Patriot missle batteries deployed to Persian Gulf. No big deal.

Multiple newspapers are reporting additional Patriot missile batteries being deployed to the Western Gulf countries (Kuwait, UAE and even Oman were offered the missiles). Israel, Saudi Arabia and Iraq already have Patriot missiles deployed so this deployment will cover the entire Western Gulf.

There is also mention that the US will always deploy at least 2 Aegis equipped vessels in the Gulf to intercept potential Iranian missile launches. These announcements are significant in that they imply that the US is preparing for a potential conflict. On the other hand, they are not significant near term since it will take some time to deploy these assets to the Gulf and it is very unlikely that the US will take action until these assets are deployed.

This announcement is probably bullish for CL volatility 6 months+ out and bearish for near term volatility since it probably reduces the chances of something happening in the very near term.

FXI below the 200 day

The FXI recently broke it's 200 D MA on strong volume. It is already down 15% from recent highs and may now be in a confirmed bear market.

I would like to point out to everyone that the FXI has been trending down since November and has now broken below its 200 moving average on strong volume. This could be a real sign that China is slowing. While news out of China sounds benign to me this could be a sign that things in China are worse than they appear. On the surface 10% GDP growth and some responsible tightening measures look pretty good but there are some signs that things may not be as they appear. In addition to anecdotal signs like the "empty city" in Mongolia and stories about property prices up 20% in a month we have the more tangible indicator of a falling stock market. The BDI has also been falling lately and there is the strange case of the missing oil demand. Based on China's auto sales numbers, oil demand and imports should have picked up more by now but we haven't seen the surge in demand that one would expect.

Things may not be as rosy as they appear in China's offical data.

Crude down slightly overnight

Crude down slightly (.19) overnight. Crude has been surprisingly strong since it's breakdown Tuesday afternoon. It is only down about $ 1 bbl since we gave up on our long position and outperformed both the stock indices and gold during today's trading.

The crude chart is showing signs of bottoming so if crude continues to outperform or if stock markets turn higher we may chance another small long position with an objective of 79. Offshore inventory builds are too large to make a seriously bullish call on crude but a small trade is possible if other markets become more favorable.

Crude outperformed strongly today in light of the weakness in equities and the strong dollar. The dollar has been up solidly for about a week now and looks very strong.

Going flat crude

Today's inventory number was worse than we expected especially in light of recent offshore inventory builds. If you take out the large draws in propane due to high farm usage, overall stocks were down 1 M barrels which is not particularly bullish. When one considers the 10M bbls of inventory that has been added to offshore stocks in recent weeks, this actually paints quite a bearish picture for what has been a cold January.

While, crude is at support and the chart/technicals are supportive we are not comfortable being long at this point with inventories building and uncertainty about conditions in Europe leading to possible strength in the dollar.

We will let our readers know when we are comfortable getting bullish again.

Covering crude shorts and going long crude oil

After today's actions we are covering all of our short positions and going long crude. Today crude tested support at $74 and ended solidly up. After a $10 downleg from it's recent highs oil could be poised to rebound and push towards $ 90 per barrel.

The outlook for crude oil is getting more bullish. Power problems in Venezuela will drive additional demand and E. Europe is experiencing extremely cold weather which will drive oil fired electric generation. More importantly, Goldman Sachs is spreading rumors that China may revalue the yuan by 5%. This is bullish for all commodities as a rising Yuan tends to support commodity prices by making imports cheaper for China. Finally and most importantly, we here at Black Gold think that President Obama will announce major new stimulus program's during this week's state fo the union speech. The loss of the MA senate seat has served to focus Democrats attention and as the #1 issue is jobs, we think they are finally going to move to address this issue.

The upcoming speech, revaluation rumors and our bet that inventory numbers will be bullish this week are what's behind the decision to both cover and go long. Otherwise, we would've just covered our short and waited for confirmed signs of a stronger market.

Staying Short

We've been burned everytime we've even thought about covering our oil short so we are staying short for now. We will cover as soon as we see signs of stabilization, but there is no point in catching a falling knife. $8.50 bbl in profit so far. We're hoping for $70 if we're lucky but we could cover anywhere between here ($74) and $70. There should be strong support at $70 driven by the trendline and 200D MA.

We are watching the S&P 500 closely. We WILL NOT COVER if the S&P looks like it is in freefall as that will invalidate any support/resistance levels in the crude market. As we saw last fall, the S&P 500 drives sentiment towards the crude market so it is very risky to buy crude when equities are dropping sharply.

