Crude Oil: China acts while US talks

Gold prices managed a second June foray on the $900 level and on resistance at and above $905 as participants bought the metal on continuing credit-related apprehensions and somewhat declining expectations of imminent rate hikes by the Fed.

The highs for the session came during mid-morning and gold touched nearly $909 per ounce, but the gains were later tempered as crude oil staged a nearly $4 decline following news that China will raise fuel prices significantly starting on Friday.

New York spot prices halved their earlier Thursday session advance and were last tracking an $8.00 gain at $902.00 per ounce and players were hoping that the metal would achieve another close above $900 - a level it has not maintained since June 6. Silver was up 11 cents at $17.44 while platinum reversed its Wednesday gains and headed $44 lower to $2039 but palladium gained $4 to $471 per ounce.

Yesterday's posturing by the Bush administration as well as by its chosen successor focused on big talk about offshore oil drilling and the building of 100 nuclear power plants, but offered very little in the way of any immediate relief from soaring prices at the gas pump. On the other hand China took concrete action against record energy prices by...raising them by 18% domestically.

The effort is intended to curb demand, and help the environment among other things. We are talking here about the second largest energy user and top polluter in the world. Therefore, anything the country decides to do with regard to energy use is quite significant. In fact, one may also conclude that this latest measure is also aimed at slowing the hitherto surging rate of economic growth and worrisome inflation. It may not be pretty, but it might beat the alternatives. The bottom line is, more and more anti-inflationary measures are popping up in various places around the world. This is one phenomenon that has grabbed widespread attention since most people recall its deleterious effects.

When heavyweights from the world of oil get together in Riyadh for a special meeting this weekend they are sure to have some nice strong coffee ready to help them focus on what they can do to address the current situation. China acts. The US (for now) talks. Can you imagine if the US jumped ahead of the curve and asked motorists to pay from $6 to $8 per gallon of gas or diesel?

That would surely speed up the demand destruction that could ultimately lead to an adjustment in the price of oil. Not to mention the acceleration of the quest for alternative sources of energy. In the interim, Iran's sudden willingness to suspend uranium enrichment while negotiations take place with the West regarding the long-standing impasse on the matter also helped ease crude oil values a bit today.

Otherwise, most participants are basically mentally fast-forwarding to Wednesday of next week trying to gauge what the Fed will come up with.

Thus far today, the jobless figures' indications of lower levels for both initial as well as continuing claims is not having a marked effect on trading as players are instead striking up water cooler talk about the FBI arrests of two former Bear Stearns fund managers over their alleged role in lighting the fuse of the subprime bomb.