Effectively, the CME is lowering the cost to trade crude oil, gold, silver, copper, and a few other commodities. So far this has had no impact on prices of the SPDR Gold Trust (NYSE: GLD), United States Oil Fund (NYSE: USO), iShares Silver Trust (NYSE: SLV), nor in the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC).

In the past, margin costs were raised on traders as an effort to curb runaway trading to the upside by making it more expensive for traders and speculators to trade energy and metals.  In short, driving up the cost of poker creates fewer gamblers. So what happens when they make it cheaper to trade?

The full details are here.

JON C. OGG

Gasoline inventories fell by 3.324 million barrels to 206.271 million barrels, worse than the drop of 1.7 million expected by Dow JOnes.  Distillates fell by 4.266 million barrels to 149.739 million barrels, also worse than the 1.7 million draw expected by Dow Jones.

The other issue to consider is a lower refining capacity.  Refineries in the last week were shown to be at 83.1%.  While some slowing is routine, this is down from 84.2% a week earlier and worse than the 83.8% expected by Dow Jones.

Valero Energy Corporation (NYSE: VLO), the king of independent refineries, is now up 1.3% at $23.70 and is challenging 5-day highs.  Oil Services HOLDRs (NYSE: OIH) is up 0.7% at $121.95, also challenging 5-day highs.

The United States Oil (NYSE: USO) Fund is up 0.9% at $34.47, above yesterday’s high of $34.45 and back at the highest levels since September 16.  WTI is up $0.80 at $89.14 on last look.

JON C. OGG

Oil got another boost over the holiday weekend from a forecast in Barron’s predicting $150/barrel by the end of the second calendar quarter of 2012.  Growth of demand from developing markets, combined with a tight supply are the main drivers of the steep predicted rise.  Despite the notion that the “bulls may have been too bullish” we have looked through our list of mutual funds and exchange-traded funds which we think will benefit the most from the upside in oil.  Other leveraged funds exist, but we stuck with the volume and safety parameters in mind.

A price increase of this magnitude suggests that mutual funds and ETFs that hold substantial assets in exploration & production or oil field services stocks could be positioned for more growth. For comparison purposes, we’ve selected the Oil Services HOLDRS ETF (AMEX: OIH) and the ProShares Ultra Oil & Gas ETF (NYSE: DIG). We’ve looked at several funds and ETFs: PowerShares S&P SmallCap Energy ETF (NASDAQ: PSCE), SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP), PowerShares Dynamic Oil & Gas Services ETF (NYSE: PXJ), Fidelity Select Natural Resources (FNARX), and Putnam Global Natural Resources (EBERX).

The Oil Services HOLDRS ETF (NYSE: OIH) holds about $2.9 billion in assets. Year-to-date, the fund has returned 9.13% and its trailing three-month performance is -6.96%. OIH holds just 14 stocks, all of which are primarily oil field services companies.

The ProShares Ultra Oil & Gas ETF (NYSE: DIG) holds about $342 million in assets, and its year-to-date return is 22.70%, while its trailing three-month performance is -9.87%. DIG is a leveraged ETF that seeks to return 200% of the performance of the Dow Jones U.S. Oil & Gas Index.

The PowerShares S&P SmallCap Energy ETF (NASDAQ: PSCE) holds $107 million in assets. Year-to-date returns total 17.50%, while the  trailing three-month return is -6.25%. The fund holds just 20 stocks, with a mix of E&P and services companies. Its year-to-date return is nearest to that of DIG, and its three-month performance is about 50% better.

The SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP) holds about $603 million in total assets, and posts a year-to-date return of 13.72%. It’s trailing three-month return is -7.8%. Year-to-date this fund is performing about 50% better than OIH.

The PowerShares Dynamic Oil & Gas Services ETF (NYSE: PXJ) holds $245 million in total assets and has a year-to-date return of 13.51%. The trailing three- month return is -6.31%. The fund’s largest holding is Halliburton. Compared with OIH, the year-to-date return is about 48% higher.

The Fidelity Select Natural Resources (FNARX) fund holds total assets of $1.8 billion. The fund’s year-to-date return is 8.72% and its trailing three-month return is -6.04%. Chevron Corp. is the fund’s largest holding, while Halliburton is its largest services holding. Compared with DIG’s year-to-date return, the fund is performing less than half as well.