China reports 10.7% GDP growth

China reports 10.7% GDP growth (Q4 2010 over Q4 2009). This is slightly better than expected and probably guarantees that we will see more measures to remove liquidity and slow growth as the Chinese monetary policy committee considers growth above 10% to be "excessive".

Lots of Chinese economic data out tonight

Lots of official Chinese economic statistics being released tonight at 9 (EST)

Here is a list of the releases with consensus expections:

Chinese Data out at 9pm tonight:


*4Q09 GDP growth - consensus 10.5%

*2009 annual GDP - consenus 8.5%

*Nominal growth of FAI - consensus 32.1%

*CPI - consensus 1.4%

*PPI - consensus 0.8%

*Industrial Production - consenus 19.6%

Oil Trader's Blog also shorting crude oil

The author of Old Trader's Blog, another oil trading blog, is currently short crude just as we are here at Black Gold. If you want to read his rationale follow the attached link:

http://oiltradersblog.blogspot.com/

As an energy blog we will try to highlight the work of other energy/oil bloggers that we respect or who seem interesting.

Everyone thinks oil is going up 10-20% this year. I would be scared if I was long crude right now.

Check out this data from zerohedge

http://www.zerohedge.com/article/january-investors-survey-2010-forecasts

Apparently 70% of investors they consulted expect oil to be up 0-20% this year. So everyone expects modest, "safe" appreciation with low volatility. If I was long, I would get to the exit right now. When everyone thinks something is a sure thing, it is almost always a disaster. While I am bullish crude oil long term, I expect MASSIVE volatility this year as people who expect low volatility are shaken out of their positions.



I'm shocked that we only have 1% real oil bears. I've never seen such bullish sentiment. During the whole 2003-2008 runup we always had a large contingent of mega bears (people calling for oil to fall to $20 and the like). Bearish analysts were popular and got massive airplay. Now that everyone thinks that oil is going to slowly creep up, (as do the major investment banks) we know that something else is going to happen.

Oil down again in European trading

Oil is down about .40 in European trading. This may be another fakeout move but I suspect that oil will stay below $78 this time. If oil is still below $78 at 9 am NY time then it is likely to grind lower to the next level of support ($75-76). Oil has traded very weakly ever since North American weather started warming up last week and looks like it is going to give up most of its weather induced gains in late December/early January.

It is easy to make a bear case right now with high inventories, warm weather and a strengthening dollar. Things will be much more bullish once we get past the spring shoulder season.

Oil trading in line with other commodities

After a fakeout down to $77 in thin overnight trading, oil is currently up $.21 in the shortened holiday session. This is in line with small positive moves in equities (.25%), Gold (+.3%), Silver (+1%) and other commodities and is driven by weakness in the dollar which is down .21 (.25%) vs. the dollar index.

Timespreads indicate some weakness as front month crude oil is up .21 while Dec. is only up .01 and farther back months appear to be down, although there is almost no trading beyond Dec. in the low volume holiday session. In the last few years this is generally characteristic of a weak or downward trending market.

Staying Short

While I considered covering my position on Friday I have decided to stay short oil. Oil traded very weakly on Friday, barely managing to cling to support at $78. I would not be surprised if it gaps down on the open tonight or in tomorrow's night session before the open on Tuesday.

With weather warming up, a resurgent dollar, high inventories in cushing, high overall inventories and lots of oil floating offshore there are not a lot of positive catalysts for oil right now. My suspicion is that we go lower probably fairly quickly. There is still a chance that crude trades in a choppy fashion at these levels until the spring shoulder season but I suspect that we'll go lower sooner than that.

Longer term I am still bullish it is just that short term oil looks overbought (due to beginning of the year index buying and weather) and due for a correction.

Oil slumping overnight

Oil is slumping overnight. Looks like it may retest support at $78 tomorrow.

Here at Black Gold we are uncertain as to what to do with our crude position. I am currently short but will probably cover tomorrow if oil gets close to $78. While this week's DOE numbers were negative with builds in crude, gasoline and distillate, they were not nearly as negative as the preliminary indications from the ugly API inventory report. Total petroleum stocks only increased by 3.4M bbls this week as draws in propane and other oils offset the builds in headline products and inventories in Cushing actually drew 1.3M bbls. Furthermore, this is a time of the year when stocks often increase due to some tax related inventory shifting by refiners so the build of 3.4 M bbls was actually less than average and less than we saw this time last year.

