Not even war between Russia and Georgia - Stopped the Decline in Oil Prices

The Sept NYMEX crude oil contract hit a low of $112.72 and settled at $114.45, nearing the 200-day moving average at $111.78 and not all that far from the previous low $110.30 from May 1.

Not even war between Russia and Georgia, now halted but still on the map yesterday, stopped the decline.

Today the IEA said high prices are starting to affect demand and thus we have a “potential easing in fundamentals for the second half of 2008 and into 2009, before a renewed tightening thereafter.” Demand is now seen at 790,000 barrels a day, down from July’s estimate of 890,000 b/d, according to the FT. Demand decline is spotty—high in the US and Italy and Spain—but still rising in emerging markets like China.

The story fails to mention that these emerging market governments subsidize oil, and demand would fall equally hard if consumers had to pay the market price.

Emerging market demand is no different from mature economy demand—demand is demand.

Gold closed down at $821.50 (Aug contract). It is nearing critical levels that, if broken, foretell a bigger rout. Reuters reports that spot gold fell to an 8-month low of $801.90 from $819.25/820.85 late in New York on Monday. It is down over 20% from the record high of $1,030.80 on March 17.

Bye For Now

Rockefeller Treasury Services