The Putnam Global Natural Resources (EBERX) fund holds total assets of $471 million. The fund’s year-to-date-return is 8.14%, and its trailing three-month return is -1.93%. It’s single largest holding is Exxon Mobil Corp., while Schlumberger Ltd. is its largest services holding. This fund also trails the returns of DIG by more than half, although its three-month performance is substantially better.

You will probably notice that the United States Oil (NYSE: USO) exchange-traded product is not on this screen despite it being the closest oil-tracking ETF for the price of oil.  The rolling nature of front-month futures expiring and the lack of overnight tracking all eliminate this from even being a top tracking mechanism in general.

Oil field services stocks, as a group, have performed better than E&P stocks primarily because natural gas drilling has increased onshore in the US, and more offshore drilling is getting lined up offshore of Africa. These stocks will get another boost when (if) work begins in earnest in Iraq.

E&P stocks benefit from higher crude prices, but only up to a point. When gasoline pump prices get to be in the $4-$5 range in the US, consumption decreases. When crude prices get threaten to hit $125/barrel, consumption in emerging nations can stall.

That doesn’t change the fact that currently supply dominates pricing. And that is unlikely to change — at least for a very long time.

Paul Ausick

Silver had been down as much as almost nine percent this morning but the ETF shares of iShares Silver Trust (NYSE: SLV) are down about 4.6% at $32.80 on almost 2.5 million pre-market shares.  Keep in mind that the silver ETF was just above $48 only two weeks ago today. Gold was down more than 1% earlier and the SPDR Gold Shares (NYSE: GLD) is down 0.85% at $145.29 this morning.

WTI Crude was down $2.33 at $95.88 earlier and the United States Oil (NYSE: USO) is down 2.9% at $38.20 this morning.

It was just two weeks ago that the market pundits were calling gold, silver, and hard commodities to be the new currency of the world ahead.  Milton Friedman once said paper money is worth whatever people think its is worth when it came time to get off the gold standard.  Suddenly, paper money is back in vogue.  Maybe the U.S. Dollar is not worth what it was, but it hasn’t ever seen a 30% drop in two weeks like we have seen in silver. 

JON C. OGG

This rumor comes on the one-year anniversary of the Flash Crash and it was on the day of the Flash Crash that U.S. investors were seeing the Greek citizens rioting in the streets. The rumor, despite the refuting of the rumor, has taken a bite out of the Euro and boosted the dollar.  That in turn has hurt commodity prices. Here is the raw currency impact, with the big change being the Euro:

• EUR/USD 1.4334 (-0.0208)
• USD/JPY 80.4950 (+0.1700)
• GBP/USD 1.6362 (-0.0032)

The biggest move of all has been in the ADRs of National Bank of Greece SA (NYSE: NBG), where shares are now down 5.4% at $1.40 on the day and volume is almost 200% higher than normal with nearly 13 million shares traded.

PowerShares DB US Dollar Index Bullish (NYSE: UUP) has risen now as the dollar strengthened against the Euro. This ETF is now up 0.95% at $21.47 and trading volume is above average at nearly 9 million shares.

Oil fell after having been trying to bounce all day.  The awful oil-tracking ETF of United States Oil (NYSE: USO) is now down 1.5% at $38.71 and shares had been up at $40.65 earlier today.

iShares Silver Trust (NYSE: SLV) is still up 1% at $34.05 today, so maybe it is not all a waste of a dollar day.  Still, shares hit $35.50 earlier today, and that is down from $48+ just last week.  SPDR Gold Shares (NYSE: GLD) is still up 1.2% at $145.14 on the day and that had been almost $1.00 higher earlier in the day.

Here is some parting food for thought.  Think of the Eurozone without a nation like Greece.  It might actually be good, assuming it doesn’t set the stage for nations like Spain, Portugal, and Ireland to all jettison the currency experiment as well.

Since joining the Eurozone, Greek no longer has the option of devaluing its currency by printing new Drachmas to repay debt.  Its printing presses were taken away.

The Drachma is not back.  Not yet.

