Oil fell $2.24 to $107.11 per barrel Thursday at mid-day despite the fact the U.S. Energy Information Administration announced that weekly crude oil inventories unexpectedly fell by 1.9 million barrels.

Economists surveyed by Bloomberg News had expected crude oil inventories to increase by 450,000 barrels last week.

Gasoline supplies fell by 400,000 barrels to 194.4 million barrels. Meanwhile, refinery capacity rose to 88.7%, compared to 87.3% a week earlier, and 85.7% two weeks ago.

'It's all about slowing global growth'

Energy Trader Jim Dietz said the fact that oil fell despite the unexpected decline in weekly oil inventories underscores "a really troubling oil demand picture."

"Right now, it's all about slowing global growth. The oil market is definitely in sell mode now. The market senses global oil consumption growth will slow in Asia and when you add that to lower oil consumption in the U.S., we could see building inventories, which means oil is headed lower," Dietz said. "We still have to watch [Hurricane] Ike in the Atlantic because it may track toward the Gulf of Mexico but right now lower demand dominates [the market]."

Dietz added that he was currently short unleaded gasoline and oil, with monthly contracts.

The reduction in global economic growth and growth expectations is leading to one benefit: a sharp decline in commodity prices, creating hope inflation may be peaking in many parts of the world, The Wall Street Journal reported Monday (subscription required).

Rice and palm oil, two commodities critical for the developing world, are both down about 40% since May, while the world's most vital commodity, crude oil, is down abut 23%, The Journal reported.

An end to surging commodity prices?

Economist Glen Langan told BloggingStocks Monday that while the commodity price-lower trend is still young, continued commodity price declines would be a welcomed sight, provided they don't drop too much.

"The pullback is welcome because many commodities had reached prohibitive levels, hindering commerce and really hurting the modest budgets of the poor/working poor in developing countries," Langan said. "However, too much of a price slide in commodities would be a sign of a pronounced global economic slowdown, which is something we don't want."

Further, Langan said that while regulators in various nations probe 'speculator' activity and alleged price manipulation in commodity markets, he argues that many of the price rises are consistent with historical price booms in other asset classes / sectors.

Some market signals are well-known and easily understood. Others are arcane and more-complex, but just as telling.

There's mounting evidence that the "carry trade" is ending, or that at least institutional investors are decreasing their use of it as an investment tactic.

In a carry trade, investors, especially institutional investors, borrow funds in a country with a low interest rate (or borrowing cost) and buy assets in a country where returns are higher. The investment can take many forms, including stocks, bonds, funds, or even the higher-interest currency itself.

Carry trade: A growth confidence indicator

Now, investors/readers may legitimately ask, Why is it important to know what's happening to the carry trade?

Economist Peter Dawson told BloggingStocks that it's important to monitor carry trade flows and data because it's one indicator of investor confidence in a market's ability to produce a return on equity, and by extension, in its economy to grow.

In other words, the carry trade abounds when investors are confident; it wanes when they're not, he said.

OPEC again lowered its forecast for 2008 global oil demand growth, adding that the economic slowdown affecting the United States and other industrialized nations is likely to lower demand growth in 2009 as well, the group announced (pdf).

OPEC lowered its 2008 forecast to 1.20% global oil demand growth, down from 1.28%. It was OPEC's fourth downward revision for oil demand this year. The new price structure and slower global economy "have helped dampen oil demand growth in many regions," the cartel said in its July report.

OPEC, which accounts for about 40% of the global oil supply, now expects 2008 demand to rise by 1.03 million barrels per day, or 70,000 barrels per day less than the group's previous forecast.

On Tuesday, oil plunged $6.44 to $138.74 per barrel -- its biggest decline, in percentage terms, since March 2008 -- following Tuesday morning testimony by U.S. Federal Reserve Chairman Ben Bernanke, during which the Fed chair said credit market write-downs were likely to slow the already anemic U.S. economy even more, Bloomberg News reported Tuesday. Economist Glen Langan told BloggingStocks OPEC's revised forecast is likely to represent another data point the oil bears will like.

Oil price key: Emerging markets

The World Bank cut its 2008 global growth forecast to 2.7%, citing rising food and oil prices, the bank announced Tuesday.

In January 2008, the bank predicted that global growth would total 3.3% for the year. The global economy grew 3.7% in 2007. Further, the bank now sees 2008 emerging market GDP growth totaling 6.5%, down from its earlier 7.8% forecast.

The bank called high energy and food prices "a major worry" and added that they "are the dominant force behind increased inflation across developing countries."

