Two graphs (from Scott Barber) to remind that what you get from assets depends on the currency:

Perhaps you've heard about the Russian submarines patrolling international waters off the U.S. East Coast (if you haven't, take a look at a Reuters story about it) in what feels like an echo of the old Cold War. The Pentagon's not worried about this particular venture, but there are concerns from the U.S. energy industry about another Russian foray -- this one in concert with Cuba. In rhetoric that may ring a bell with anyone who saw the 1964 satirical nuclear-fear movie "Dr. Strangelove,"
the Washington-based Institute for Energy Research is sounding the alarm about a Russian-Cuban deal to drill for offshore oil near Florida.

"Russia, Communist Cuba Advance Offshore Energy Production Miles Off Florida's Coast," is the title on the institute's news release. Below that is the prescription for action: "Efforts Should Send Strong Message to Interior Dept. to Open OCS in Five-Year Plan." OCS stands for outer continental shelf, an area that was closed to oil drilling until the Bush administration opened it last year in a largely symbolic move aimed at driving down the sky-high gasoline prices of the Summer of 2008.

Environmentalists hate the idea. So does Sen. Bill Nelson, a Florida Democrat who has made opposition to offshore drilling one of his signature issues. But as it turns out, it's unlikely that anybody -- from Russia, Cuba, the United States or anywhere else -- is going to get petroleum out of the OCS in the immediate future.

For a start, it takes time to set up a deep-water offshore drilling rig. And any Cuban effort would be further hampered by the need to use equipment with less than 10 percent American technology, to comply with the long standing U.S. embargo against Cuba. As my Reuters colleague Russell Blinch reported in June, there may be scope for possible U.S.-Cuban cooperation here but no Cuban drilling platform is likely to be in the area this year.

Reports of a Russian-Cuban deal to explore for oil in the Gulf of Mexico prompted a quick response from the Institute for Energy Research, self-described as a free-market energy think-tank.

"This agreement between Russia and Cuba should serve as a wake-up call to Congress and this administration, especially (Interior) Secretary (Ken) Salazar, who is slow-walking a new offshore energy blueprint for the nation," the institute's president, Thomas Pyle, said in a statement. "If we are to remain competitive in the global market, our government must take its foot off the brake, and expand domestic energy production of all forms, onshore and off.”

What's your take? Should the United States drill baby drill off Florida's coast, reasoning that if U.S. companies don't, Russia and Cuba will? Keep a congressional ban in place? Or wait and see?

Photo credit: Reuters staff photographer (Pensacola Beach, Florida, June 25, 2008); Reuters stringer/Russia (Russian nuclear submarine off Vladivostok, July 24, 2009)

Oil prices are more than double the December-February troughs and commodity prices generally are going up as the market cheers signs of an economic recovery.

Jeremy Grantham, chairman of U.S.-based money monager GMO, warns that the world is running out of resources in the long run yet is not correctly pricing the fact.

"We are simply running out of everything at a dangerous rate... As we move through our remarkable and irreplaceable hydrocarbon reserves, the price will, of course, rise remorselessly to ration supplies. We need, it seems, the shock of a Pearl Harbor to really gear up and make sacrifices," he says.

Grantham points out that in 1977 President Jimmy Carter warned that we were running out of oil and urged people to fully insulate 80% of the houses in 10 years.

"Thirty precious years have passed, and there is now no safety margin. We must prepare ourselves for waves of higher resource prices and periods of shortages unlike anything we have faced outside of wartime conditions," he writes.

"In fact, I believe we are already several years into this painful transition but are still mostly invested in denying it."

The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)

The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4. 

From the start, "green shoots of recovery" was not necessarily the British government's wisest choice of words and after a few months of being on everyone's lips, has given way to a more lowly metaphor.
Business Minister Baroness Vadera raised the hackles of the political opposition in January when she spotted "a few green shoots" on a day of large-scale job losses and collapsing share prices.
Evidence of economic revival is still elusive, but there are ever louder hints that we have at least seen the worst -- or bottomed, to use the mot du jour.
Bottom as a noun and a verb was widely brandished by speakers attending Reuters Global Energy Summit this week, who based on their analysis on a slight increase in available credit, a tentative pick up in energy demand and rising commodity prices.
OPEC Secretary General Abdullah al-Badri has an interest in spotting the kind of confidence that has driven oil prices up from a low below $35 a barrel in December to almost double that.
"I have no doubt that the recession has bottomed out, but is it a V shape or a U shape?" he asked during a Reuters summit session.
Others were less convinced and the most bearish of them all was a representative of the very oversupplied tanker market, where freight rates have sunk to their lowest levels in decades, with not a green shoot in sight.
"We have seen lower than the bottom," said Erik Ranheim, a manager at oil tanker association Intertanko.

Tullow Oil is the Manchester United of the energy world -- at least when it comes to recruiting the finest talent.
The oil industry has long complained of the difficulty of recruiting enough highly-qualified staff, but as Europe's largest independent oil explorer by market value, Tullow says it is a magnet for all those geologists ambitious to add discovering a new field to their CVs.
"If you are successful, you will always attract... like everyone wants to play for Manchester United," Aidan Heavey, chief executive of Tullow Oil, told the Reuters Global Energy Summit.
Many oil companies, he said, have ceased exploring, partly because of a difficult financial climate, partly because of a lack of opportunities.
Tullow's exploration successes include major finds in Uganda and offshore Ghana.
Apart from snapping up the finest geologists, Tullow has also been busy grabbing credit. Heavey said banks had made available $2 billion in credit in March this year.
"It's a huge achievement in the current market," Heavey said. "It's probably soaked up most of the credit available for small oil companies."

The United States may fondly dream of independence from imported oil, but it would do well to remember that the traffic is not one way.
OPEC Secretary General Abdullah al-Badri told the Reuters Global Energy Summit he had been hearing for years that the world's biggest oil consumer was seeking ways to avoid importing OPEC oil, but he was confident it would carry on burning fossil fuel for years to come.
"I am of an age when I can tell you I have been hearing this for the last 40 years," Badri said. "We will see another president, with two terms, before we see any change."
He also warned the U.S. it should be careful what it wished for.
"We would like to tell them they buy most of the resources of our member countries. We are sending them back more than 50 percent of that income to OECD countries, and the U.S. is one of them, to buy medicine, equipment, aeroplanes, spare parts, clothes."
"Don't forget the medicine," he added.

Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.

But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.

The spread between the front month and second month oil futures continues to narrow.

The deep spread seen in earlier this year, caused primarily by slumping fuel demand due to the economic crisis, was heightened by the monthly of passive investment funds, especially the giant United States Oil Fund. On Feb. 6, when the fund last rolled its positions from the first to second month futures conracts, it held movre than 20 percent of the front month.

Analysts said that the move by the exchange traded fund to roll its front month positions to the second month over a four day period — rather than on just one day — may lesson the volatility of the shift.

Open interest and trading volumes in commodity futures markets have shown some resilience at the start of 2009 despite the dramatic price slides triggered by the economic downturn.

In the fourth quarter of 2008, open interest in U.S. crude oil futures fell to levels not seen since mid-2006 as the global economic crisis hit fuel demand and sent prices tumbling, before rebounding.