By the way, it is time to revisit some nice Friday humor… The New Greek Financial Terms

JON C. OGG

Stocks are higher but not with the fervor many might have hoped for with the DJIA only up 40 points and with the S&P 500 up about 3 points.  The move so far is having the following impact:

• Crude Oil is down $1.57 or 1.4% at $112.36 per barrel;
• Natural Gas is down $0.04 or almost down 0.9% at $4.72;
• Gold was down about $1.00 around $1,555.00 per ounce;
• Silver was where the biggest drop was with a $3.14 drop (-6.5%) at $45.46/oz.
• 10 Year T-Note 3.297% (up 0.03)
• 30-Year T-Bond 4.403% (effectively flat)

We are tracking the key exchange traded funds and exchange traded products on the news immediately after the open of the markets:

iShares Silver Trust (NYSE: SLV) down 6.6% at $43.82 and ETFS Physical Silver Shares (NYSE: SIVR) is down 9.2% at $43.50; SPDR Gold Shares (NYSE: GLD) is down 0.55% at $151.53. Silver had already been indicated down considerably before the Bin Laden news broke.

United States Oil (NYSE: USO) is down less than 0.4% at $44.99 and the nearly uncorrelated ETP for gas of the United States Natural Gas (NYSE: UNG) is down 0.1% at $12.05.

Whatever the currency impact was is slowing, at least as far as the PowerShares DB US Dollar Index Bullish (NYSE: UUP) is concerned, as it is now down 0.1% at $20.93.  The impact has also been muted in the anti-bond ETF of the ProShares UltraShort 20+ Year Treasury (NYSE: TBT).

Unfortunately there is only so much that one man’s death, even Osama Bin Laden, is worth.  The new fear is that this news will embolden many of the splint terror groups to increase their activities in the days, weeks, and months ahead.  This begs a question… Is the Bin Laden death what the Fed would call “transitory”?

JON C. OGG

With the exception of cocoa, which has gained about 1.5%, and wool, which has remained flat, most commodities has lost ground today. Corn prices are down to around $7.61/bushel, a loss of -2.5%. Wheat prices are down nearly -5%, to around $7.91 on the Chicago Board of Trade. Soybeans are down nearly -3%, to $13.42/bushel. The Teucrium Corn Fund (NYSE: CORN) is off about -3%, to $44.99, in its 52-week range of $23.79-$48.77.

Cotton has fallen nearly -3%, to $1.85/pound, and the iPath DJ-UBS Cotton Total Return Sub-Index ETN (NYSE: BAL) is off around -2.75%, to $102.75, in a 52-week range of $35.64-$117.33.

The Financial Times Alphaville blog cites the Goldman report as saying that the risk-reward is no longer there.  The report does say that while the basket “still has upside potential,” now that it has returned 25% against a 28% target since the position was opened in December this could be the right time to get out.

The continuing drought in the US southwest has more than 60% of the wheat fields in Texas and Oklahoma in poor to very poor condition. The lack of rainfall is forecast to last another three months in Texas and at least one month in Oklahoma.

Gold and silver prices have also fallen today, with gold at $1,454/ounce and silver at $40.12/ounce. The SPDR Gold Shares ETF (NYSE: GLD) is down about -1%, to $141.44, in a 52-week range of $110.54-$143.84, and the iShares Silver Trust (NYSE: SLV) is down about -0.5%, to $38.99, in a 52-week range of $16.73-$40.33.

The drop could be partly attributable to the falling price of crude, which indicates that fears of inflation could be easing. Oil prices have begun to have an impact on global economic growth and there are indications that oil consumption is falling in the wake of the high prices.

Goldman’s report on commodities also warns against holding long positions on oil: “Not only are there now nascent signs of oil demand destruction in the United States (see April 5 Energy Weekly), but also record speculative length in the oil market, elections in Nigeria and a potential cease-fire in Libya that [have] begun to offset some of the upside risk owing to contagion, leaving price risk more neutral at current levels.”

Big oil companies are also getting beaten down today, even though Chevron Corp. (NYSE: CVX) said its January and February results indicate an 11% gain in the price it gets per barrel of crude. Chevron shares are down nearly -3%, at $104.79, in a 52-week range of $66.83-$109.94. Shares of Exxon Mobil Corp. (NYSE: XOM) are also down about -2%, to $83.33, in a 52-week range of $55.94-$88.23. ConocoPhillips Corp. (NYSE: COP) have dropped about -3% today, to $77.70, in a 52-week range of $48.06-$81.80.

WTI crude oil has fallen below $106/barrel and Brent crude is below $121/barrel. The United States Oil Fund (NYSE: USO) is off nearly -3%, to $42.48, in a 52-week range of $30.93-$45.20.