Also, the World Bank expects the U.S. economy to grow 1.1% in 2008, a downward revision from the bank's earlier 1.9% forecast. Meanwhile, the bank expects Europe's 15-nation euro zone to grow 1.7%, down from the earlier estimate of 2.8%. Japan's economy is expected to grow 1.4%, down from the earlier estimate of 2%.

Further, the World Bank also sees a considerable slowdown in China's economy in 2008, but GDP growth is still expected to remain very strong. The bank now sees China's GDP increasing 9.4%, down from the earlier 11.9% estimate.

The Organization for Economic Cooperation and Development again cut its forecast for 2008 growth in its 30-nation membership -- this time to 1.8% from "less than 2%" -- saying that while the worst of the credit market stress is over, its impact on the global economy is not. [pdf] The OECD now sees 2009 GDP growth in the 30-nation region totaling 1.7%

Both yearly forecasts were weighed down by a lower GDP growth forecast for the U.S. economy, with the OECD now seeing the world's largest economy growing by a scant 1.2% in 2008 and 1.1% in 2009, down from earlier forecasts of 2.3% and 2.4%, respectively. The United States economy is now confronting strong headwinds -- a housing slump, a credit squeeze and inflation, the latter of which is eroding workers' disposable income, the OECD said.

The OECD expects Europe's euro-zone region to grow 1.7% in 2008 and 1.4% in 2009. Japan's economy is expected to grow 1.7% and 1.5% during the same periods.

Emerging market boom seen continuing

Meanwhile, growth in most emerging market nations is expected to remain strong, led by China, India and what appears to be a new economic rising star, Brazil.

An International Monetary Fund steering committee is urging global leaders to cooperate to deal with the current financial crisis, which the IMF concludes is global in scope.

In its communiqué following its spring meeting, the IMF said it was meeting at a time of "unusual uncertainty regarding global economic and financial market prospects." The IMF added that the challenges facing the world economy are of a global nature, requiring strong action and close cooperation among the membership.

Cites financial instability, credit crunch

The IMF said global financial instability has increased since its last meeting. Further, global economic growth has slowed and growth prospects for 2008 and 2009 have deteriorated, adding that risks to the outlook come from the still unfolding events in financial markets and from the potential worsening of the housing and credit cycles. (Earlier this year the IMF cut its 2008 global GDP growth forecast to 3.7% from 4.2%)

Meanwhile, for developed economies, the IMF said monetary policy should continue to aim at medium-term price stability, while responding flexibly to signs of a more pronounced and prolonged economic downturn. The IMF also endorsed fiscal stimulus, at least temporarily, as an appropriate engine of growth and as a stimulus tool, saying fiscal policy can also play a useful, counter-cyclical role. In the United States, "temporary fiscal easing will help to counter downside risks to growth," the IMF said.

The Bank of England cut its key, short-term interest by a quarter-point to 5% Thursday, according to a new release.

It was the BOE's third interest rate cut since December 2007, as the central bank attempts to counteract the impact of tighter credit and the nation's worst housing slump in more than 10 years.

The BOE said credit conditions have tightened and the availability of credit appears to be getting worse. Further, while the recent depreciation in sterling will support net exports, the bank said, the prospects for output growth abroad have deteriorated, while domestic growth has started to moderate, necessitating the additional rate cut.

Concerning inflation, the BOE said inflation rose at a 2.5% annualized rate in February 2008, above the 2% target rate. However, the bank said whether inflation will remain above or below the bank's 2% target for 2008 will depend on financial market conditions, spare capacity in the U.K. economy, and the direction of commodity prices, among other factors.

For the second time in four months, the International Monetary Fund has cut its 2008 global growth forecast, citing the worst financial crisis in the United States since the Great Depression of the 1930s.

IMF now expects the global economy to grow 3.7% in 2008, down from its earlier forecast of 4.1% growth, Bloomberg News reported, citing an IMF document it obtained at the meeting of Southeast Asian deputy finance ministers and central bankers in Vietnam. The IMF also said there's a 25% chance global growth will drop below 3% in 2008 and 2009.

In January 2008, the IMF lowered its forecast for global economic growth this year to 4.1%, the lowest since 2003, from 4.4% predicted in October 2007. At that time the IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories was hurting the rest of the economy.

Regional central bank cooperation regarding actions and facilities aimed at maintaining financial system liquidity, yes. Regional central bank cooperation regarding interest rates, stay tuned.

The European Central Bank maintained its restrictive monetary policy stance regarding interest rates Wednesday when President Jean-Claude Trichet underscored that the bank is no hurry to lower key, short-term interest rates, Reuters reported.

The euro moved higher versus the dollar Wednesday at mid-day on the news, rising about one cent to $1.5744.