While I am in no way bullish on crude, I doubt that this week's slightly negative inventory report is enough to push crude through resistence and back into the low 70's. The market will probably need one more piece of bad news to get it there. We may get this with a build in inventories next week either due the same inventory effect that caused a build this week or offshore tankers dumping inventory. In the meantime, I suspect that crude will languish until there is some more (most likely bearish) news. Since crude is unlikely go lower in the near term, I can reduce my risk by covering my position and looking to reshort on a bounce. I am already up $3.50 per bbl on this move so why risk giving that (and more) back on some news out of the middle east?

Natural Gas production up big this week

North American Natural Gas production surged this week according to data from Robry825, a widely quoted and published natural gas analyst. This bodes very poorly for gas prices going forward although it is offset by improvements in demand and the recent cold weather.

Production increased by at least 20 BCF this week taking weekly production back to 540 BCF for the week. While rig counts and production have been rising since September of last year really surged this week (up 4%) and is now 2/3 of the way back towards the highs of last January in spite of gas prices which have ranged from $2 to $6 over the period in question. While industrial demand has also increased substantially since the financial crisis induced lows of last winter, this kind of production increase is not bullish for prices and may serve to cap natural gas prices below $6 for quite some time.

There is a great chart of the surge in production at SaintSinnerIdiot's Blog. www.saintsinneridiot.blogspot.com

Looks like oil topped out yesterday

I apoligize for the lack of posting. I've been too busy shorting oil to post much.

It looks yesterday's spike to $83.95 marked the top for the most recent rally in oil. Weather is warming, inventories are up (massively judging from today's API report) and the chart now looks like quite bearish with $80 offering the next support.

I suspect that we will get a very ugly inventory report tomorrow as physical traders dump from offshore storage to take advantage of the relatively narrow contango. As of the end of the year, there were 125 M bbls of crude and products in floating storage and physical traders could book nice profits offloading that into last week's narrow contango. Remember that the contango was much wider just a month ago when oil hit $69. Since Cushing inventories are close to full (35.7M bbls as of last week's report) this could put a lot of pressure on front month crude spreads.

Finally, recent EIA data shows that non-OPEC oil production surged in the last few months of 2009. This is not at all bullish as falling/flat non-OPEC production has been a key component of the peak oil case for the last few years. For more detail I've attached a link to a great piece by Gregor at http://gregor.us/

Very weak price action in oil today. We may have topped out today when we hit $84 ($83.95 high)

Very weak price action in oil today as oil closed down in spite of a large decline in the dollar and a pipeline bombing in Nigeria over the weekend. Oil closed down .22 after starting the night session up as much as $1.00 driven by a major decline in the dollar index and a bombing in Nigeria. It has continued lower after the close of the pit session and is now hovering above support at $82.00. While today's close did not violate the $81.80 low from yesterday, it was an ugly reversal and shows real weakness as a very weak dollar is often acts as rocket fuel for oil prices in a strong market.

Monetary factors were very supportive today with the dollar index down .47 (.7%), Gold up around $15 and Silver up $.30.

US Army doubling the amount of ermergency gear it stockpiles in Israel

According to the U.S. weekly Defense News the U.S. will Store $800M in emergency military gear in Israel. This is a doubling of the current stockpile. Israel will be allowed to use these stores in the event of an emergency.

The US has stored "emergency" military gear in Israel since 1992. It stores such emergency stockpiles in several other countries as well including South Korea, Germany and Saudi Arabia.

This change is interesting because it could create a cover to secretly transfer bunker buster bombs to Israel (for a strike on Iran) and could provide extra supplies for Israel's US supplied army and patriot missle batteries in the event of a conflict in late 2010 or 2011.

Oil up in Asian trading driven by monetary factors

WTI crude opened up $.60 (.75%) driven by monetary factors.
Gold very strong, up $20(1.8%)
Silver up $.30 (1.5%) as well.

Natural Gas down $.17 (3%) due to warming weather in North America.

Gold Chart

While this is an oil blog, the another commodity that our contributors sometimes follow is Gold because Gold prices tend to be good indicator of monetary conditions.

With that in mind, I want to alert readers to the bullish technical chart of Gold right now. The chart below is taken from MontyHigh's excellent World of Wall Street blog

www.worldofwallstreet.us



Monetary conditions continue to be very favorable for gold (and oil). Right now, we prefer to be long gold due to high inventories and improvement in temperatures across North America.

