Correction Gives Resource and Energy Investors Chance to ‘Fill up’

- Monday was another diabolical day for those that were long on the market with the All Ordinaries slipping by 1.4%.  Of course, for those that have been short or who have a bit of spare cash up their sleeve, it could represent another half decent opportunity to fill up the portfolio.

- Rio Tinto (ASX:RIO) and BHP Billiton (ASX:BHP) both dropped by 1% as global markets turned decidedly bearish on base metals sector.  Woodside Petroleum (ASX:WPL) managed to creep up a few cents by closing up by just under 1%, although as the oil price fell further overnight we could see some softness in oil stocks today.

- Milder weather in the North American region has been credited with the fall.  "If you were walking around anywhere in the Northeast [USA] this weekend, people were in shorts -- it was like a summer day. Obviously, that's been the story: the winter that was not," Tom Bentz, analyst at BNP Paribas Commodity Futures in New York told the Associated Press. "There are some reports of a little colder weather in the forecast, but I don't think that's much of an issue. We've gone this far without anything, so there are no worries about supply."

- The oil price weakness is happening prior to suspicions that OPEC will could cut production next months, AP reported, “If OPEC announced another production cut -- on top of the 1.2 million barrel-a-day reduction that began in November, and the 500,000 barrel-a-day cut set to begin Feb. 1 -- prices would likely rise. Still, OPEC's previous cuts haven't been able to keep crude prices above $60 a barrel for long, largely because many traders doubt that the cuts are fully enforced.”

- And don’t forget the political issues in Europe involving Russia and the former Soviet state of Belarus.  According to AFP, the spat has now also dragged in Germany and Poland.  The Germans are certainly not the close buddies with Russia that they were when Gerhard Schroder was Chancellor.  And Poland could hardly be described as ‘close’ either.

- It isn’t the first time during the last couple of years that the Russians have attempted strong-arm tactics.  So despite the milder weather in the US there is still a relatively high level of global political risk, coupled with OPEC’s likely cutting of production that should keep oil above USD$50 in the medium term.

- In addition there is still plenty of demand for Australia’s resources as evidenced by the expected narrowing of the trade deficit.  A survey conducted by Bloomberg News forecasts that the deficit will fall further for November following on from a fall in October.

- “We should see improvement in the trade balance as commodity exports take off after the investment boom we've had,” Tom Kenny, chief economist at Nomura Australia Ltd told Bloomberg.  “Globally, growth is still looking quite good, particularly emerging markets like China and India. Japan is also looking positive for Australian exporters.”

- This should follow hot on the heels of the surge in job advertisement numbers of over 12% as recorded by the ANZ Bank last week, and the higher than expected building approval numbers released by the Australian Bureau of Statistics.

- Therefore, even if commodity prices do fall back further from their peak levels, there still seems to be plenty of demand for them which is being reflected in the strong export figures.

- BHP has now fallen back by around 40% from its all time highs, can this be considered as overdone in view of the continued strength in demand?  We think so, and look forward to BHP’s next earnings results.

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