Black Gold Market

Oil called 'black gold' for reason
The curious investor Fifty percent appreciation in the last year tops even the shiny return gold has been producing

At one time, I suppose you could have started a good argument over which was more likely: $100 oil or $1,000 gold. Not anymore.

While gold has been a stellar investment and trades now at almost $800 a troy ounce, oil's more than 50 percent appreciation in the last 12 months brought the price per barrel last week to within $4 of the $100 barrier. It closed Friday at $95.93 per barrel in New York trading. The numbers geeks declared the current price level the highest since 1980 when inflation is taken into account.

All eyes on Wall Street will stay on oil for a while. Its high price reflects strong fundamentals in the world economy and confidence that demand for raw materials will continue to increase. But any scare, such as recurrent news about billion-dollar writeoffs in subprime loans, could send prices falling.

Prices at the gas pump, meanwhile, have been slow to follow the bull market in crude oil. Remember last Memorial Day, when Chicago area gas prices hit their records? Crude was trading for about $65 a barrel back then, said Phil Flynn, analyst at Alaron Trading.

He said that was because of disruptions in the connection between the production field and the refineries. Pump prices here rose by about a dime over the last few days at stations I drive by, and more hikes are likely this weekend. In turn, that will put more pressure on the exploration side.

And maybe that suggests an investment opportunity even if the broader stock market doesn't do much over the next few months. Morningstar analyst Catharina Milostan, in a commentary posted in September that has taken on importance, highlighted four stocks in the oil and natural-gas exploration markets.

All of them have a "nose" for new finds and are well-diversified across the major oil and gas basins, Milostan wrote. They are EOG Resources (EOG), Southwestern Energy (SWN), Newfield Exploration (NFX) and Devon Energy (DVN).

TO HAVE OR HOLD: Paul Raman, senior auto analyst at Zacks Investment Research, downgraded Goodyear Tire & Rubber (GT) to a "hold" rating, citing weak sales volumes in the overall tire market. He has a $30 price target on the shares, which closed Friday at $30.48. But if you read his comments, you wonder about the downgrade.

Raman wrote: "Although escalating raw material costs hamper the company's profitability, tire markets have witnessed pricing improvement by 2-2.5 percent a year over the past year. This has set the stage for margin improvement for the next one to two years."

Also: "We believe the emergence of a healthier balance sheet and noticeably better sales from emerging markets will help earnings. Further, the restructuring initiatives undertaken and the savings from the new labor agreement will boost future earnings."

HOG WILD: Start pressuring your friendly grocer to cut the price on pork. Hog futures last week fell to a three-year low at the Chicago Mercantile Exchange. There's an abundance of pigs in the pens, apparently. "The amount of pork out there is just overwhelming the holiday ham buying," Troy Vetterkind, a trader at e-Hedger in Chicago, told Bloomberg News.

U.S. Agriculture Dept. data show that wholesale pork prices have fallen 20 percent in the last two months to their lowest since April 2006, while inventories have weighed in at the most since 2002.

TOSSED ON HIS SEAT: The Chicago Mercantile Exchange last week said it fined a former member, Thomas Sullivan, $150,000 for selling a seat in its Growth and Emerging Markets membership class and retaining the proceeds when he did not actually own said seat. Sullivan also was barred from CME membership or employment with any CME-related firm.

I wonder if Sullivan argued in his defense, "Hey, selling what we don't own is what we do here in the futures markets!"

CHAMBER MUSIC: Thomas Donohue, president of the U.S. Chamber of Commerce, has an article in its current magazine decrying unions for a political agenda that's sending American jobs overseas. On the cover of the magazine is a story headlined, "Fast lane to China?"

Yes, those cursed unions are forcing us, forcing us I tell you, to send jobs to the ever-fashionable low-wage haven. What's next, Uganda? But if American labor leaders would just agree to factory wages of 50 cents an hour and go easy on the OSHA complaints, maybe our companies can stay true to the homeland. CEOs show their patriotism with lapel pins, so asking more than that is just unreasonable!

CLOSING QUOTE: "If the governors of the Fed have good reason to believe that the economic expansion 'will likely slow,' their mandate is to get out in front of the slowdown by lowering interest rates aggressively. If their analysis convinces them that the expansion remains solid, their mandate is to restrain credit conditions by keeping interest rates stable or even increasing them. Instead, 'the [c]ommittee will continue to assess the effects of financial and other developments on economic prospects.' Just like everyone else." -- David Oser, senior vice president of ShoreBank, quoting from the Fed's comments on Wednesday

(Source: BY DAVID ROEDER Sun-Times Columnist) - http://www.suntimes.com/business/roeder/634182,CST-FIN-curious04.article