Cold weather in North America should end this week

While Northern China remains very cold, weather should warm up in North America over the next couple of days. Both Chicago and New York are forecast to warm about 10 degrees by Tuesday with further warming later in the week. Western Canada has already warmed up very significantly which could bode well for the central US. Calgary has been above 40 degrees for the last couple of days with similiar temperatures forecast for the rest of the week.

All major weather models are in agreement for a warmup starting Monday in the East, slowly moving, until Friday most of the nation is normal or above (the Canadian model has finally given up its cold bias). There is a brief cooldown in the SE starting early next week, that may move up the east cost but should be done by the following Thursday.

After that all models agree the eastern half of the country will get incredibly warm for at least a week. It has potential almost be as warm vs normal as last week was cold vs normal. See the ensemble suite:

http://www.cpc.ncep.noaa.gov/products/predictions/short_range/NAEFS/poeabn_h264.00.gif

Good Post on cold weather over at Scarce Whales

Just to alert readers to some stuff on other energy blogs, there is a good post on the cold weather impacting the oil market. Includes some nice charts from the national weather service. Here is the link:

http://scarcewhales.blogspot.com/2010/01/cold-weather-heats-oil-market.html

MEND strikes again

MEND (Movement for the Emancipation of the Niger Delta) appears to have struck again. Yesterday gunmen attacked a Chevron pipeline in the Niger Delta causing an unknown amount of damage. At first glance this appears to be another nuisance attack which will have little impact on the oil market. Pipelines are easy to attack but also easy to repair. Attacks on them can be used to reduce output if one has the capability to attack multiple times. So far, the weakended remnant of MEND has not demonstrated this capability. Based on press articles, it appears that the pipeline in question transports 10-20,000 B/D of crude at most and thus this attack should have little impact on the oil market even if repairs take some time. In it's current form, MEND has yet to prove to be a factor in the oil market.

I've attached a link to an AP article with more detail:

http://news.ino.com/headlines/?newsid=6896846726981

Cold Weather continues in Europe

Cold weather continues in Europe with record lows in Sweden and very cold weather in Northern Britain and Germany. Weather continues to drive strong heating oil demand.

Article with more detail attached below:

Frozen Europe: 100s of flights canceled in Germany
1 minute ago

(AP:BERLIN) A plane slid off an icy runway and powerful winds and heavy snow forced hundreds of flight cancellations across Europe on Saturday as blasts of freezing cold buffeted Britain and Germany.

An Air Berlin plane slid off the runway in Nuremberg, Germany, and got stuck in the snow late Friday. Nobody was injured, but the airport was closed for more than two hours.

More than 300 car accidents were reported on icy streets in the southwestern state of Baden-Wuerttemberg, with more than 40 people injured. The western state of North Rhine-Westphalia reported 108 accidents.

At the German-French border near Freiburg, hundreds of trucks were stuck for hours when French authorities closed the highway because of heavy snow. The Red Cross handed out blankets and hot soup to the drivers.

By early afternoon, 226 domestic and international flights had been canceled at Frankfurt airport as a low pressure system from the Mediterranean brought gusty winds and several inches (centimeters) of snow. Crews struggled to clear the runways, and the few planes that managed to take off had to be deiced first, said Frankfurt airport duty manager Heinz Fass.

In Britain, cold winds swept in from the north, sending temperatures tumbling to minus 14 degrees Celsius (7 degrees Fahrenheit) in parts of Scotland and northern England. The country is in the midst of its longest cold snap in three decades, and transport has been disrupted in many areas.

The arctic weather _ unusual by Britain's temperate standards _ led to record demand for gas. In a Web cast Saturday, Prime Minister Gordon Brown reassured Britons that gas supplies were not running out, even though almost 100 businesses had been asked to stop using gas to conserve supplies. Supplies of salt and sand for gritting dangerously icy roads were also running low.

Heavy snow forced the cancellation of all flights at Dublin Airport in Ireland. Traffic at London's Heathrow Airport, Europe's busiest, was also affected, with British Airways alone canceling around 50 flights.

Schoenefeld and Tegel, the main airports in Berlin, as well as Munich airport, also reported cancellations.

In France, dozens of flights were canceled in Toulouse, Lyon and Brest. Heavy snow snapped power lines in the southeast, near the Mediterranean, leaving at least 7,500 homes without power. And at least 12 French Cup soccer matches had to be rescheduled because of the cold, the French football federation said.

