Ralph Shell @ 2:03 PM, Friday March 19 2010
Currency markets, this week, have been enamored with the Greek deficit problem and the Euro Zone's muddled response to the plight of one of their members, and to a lessor extent the short squeeze of over committed specs in the British pound. The timid response to the Greeks, by the euro bankers cannot be very reassuring to other countries with latent sovereign debt issues like Spain and Portugal. Unless a concrete plan is offered for this problem the euro looks like it is going to weaken versus the USD. The pound, like the euro, also looks like it is headed lower once the short squeeze has past.
These currencies have upstaged the C$ which has been methodically lumbering toward parity with the USD. Granted the late week price action, despite positive Canadian retail sales numbers, and 0.7% increase in the CPI, might be discouraging to the bulls. The open interest in the C$ futures has ballooned, only 32,000 contracts less than the euro, and larger than all other currencies. So many longs betting on the new parity with the USD, makes me queasy. The majority is usually never been right for very long.
Increased oil production has been one of the reason for the strength in the Canadian economy and the C$. Total production is now in the vicinity of 3M/barrels per day and growing. A Bloomberg article this morning reported about Royal Dutch Shell's success:
"Royal Dutch Shell Plc, which plans to produce oil from Canada’s tar sands for 40 years, earned 67 percent more from operations in Alberta than from projects elsewhere between 2005 and 2009.
The company earned $20 a barrel from oil-sand mining on average, more than the $12 a barrel it gained from extraction projects excluding tar sands, The Hague-based Shell said a report posted this week on its Web site. Oil sands contributed $3.1 billion to Shell’s earnings in the period."
The Canadian government encouragement of development of the Athabasca oil sands has been immensely successful. It is estimated that the supply of bitumen, the heavy crude oil substance from which the oil is extracted, is enough for 1.7 trillion barrels of oil. This is about equal to the known supply of global oil reserves. Contrast the Canadian policies to that in the US. Shell Oil spent millions of dollars, perfecting the process for extracting oil from the shale in the US. Most of this shale is on Federal land, sparsely populated in remote portions of Western Colorado, Utah and Wyoming. When Shell was about to commence commercial extraction of the oil from shale, US Secretary of the Interior and former Democrat Senator from Colorado, Ken Salazar declared the Federal oil shale was off limits for further development.
Off shore development in the US is severely curtailed by the current administration. Off the cost of Cuba, near our waters, both Russia and China are now drilling for oil, and the New Zealand government recently spent 20 million USD for a seismic-acquisition program according to Merlin Flower in OIL-PRICE.net. This information will be shared with holders of the nine permits that have been issued to explore. The exploration companies include most of the big major oil companies plus some regional companies. OIL-PRICE.net reported that :
"In the sixties, many companies had tried to find oil in
New
Zealand. But by the eighties, most of them had to retire from the
scene without finding any oil. Now with the advancement in technology, companies hope to change their
record. Why not? Analysts are of the view that New Zealand is at the
same stage that Norway was in the Pre-North sea era. Further, some say
that the oil could be more than Britain's North Sea boom. Yes, the
country's oil sector is at crossroads."
The US energy policy currently features solar panels and wind turbines, hardly appropriate energy to propel cars, trucks and air planes. Currently the kiwi is trading at about .71 to the USD. Their government's energy policy, exploration for oil, can have huge upside if they are successful. Should they find sufficient oil to become exporters does this mean the the kiwi is destined to go to parity with the USD? There is no need to jump in and buy now, but longer term, you never know.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.