COMMODITIES

With world economic growth robust, natural resources will remain in strong demand, yet commodity stocks have weakened considerably from their January highs. This is all part of the seasonal correction I’ve cautioned against. Investors wanting to rebalance their portfolio will find the current weakness a welcome opportunity. Traders looking to load up on commodity stocks with an eye on the next rebound will find some great breaks too, but should be very disciplined. The spring correction in natural resource stocks typically lasts into mid-May and can be quite choppy.

US ENERGY SECURITY

“Can Venezuela afford to cut off US oil?” asks a US reader. Unfortunately, with dictatorships the word “afford” is not necessarily a consideration. I’m sure somewhat lower state revenues wouldn’t keep Hugo Chavez from making good on his threat. But unfortunately for Chavez, an oil embargo of the US would not only dent his finances, but would destroy him. Let me explain. Venezuela, after Canada, Mexico and Saudi Arabia, is the fourth largest oil exporter to the United States. But Venezuela’s oil is so heavy and sour that only few refineries can process it. Nearly twenty years ago Venezuela’s state oil company, PDVSA, bought America’s Citgo refinery to do just that. Also equipped to deal with Venezuela’s crude oil is Hovensa, an asset jointly owned between PDVSA and Amerada Hess. Hovensa’s state-of-the-art refinery is located in the US Virgin Islands. In short: Hugo Chavez’s rhetoric is no more than annoying noise. He could withhold exports to the US, but where else would he sell his oil?

IRAN

What if Iranian oil were cut off? That, in my opinion, is a far bigger problem than Venezuela.. Even though the US does not import any Iranian oil, it nevertheless represents a large share of world consumption. Worse, Iran is second only after Saudi Arabia in terms of being able to generate added production capacity. Finally, Tehran can make a lot of trouble for tanker traffic, much of which has to pass the largely Iranian controlled Gulf of Hormuz. While Venezuela’s Hugo Chavez can easily be dismissed as a paper tiger, Iran’s Mouhmad Ahmadinejad can do a lot of damage.


Peter Cavelti’s background as a financial analyst and author spans 35 years and four continents. His grasp of global issues is extraordinary and his comments and books have been published internationally. He was president of Canada’s Guardian Trust and subsequently owned his own firm, which managed some of the best-performing natural resource mutual funds. Peter firmly believes that only an integrated understanding of geopolitical, demographic and economic events can lead to successful investing, and that is what his web service Perspectives is about. If you feel keeping on top of relevant global events takes too much time, Perspectives is for you. Whether it’s investment advice or political analysis, Peter offers his insights in concise and easy-to-read form. Best of all, Perspectives is free. Visit www.cavelti.com and sign up today!