But conditions improved in Paris, and late Saturday France's civil aviation authority lifted an order requiring the cancellation of one flight in four at Charles de Gaulle Airport, France's busiest.

Wind whipped the snow into yard-high drifts along the Baltic coast of northeast Germany, making roads impassable. Radio stations reported that several villages on the Baltic island of Ruegen were completely cut off.

On Fehrmarn, another Baltic island, farmers were being asked to use their farm machinery to help clear the roads, said Volker Kluetmann, an island official.

"The snow is so high that even the snow plows get stuck," Kluetmann said.

In Berlin, even the mice were desperate to escape the cold: Swarms of them have taken over the Bundestag, the country's parliament, the daily newspaper Bild reported. But more than 100 people jumped into a hole in the ice at Oranke Lake as part of an annual Berlin ice-swimming celebration.

The weather has been brutal by Britain's temperate standards, and local authorities across the country are running out of salt and sand. A clutch of sporting events has been canceled _ including five of the seven scheduled Premier League soccer games scheduled for Saturday.

In Sweden, overnight temperatures dropped as low as -31 Fahrenheit (-35 Celsius) inland. Linkoping, a university town 125 miles (200 kilometers) southwest of Stockholm, recorded its lowest temperature since 1979, hitting -16 Fahrenheit, the Swedish Meteorological and Hydrological Institute said.

On Friday the agency reported that the Baltic Sea was covered by ice that was 40 centimeters thick in places.

___

Associated Press writers Raphael Satter in London, Cecile Roux in Paris and Louise Nordstrom in Stockholm contributed to this report.

Expect governments to start fighting oil if it goes much higher

We would expect governments to actively fight oil if it goes higher in the coming days. There is a widespread belief among government officials that oil prices above $85 or $90 barrel are bad for the economy and likely to stall the still fragile recovery. Officials believe that there is a threshold level (somewhere between $80 and $100 per barrel) where the effects of higher prices become much worse. There is some empirical evidence to support this (See recent papers by James Hamilton) and I would expect spending on consumer durables to slow sharply if oil prices break $100 for any sustained period. Gasoline prices have started to move up and, while no where near their highs of 2008, are now above their highs for 2009.

The mainstream media has latched onto this theme of "the recovery stalls if oil goes over $85" as evidenced by a flurry of articles that hit the media when oil breached $80 in October. I would expect another flurry of articles if oil goes higher from here especially if we get above $85. These articles will warn that higher oil prices "may threaten the recovery". From there I would expect more aggressive action if prices don't roll over. First we will hear of renewed commentary about restricting commodity traders, position limits, margin increases etc. If that fails, we may even hear rumors of an SPR release if prices go higher. Even if the government has no intention of making an actual release, they can make traders nervous with rumors.

Most Importantly, the US government isn't the only government that worries about higher oil prices stalling the recovery. European, Asian and Middle Eastern governments share these concerns particularly Saudi Arabia. Saudi Arabia also has a history of working closely with the US government (as does Kuwait and the UAE). I would expect that any move higher will concern US officials enough that they will quietly (or maybe loudly) ask the Saudis to raise oil production. As the Saudis share the same fears about a stall in the recovery, I expect that will move to raise production and announce an increase in shipments to Asia once prices become a macroeconomic concern. This is exactly what happened in October. While the production increase may take 6 weeks to two months to hit the market, this announcement should be enough to halt upward price momentum.

In October we had a similar situation. Oil prices rallied rapidly from $66 to $82 in a matter of weeks. Once prices got above $80 they became a focus of media concern and presto we had the Saudis announce an increase in shipments to Asia. This was compounded by dumping from floating storage to capture relatively tight timespreads and oil stalled and then fell back into the 70's.

Now we are three months later and a couple of dollars higher in price but I would expect the same thing. Higher prices lead to media and official concern. Saudi Arabia and OPEC raise production and floating storage is unloaded at favorable timespreads. Prices should stall for a while and drop back to the 70's.

This process can go on as long as Saudi Arabia has spare capacity (according to them they have 4 million barrels, oil bulls would put the number closer to 500,000) and as long as there are large inventories floating at sea. Once the spare capacity and excess inventories are gone, things will get much more interesting.