Paul Ausick

Gold has set a record high today above $1,470/ounce and silver has burst through the $40/ounce level. Demand for gold is rising due to its safe-haven status, and much of the rise in silver prices is due to its perceived value as a long-term investment, if not a safe-haven. The SPDR Gold Shares ETF (NYSE: GLD) is currently posting a 52-week high of $143.69, up nearly 1% from yesterday’s close, and the iShares Silver Trust (NYSE: SLV) has also pegged a 52-week high currently of $39.48.

The weaker dollar lifts the price of all commodities because most are priced in dollars. WTI crude oil is headed toward $112/barrel and Brent crude is on its way to $125/barrel. The United States Oil ETF (NYSE: USO) is up more than 1% today, at $44.52 after setting a new 52-week high of $44.58, and is up about 13% since the beginning of the year.

Corn futures had been sliding slightly since closing at $7.59/bushel yesterday. The grain has turned north at about mid-day, though, currently trading at $7.65/bushel. The USDA today re-iterated its forecast that corn stockpiles in September will total 675 million bushels, less than half the total stockpile in September 2010. The lower price for corn futures early today were almost certainly due to the unchanged USDA forecast. Then reality set in, in the form of lower global stocks of corn and the weaker dollar. The Teucrium Corn Fund (NYSE: CORN) is up marginally today, to $45.66, near the top of its 52-week range of $23.79-$46.25. The Market Vectors Agribusiness ETF (NYSE: MOO) is also up about 0.2%, to $55.97, in a 52-week range of $35.56-$57.93.

A new report from Deutsche Bank notes that aluminum prices could rise to $3,200/metric ton later this year, a rise of about 23% from current prices. The bank believes that rising production costs, particularly the cost of energy, will raise producers’ costs, and those costs will be passed along to customers. Alcoa, Inc. (NYSE: AA) reports first quarter results on Monday, and is expected to post EPS of $0.27 on revenue of $6.14 billion. Alcoa’s shares are up about 14% since January 1st, and analysts expect a solid report based on the company’s pricing power.

The iPath DJ-UBS Aluminum Total Return Sub-Index ETN (NYSE: JJU) set a new 52-week high today of $35.84, currently up about 0.6%. Other aluminum producers include Century Aluminum Co. (NASDAQ: CENX), Alumina Ltd. (NYSE: AWC), Kaiser Aluminum Corp. (NASDAQ: KALU), Noranda Aluminum Holding Corp. (NYSE: NOR), and Aluminum Corp. of China Ltd. (NYSE: ACH). All except Kaiser have posted share price gains of more than 5% since the beginning of the year, with Century leading the pack with a gain of about 30%. For the past 52 weeks, all remain at or near 52-week highs.

Paul Ausick

The effects of higher cotton prices are lurking in the background and could appear in the second half of the year. Retailers, for the most part, have not yet passed along higher cotton prices to customers, and analysts are expecting to see a 15% to 20% rise in clothing prices sometime this summer.

Cotton prices have risen more than 40% since the beginning of the year, and there does not appear to be a slackening of demand. The iPath DJ-UBS Cotton Total Return Sub-Index ETN (NYSE: BAL) is trading at about $110/share today, up about 0.5% within its 52-week range of $35.64-$117.33.

We don’t want to spend too much dwelling on the consistent rise in oil, but we have to address it.  Crude oil futures on NYMEX are playing catch-up to Brent and we saw a $110 per barrel hit today.  This marks a high not seen since 2008 when oil was on the decline after the energy bubble popped.  Without surprise, the United States Oil (NYSE: USO) exchange traded product hit a 52-week high as well.  Shares were up over 1.5% at $44.07 at the peak so far today.  For the sad part, Gasbuddy.com has the regular gasoline average up at $3.72 today and that is the average seen since September 2008.

US Congressman Mike Coffman (R-CO) has introduced legislation that would create a US stockpile of the rare earth minerals crucial to many advanced military weapons systems. The stockpile, which Coffman calls an “inventory,” would be amassed by a new federal agency that would create a domestic US market for rare earth minerals and make it easier for domestic sourcing of the minerals.

It’s not exactly clear how this “inventory” would be managed. According to the Congressman, the new agency would establish long-term supply contracts and then sell the supplies to federal contractors. What is clear, however, is that building a federal stockpile, or inventory, would increase demand for the rare earths. Likewise, of course, absence of a stockpile introduces uncertainty about supply and could drive up prices on prospects of a shortage of supply.

