Oil Continues to Fall- Thursday, Jan 18, 2007

By John Lee
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U.S. 10-year bonds closed higher today, bouncing back after yesterday's slide. Bond prices have been pushing lower since early December, on a string of positive economic reports from the U.S. Bond prices fall on strength and growth, and rise on weakness. Bonds initially shot higher last June, when the Fed initiated a rate-pause on overall economic weakness and slowing growth. The momentum seemed to shift in early December, when the U.S. posted positive housing and confidence numbers, a contrast to the bleak outlooks from the second half of 2006. The housing market remains a major concern for investors and speculators, and will be closely watched as a broad economic indicator for the health of the U.S. economy.

The yen fell to nearly 4-year lows against the dollar, and pushed closer to its record lows against the euro today. The BoJ today held its benchmark rate at 0.25% today, ushering in a wave of yen selling against the dollar and euro. The yen has been under fire lately, as Japan continues to be unable to produce any consistent positive reports of growth and inflation. The international currency market favors currencies backed by hot, inflationary growth. Europe has had no trouble in producing these types of numbers, propelling the euro to recent record highs against both the dollar and the yen. The dollar moved dramatically higher against the euro off of near-lows at the beginning of the year, but appears to be consolidating at the moment.

Crude oil closed down 3.3% at $50.50 today, after an Energy Department report showed that crude oil supplies grew last week. Crude oil is now down 36% from record highs from over the summer, and OPEC has been calling for more and more output reductions to keep prices up. Despite a current withholding of nearly 2 million barrels a day, warm weather and ample supplies continue to drive the price of crude lower. Natural gas rose 1.5%, as forecasts call for cold weather to continue throughout the month. Weather plays a crucial role in most energy prices, but especially natural gas, which is used to heat homes.

Gold prices fell nearly 1%, as investors sold the metal with falling oil prices. Gold usually trades inversely to the dollar and with oil, and it was oil action that dominated today's gold trading. Traders turn to gold as a hedge against rising oil prices, and with oil falling steadily, gold is losing its luster. Recent strength in the dollar has also helped to send gold lower. Copper prices fell 3%, as large supplies continue to dampen any worries.

Grain prices traded mixed today. Corn rose fractionally, pushing towards 10-year highs. Soybeans fell nearly 1%, and wheat fell just over 1%.

Economic News
U.S. consumer prices rose 0.5% last month.

Housing starts unexpectedly rose in December.