Yesterday's move in oil may have been due to index buying

Yesterday's strong move in oil was attributed to weather in many media outlets but that didn't make sense due to the structure of the move (i.e. impact on time spreads) and the coincident moves in other commodities like Gold and Silver. Well, it turns out that there was heavy index buying of commodities yesterday (according to the NY desks of several major banks). Since these indexes (especially the GSCI) are heavily weighted towards crude oil, this was especially bullish for oil, although we also saw the impact in precious metals, agricultural commodities and natural gas.

This could be a bullish short term factor for oil prices since beginning of the year index buying often persists for multiple days. It is likely that this has been in the background supporting crude prices for the last few days and that it may persist for another week or so. That being said, I would be careful here. Oil is quite extended (up $15 from the bottom) and the big banks wouldn't be so open about the index buying unless it were at least halfway done (if it just started they would be quietly frontrunning it) Our suspicion is that beginning of the year buying and cold weather are the main factors behind the recent run up in oil prices and that we are probably close to a near term top at this point.

Media saying oil prices up because of cold weather - today's price move is not consistent with weather

The mainstream media is attributing today's move in crude to weather, however the move is not consistent with a weather related move. Oil came into the day slightly down on the back of a bearish API inventory report and was then hit with a slightly disappointing EIA inventory report. It then proceeded to fall about .50 and was slowly recovering when it spiked over $1 bbl in the course of a few minutes. This spike was coincident with spikes in Gold (up $18 today), Silver and Copper which indicates it was most likely a liquidity/moneyflow related phenomena. Natural Gas (which is up due to weather) was already up strongly at the open and jumped only .05 or so when crude made its big move. Furthermore, the crude oil term structure does not support today's move being weather related either since back month crude contracts (Dec 2012-2018) are actually up more than the front months which is the opposite of what one would expect from a short term weather related move.

I've attached an article from yahoo with a typical story below:

Winter blast sends oil prices to 14-month high
Energy prices jump as winter storm blankets cities from Baltimore to Beijing

By Mark Williams, AP Energy Writer , On Wednesday January 6, 2010, 12:46 pm EST
Snow, ice and wind wreaked havoc on energy markets Wednesday, where a barrel of oil topped $83 a barrel for the first time since the fall of 2008. Natural gas futures soared 6 percent.

Dangerous temperatures that knocked fruit from vines in Florida and made driving treacherous in New England had people reaching for the thermostat.

Weather easily trumped a surprise report Wednesday from the Energy Information Administration that showed the supply of crude and gasoline in storage is growing.

The amount of gas placed into storage last week was three times greater than what was expected by energy analysts polled by Platts, the energy information arm of McGraw-Hill Cos.

Still, there has been a huge influx in speculative money entering the market to start 2010, said Peter Beutel of Cameron Hanover. A weak dollar has attracted billions of new dollars. Oil is bought and sold in the U.S. currency, which means investors holding euros or other stronger currencies can get more oil for less when the dollar falls.

But it was dropping temperatures from Baltimore to Beijing that had energy prices moving. A big snowstorm hit Beijing Wednesday and freezing temperatures were expected to last there through the week.

Benchmark crude rose $1.13 to $82.90 in the New York Mercantile Exchange. Prices rose as high as $83.15 earlier in the day and that has begun to drag pump prices higher.

By the weekend, the national average price for a gallon of gas in the U.S. will top $2.70, predicted Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

That would be a rough start to the year for consumers. Prices never hit that high last year, even during the peak of the driving season over the summer.

Rising gas prices come even as more people are staying home because of the bad weather.

Prices at the pump climbed 1.8 cents to $2.685 per gallon overnight, according to auto club AAA, Wright Express and OPIS. That's 6.2 cents higher than a week ago.

In other Nymex trading in February contracts, heating oil rose less than a penny to $2.1984 a gallon. Gasoline rose less than a penny to $2.1304 a gallon. Natural gas futures rose 33.4 cents to $5.971.

In London, Brent crude for February delivery rose 88 cents to $81.47 a barrel on the ICE Futures exchange.

Associated Press writers Pablo Gorondi in Budapest and Alex Kennedy in Singapore contributed to this report.

Britain facing gas shortages as the country is gripped by one of the coldest winters in a century

Britain is facing the gas shortages as the country faces the coldest winter in many years. This is bullish for both oil and US natural gas as LNG cargoes will be diverted towards the UK as UK prices spike higher. UK prices can be much more volatile than North American prices due to the small size of the market and very limited storage capacity in the UK.