Shares of rare earths miner Molycorp Inc. (NYSE: MCP) are up nearly 7% today, to $66.35, with the 52-week range of $12.10-$67.77. Molycorp is based in Coffman’s home-state of Colorado. Shares of Rare Elements Resources Ltd. (AMEX: REE) are up more than 12%, to $14.74, within a 52-week range of $1.15-$17.92, and shares of Miner Avalon Rare Metals, Inc. (AMEX: AVL) are up more than 5%, to $9.15, in a 52-week range of $1.09-$9.50. The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is up more than 1.6%, to post a new high of $27.55.

According to the World Silver Survey 2011 issued today by research firm GFMS Ltd., large increases in investment and industrial fabrication drove silver demand in 2010, and expects basically the same performance in 2011. Metals website Kitco.com notes that GFMS is wary of the current gold/silver ratio. We noted the almost historically low gold/silver ratio of around 37 earlier this week with detailed graphs, far below the more usual range of 50-70.

Both gold and silver are trading nearly flat today. The iShares Silver Trust (NYSE: SLV) is up a fraction, to $38.63, within a hair of the top of its 52-week range of $16.63-$38.82. The SPDR Gold Trust (NYSE: GLD) is down about -0.25%, to $142.15, after setting a new 52-week high this morning at $142.89.

Paul Ausick

Rising corn prices, now above $7.66/bushel, is almost certain to drive cattle prices higher because ranchers are not increasing their herd sizes as they normally would with rising cattle prices because corn prices are rising faster. The PowerShares DB Agriculture ETF (NYSE: DBA) and the Market Vectors Agribusiness ETF (NYSE: MOO) are both trading essentially flat so far today.

Other ag-related stocks are also showing little movement today. Tyson Foods Inc. (NYSE: TSN), Smithfield Foods Inc. (NYSE: SFD), and Hormel Foods Corp. (NYSE: HRL) are trading essentially flat. Farm equipment makers Deere & Co. (NYSE: DE), CNH Global N.V. (NYSE: CNH), and AGCO Corp. (NYSE: AGCO) are all trading down about -1%. Fertilizer maker Mosaic Co. (NYSE: MOS) reported earnings today, and missed revenue expectations. However, the company sold 2.4 million tons of its phosphate fertilizers at $543/ton, way above last year’s sales price of $336/ton. The company also guided phosphate sales between 2.5 and 2.9 million tons for its fourth fiscal quarter ending in May.

Cocoa prices continue their slide as United Nations and French troops supporting the elected president of Ivory Coast, Alassane Ouattara, are negotiating with forces of the outgoing president, Laurent Gbagbo, who refused to relinquish power. Cocoa futures have fallen from a high of $3,775/ton early this month to $2,982, and the drop is expected to continue as hundreds of thousands of tons of cocoa in Ivory Cost warehouses are released into the market.

Chocolate makers Hershey Co. (NYSE: HSY) shares are up more than 1% today. The world’s largest maker of bulk chocolate, Swiss-based Barry Callebaut AG, said earlier that it would be able to meet its contractual obligations to Hershey, Nestle SA, and Kraft Foods Inc. (NYSE: KFT) without relying on Ivory Coast supplies.

Gold and silver are also continuing to set record highs. Gold is trading above $1,450/ounce, and silver has risen to more than $39/ounce. The SPDR Gold Shares ETF (NYSE: GLD) is up more than 1% today, and the iShares Silver Trust (NYSE: SLV) is up more than 1.5%. Gold miners are faring better, with the Market Vectors Gold Miners ETF (NYSE: GDX) up about 3.5% and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) up about 3.75%. The Global X Silver Miners ETF (NYSE: SIL) is up about 3% as well.

West Texas Intermediate crude is off slightly, to below $108/barrel, while Brent crude is up to more than $122/barrel. The WTI price could fall further as the United States Oil ETF (NYSE: USO) begins to rollover its contracts tomorrow. WTI is priced at delivery at the storage facility in Cushing, Oklahoma, which is absolutely full to the top. Because the USO rolls its contracts forward every month, more oil that could presumably flow into the tanks at Cushing have to go somewhere else. Either refiners have to take the barrels or the barrels have to be exported. In either event, WTI prices are almost certain to fall. The question, of course, is by how much.

Paul Ausick