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Thursday, August 17, 2006

News From the Energy Patch

By William Trent, CFA of Stock Market Beat

Two years after Hurricane Ivan, and nearly a year after both Rita and Katrina tore through the Gulf of Mexico, energy production in the region still has some big problems.

Meanwhile, the weekly oil supply and inventory data continues to confound. Days of inventory are hovering around 50, scraping along the top of the long-term downtrend line that has been in place since 1990.

A sustained breakout above this line could signal that supply indeed exceeds demand, and that lower prices could finally be realized. On the other hand, inability to break above this line would confirm our theory that prices have far higher to head.

Barry Ritholtz pointed out earlier this week that the benign core PPI data was largely driven by lower prices on SUVs as the high oil prices have slashed demand. Of course, the “core” numbers exclude the rising oil prices but include the severe hurting the auto makers are getting as a result. Seems neither a fair nor accurate way of looking at the economy.

PPI for automobile and light duty motor vehicle manufacturing (Source: Bureau of Labor Statistics)

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