I've attached an article from this morning's telegraph with more details:

Britain facing gas shortages as freezing weather continues

Britain is braced for the prospect of running short of gas as the country is gripped by one of the coldest winters for a century.

By Murray Wardrop
Published: 6:52AM GMT 05 Jan 2010

Britain is facing the prospect of gas shortages as cold weather continues Photo: PA
For the second time ever, the National Grid yesterday issued a warning to energy providers that demand for gas is threatening to outstrip supply.

Weather forecast for Britain
The ultimatum comes after a 30 per cent rise on normal seasonal demand as snow and freezing conditions continued their stranglehold on Britain.

The concerns caused natural gas prices to jump to their highest level in 10 months yesterday, touching 45p a therm.

While it is unlikely that households will find their supplies restricted, a shortage could lead to higher bills.

The National Grid, responsible for meeting the country's energy requirements, issued a gas balancing alert (GBA) yesterday to give warning that any further falls in supply could force big users like power plants to cut their consumption.

Extra gas supplies were rushed out to the liquefied natural gas importation terminal in Kent through pipelines in Belgium and Norway following the alert.

The National Grid said the risk of shortages had been temporarily averted by the influx.

"Supplies of gas to the UK have increased following the issuing of a gas balancing alert today," a spokesman said.

He added: "The big generators like E. ON have gas-fired power stations and coal-fired power stations. They can choose to switch from gas to coal.

"(Yesterday) we thought there was going to be a certain amount of gas going into the country and then a few suppliers, their supplies dropped off.

"They weren't going to be able to provide the amount that we thought, so we issued a GBA so hopefully that's going to bring it back to where it should be."

The first time a GBA was used was in March 2006.

GBAs are a way of warning customers to ease off on the fuel as well as encouraging suppliers to bring in more gas, which Britain relies on imports for.

The fuel is used to heat about two thirds of Britain's homes.

Freezing weather is set to stay in the coming weeks, and the National Grid has not ruled out sending out further supply warnings.

In the event of a serious shortage, big industrial consumers are expected to bear the brunt of gas consumption cuts to shield residential users who rely on the fuel to keep warm.

Chinese central bank will buy oil to diversify reserves out of the dollar

Chinese central bank offical said the country needs to invest in oil and other resources in an effort to diversify out of the US dollar. In our opinion this is a very important comment as Chinese central bank buying could put a tremendous bid into commodity markets.

Temperatures in Northern China hit 50 year lows

Temperatures in Northern China hit 50 year lows as Beijing and Seoul are hit by heavy snow. This is bullish for both oil and coal as this region has little natural gas and will have to turn to coal (and in a pinch) oil for heating. As hundreds of millions of people live in the affected region this could be quite bullish.

I've attached a bloomberg article with some detail below:

Beijing, Seoul Hit by Heaviest Snow in More Than Half Century
By Bloomberg News

Jan. 4 (Bloomberg) -- The heaviest snowfall to hit Beijing and Seoul in more than half a century grounded hundreds of planes in the two capitals as temperatures in northern China were set to fall to the lowest in 50 years.

Beijing Capital International Airport canceled more than 500 flights today as of 2:00 p.m. local time, China Central Television reported. Gimpo Airport in western Seoul grounded 187 flights as of 2 p.m. local time, the Ministry of Land, Transport and Maritime Affairs said in a statement today.

Chinese Premier Wen Jiabao called on local authorities to ensure food supplies, agricultural production and the safety of transportation, the official Xinhua News Agency reported. South Korea mobilized 5,000 soldiers to remove snow from blocked roads, Yonhap News reported today.

Among those affected by the weather were Hong Kong Financial Secretary John Tsang and Hong Kong Monetary Authority Chief Executive Norman Chan. Their flight to Beijing last night was delayed by heavy snow and the visit was canceled this morning, Patrick Wong, Tsang’s press officer, said by telephone.

About 90 percent of Beijing’s more than 1,300 flights yesterday were canceled or delayed, according to state broadcaster CCTV. At least three airports in China’s Shandong province were closed today due to the blizzards, it reported.

Suburban areas of the Chinese capital received more than 33 centimeters (13 inches) of snow yesterday, the Beijing Daily reported. It was the capital’s heaviest daily snowfall since 1951, Xinhua reported today.

Schools Closed

Elementary and middle schools in Beijing and the neighboring city of Tianjin were suspended today because of the snow and low temperatures, the city governments said. Tianjin got as much as 20 centimeters of snow yesterday, CCTV reported.