Trichet said price stability remained the ECB's number one concern and that the bank's current interest rate stance would help keep euro-zone inflation under control, Reuters reported. The ECB has kept its key refinance rate at 4.0% for nine months, while its transatlantic counterpart, the U.S. Federal Reserve, has lowered benchmark, short-term interest rates by 300 basis points since September 2007, in an effort to jump-start a U.S. economy stalled by the nation's worst housing slump in more than 20 years.

Further, Trichet turned aside notions that the ECB would soften its definition of price stability, the ceiling for which the bank places at "below but close to the 2% level." The euro-zone posted a 3.3% inflation rate in 2007, a rate Trichet has repeatedly said is too high.

Crude oil jumped $1.85 in early trading Monday morning to touch a record $107 per barrel as investors continued to pour funds into oil futures, Bloomberg News reported Monday.

Oil traded at the record price before pulling back slightly to $106.31 by midday Monday. Heating oil gained 1 cent to $2.96 per gallon, unleaded gasoline was unchanged at $2.69 per gallon.

With U.S. stocks expected to underperform historical averages due to sluggish U.S. economic growth, and with global oil demand still strong, investors are increasing positions in oil, calculating that the world's most vital commodity will outperform other asset classes in 2008. Oil is up about 75% during the past 12 months, and has traded above $90 per barrel for most of 2008.

Further, the weak and falling U.S. dollar is also boosting oil prices. Because oil is priced in dollars, if the dollar falls, oil producers will try to increase the price of the product to maintain their purchasing power. A lower dollar also implies higher U.S. inflation, prompting some investors to buy oil as an inflation hedge, further boosting the commodity's price.

Traders who favor technical analysis -- a highly specialized cadre in Wall Street's Concrete Canyon -- are quick to point out the mirror aspects to key price levels, in this case a psychological level, the $100 oil price.

The oil market's recent, consecutive closes above $100 per barrel are a show of strength from a technical standpoint. That fact, combined with the mirror aspect -- or what was once psychological resistance at $100, is now psychological support at $100 -- means that oil may remain above $100 for a long time.

A $100 oil floor?

Further, traders are now talking about a "$100 floor" for the price of oil. You heard right -- $100 as a floor for oil's price, and it's not a comforting thought. Still, as technical analysts will note, it's a possibility that executives, economists and policy makers alike, not to mention typical citizens, will have to consider as a potential economic reality, moving forward.

The European Central Bank and the Bank of England kept benchmark, short-term interest rates the same Thursday, the banks announced in separate statements (ECB) (BOE).

The ECB kept its benchmark interest rate, the refinance rate, at 4%, and the BOE maintained its benchmark rate at 5.25%. Economists surveyed by Bloomberg had expected no change from either central bank (ECB) (BOE).

The foreign exchange responded swiftly and decisively to the announcements. The dollar fell against the world's major currencies. It fell about one-cent against the euro to $1.5307 and about 1 cent against the British pound to $2.0021. The dollar also fell about 0.50 yen against Japan's yen.

Status quo monetary policies

In February 2008, the Bank of England had lowered its key interest rate by 50 basis points from 5.75% as the U.K. began to feel the consequences of the U.S. housing correction and economic slowdown. However, after an uptick in inflation, many economists had expected the BOE to pause and evaluate U.K.'s economic conditions -- including the slowdown in its housing sector -- in Q1 2008, before acting further regarding possible additional monetary stimulus.

First oil traded through and closed above the penultimate psychological resistance -- the incomparable, the dreaded $100 per barrel resistance level.

Now oil has traded above its final resistance -- the all-time nominal high of $103.76 set back in April 1980. Oil traded at $103.95 Monday to break the record, and flirted with it for awhile early Tuesday, before profit-taking sent the world's most vital commodity down $3.25 for the day to close at $99.20. per barrel.

There have been many firsts in the Bush Administration-led United States. And now the administration can add another, but it may not be one they'd like to brag about. In the industrial, modern and now postmodern eras, oil has never cost more than it has in 2008. Oil has no more resistance above it, psychologically or technically: as they say in the trading pits, from here on, the sky's the limit for oil.

In a development likely to be warmly-received by international finance and stock markets, Russia announced Thursday it will buy Fannie Mae and Freddie Mac bonds through its sovereign wealth funds, Russia's Finance Ministry said and Bloomberg News reported.

Russia will invest money from its Reserve Fund and National Wellbeing Fund into 15 government bond funds in Europe and the United States, including those in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Russia will also purchase government bonds in the U.K., Germany, France, Austria, Canada, and the Netherlands, Bloomberg News reported.

Both Fannie, down 56 cents $29.27, and Freddie, down 80 cents to $27.94, moved lower Thursday afternoon; however it should be noted that the declines occurred during a broad market sell-off, with the Dow down 159 points to 12,267.