and here are some data that show just how extreme the undervaluation is.

The following chart measures the stock prices of major and intermediate gold producers against their Net Asset Value, based on the daily price of gold. In the simplest terms, a company should be worth more as the product it sells rises in price faster than the cost of those sales. In this case, gold has doubled in price over the past three years while costs have not kept up, dramatically increasing the intrinsic value of a reasonably well-run gold producer. Yet look what the stocks have done when measured against this higher value.

In spite of a rising gold price, stock prices have steadily fallen. In fact, as the right axis shows, the industry is currently selling at a 20% discount to its Net Asset Value (as of October 21) – and historically, gold stocks trade at a premium.

Notice that gold stocks hit 1.6 times their NAVs just before the crash of 2008. Gold producers often trade at this level. If I'm right, companies will revert to historical premiums, meaning much higher stock prices than today.

These data don't tell us when prices will rise, nor do they signal that stocks can't trade lower. They are simply telling us that at this point in time, gold stocks represent a true bargain. Someday this won't be the case, and the opportunity to buy at current levels will be gone.

I'm convinced that in a year or two, we'll look back and be very happy with our positions.