More than 15,000 people were dispatched to remove snow that had forced the closure of 30 highways in northern China, the Ministry of Transportation said on its Web site.

The South Korean capital was hit today by the heaviest snowfall since 1937, receiving 25.8 centimeters of snow as of 2 p.m. local time, according to the state-run weather agency.

The city of Incheon, 80 kilometers west of Seoul, was covered by 30 centimeters of snow, according to the agency. Incheon’s airport delayed 165 flights as of 2 p.m. today, the Ministry of Land, Transport and Maritime Affairs said.

The snowfall in South Korea, concentrated in the mountainous central portion of the nation, is expected to end tonight, according to the Korea Meteorological Administration.

Snow Forecast

More snow and freezing rain was forecast in the Chinese provinces of Shandong, Shaanxi, Hubei, Hunan, Jiangxi, Jilin and Heilongjiang, according to the China Meteorological Administration. Parts of Hunan and Jiangxi province may be hit by heavy snow tomorrow, the weather bureau said.

Temperatures in Beijing could drop as low as minus 14 degrees Celsius (6.8 degrees Fahrenheit) today and may fall to minus 16 degrees Celsius tomorrow, according to the administration. Temperatures in northern China tomorrow could hit a 50-year low, CCTV reported.

The blizzards today trapped a train in northern China traveling from the city of Harbin to the city of Baotou, CCTV reported. More than 1,400 passengers were rescued, according to the state broadcaster.

Vegetable prices in the Chinese capital have surged as much as 125 percent as the heavy snowfall damaged greenhouses and hampered deliveries, Beijing Daily reported today.

The Ministry of Agriculture dispatched seven teams to help farmers ensure agricultural production, Xinhua reported late yesterday. They were sent to the provinces of Hebei, Liaoning, Jiangsu, Shandong and Anhui to help repair damaged greenhouses and improve the use of water and fertilizer, the state-owned agency said.

Power Supply

Heavy snowfall in northern China also spurred concerns of possible shortages of fuel and electricity. State Grid Corp. of China ordered local units to intensify checks on power lines and substations to prevent widespread blackouts, Xinhua said.

Some cities are limiting electricity supply as coal stockpiles run low, China Business News reported today, citing an unidentified official from the State Electricity Regulatory Commission. Power plants connected to State Grid Corp. of China’s networks had 8.94 million metric tons of coal stored, sufficient for 10 days’ consumption, as of Dec. 28, the Shanghai-based newspaper reported.

Israel recalls all its ambassadors for consultations

Over the holiday Israel recalled all its ambassadors for meetings from Dec. 27-31. The diplomats should be back on station on enroute by now. While this sounds disturbing, I don't think we should get too excited. At a minimum, it means that Isreal is unlikely to strike Iran this week or even next. Here at Black Gold, our suspicion is that the recall relates to Israel's strategy regarding pressing for strong international sanctions now that Iran has flouted the latest (Jan. 1, 2010) deadline to halt its nuclear activities. The conference may have also included instructions in case of an attack but in our mind, it is very unlikely that Israel would even tell its diplomats if an attack were planned because of the security risks this entails. Knowledge of any such attack would be kept on a need to know basis with very few (less than 50) people knowing the full plan and date of the attack.

I've attached an article from the European Union Times online edition which follows:

Israel’s ambassadors and consuls generals from all over the world have been summoned to attend a conference to be held over global challenges facing Israel.

The meeting to be attended in Jerusalem Al-Quds on December 27-31 is hosted by the Ministry of Foreign Affairs, headed by Deputy Prime Minister and Foreign Minister Avigdor Lieberman, the ministry reported on its website.

“The idea is to facilitate direct dialogue with the country’s leaders, mutual updates on major diplomatic issues, and a discussion of action plans to deal with the challenges awaiting Israel in the international arena in the coming year, including the Iranian threat,” it said.

This is while Israeli Prime Minister Benjamin Netanyahu has called a report by the UN Human Rights Council’s Gaza commission a real threat to Israel.

The UN Special Rappoteur for the occupied Palestinian Territories has also urged western powers to push Israel to end its blockade of the Gaza Strip immediately. Richard Falk also called for economic sanctions against Israel.

This is the first time a conference for all of Israel’s heads of missions has been held.

Benyamin Netanyahu will also attend the conference along with Defense Minister Ehud Barak, Minister of Intelligence and Atomic Energy Dan Meridor, and other senior officials.