Saturday, September 29, 2012

ONG: Crude Oil, Natural Gas and Gold Weekly Technical Outlook for Saturday Sept. 29th

Crude oil bulls took a beating this week and it didn't come as any surprise to us. The staff at Oil N'Gold has been calling this one spot on and we don't expect that to change any time soon. Here's what ONG sees coming this week along with their numbers to trade it......

Crude oil dropped to as low as 88.95 last week before recovering. Some consolidations could be seen initially this week but another fall will remain mildly in favor as long as 94.08 holds. Current fall from 100.42 would extend to 61.8% retracement of 77.28 to 100.42 at 86.12 and possibly below. Though, we'd expect strong support ahead of 77.28 to contain downside. Meanwhile, break of 94.08 will flip bias to the upside for a test on 100.42 resistance. After all, we'd expect another rise to 100.55 after completing the current consolidative price actions.

In the bigger picture, current development suggests that price actions from 114.83 are a triangle consolidation pattern. Fall from 100.42 is likely the fifth and the last leg of such consolidation. Having said that, downside should be contained above 77.28 and bring an upside breakout eventually. Break of 110.55 will strongly suggest that whole rebound from 33.29 has resumed for above 114.83.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Natural gas finally took out 3.277 resistance last week and the development confirmed that whole rebound from 1.902 has resumed. More importantly, the close above 3.255 has larger bullish implication. Further rally is now expected to target medium term channel resistance next (now at around 4.0.). On the downside, break of 55 days EMA (now at 2.91) is needed to signal near term reversal. Otherwise, outlook will stay bullish even in case of retreat.

In the bigger picture, the strong break of 55 weeks EMA, as well as the break of 3.255 support turned resistance indicates that medium term decline from 6.108 is completed at 1.902 already. It's bit early to confirm but bullish convergence condition in weekly MACD suggests that the down trend from 13.694 (2008 high) is possibly over too. Sustained break of the channel resistance (now at around 4.0) will set the stage for a test on 4.983 key resistance next. Meanwhile, break of 2.575 support will argue that the rebound from 1.902 is over and the medium larger down trend is still in progress for a new low.

In the longer term picture, decisive break of 3.255 resistance will be an important signal of long term bottoming reversal and could at least give a push to 4.983/6.108 resistance zone.

Nymex Natural Gas Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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Gold consolidated below 1790 resistance last week. Despite a rally attempt, gold is still limited below this level. More sideway trading might be seen. But note that as long as 1720 minor support holds, current rise is still expected to continue. Decisive break of 1792.7/1804.4 resistance zone will have larger bullish implication and would pave the way to 1923.7 historical high. Though, break of 1720 will indicate near term reversal and will turn outlook bearish for 1674/1 support first.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7/1804.4 resistance zone will argue that the long term uptrend is possibly resuming for a new high above 1923.7.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run

Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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EIA "Natural Gas Monthly" for September 2012

The September Natural Gas Monthly, featuring data for July 2012, has been released. This issue features a new price series, natural gas liquid composite spot price, which combines natural gas liquid production from natural gas processing plants and daily spot prices of natural gas liquids from Mont Belvieu, Texas.

The Henry Hub natural gas spot price is also included. Natural gas used for electric power reached 1,088 billion cubic feet (Bcf) for July, leading to another monthly record for natural gas consumption of 2,045 Bcf, the highest July on record. Dry production for July stayed relatively stable for the fourth straight month at 2,024 Bcf or 65.3 Bcf per day.

Click here for the complete EIA natural gas summary

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Friday, September 28, 2012

Marshall Adkins Interview: The Case of the Missing 200 Million Barrels of Crude Oil

Supply threats in the Middle East have governments around the world hoarding oil, largely in secret. But it didn’t get past Raymond James Director for Energy Research Marshall Adkins, who noticed the 200 million barrel discrepancy between what was pumped and reported global oil reserves. Where did the missing oil go, and why don’t prices reflect this substantial surplus? More importantly, what happens once the reality of an oversupply sets in? A tough six months, Adkins expects. Read on to find out where you can hide when prices plummet.

The Energy Report: You’ve written a provocative research report titled “Hello, We’d Like to Report a Missing 200 Million Barrels of Crude.” It argues that the global oil inventory should have grown by over 200 million barrels (200 MMbbl) during the first six months of 2012. Where did this oil go? And a better question is, why hasn’t this surplus shown up in pricing?

Marshall Adkins: When the U.S., the European Union and the United Nations imposed sanctions against Iran, the world responded by putting oil into storage. China rapidly began filling its strategic petroleum reserves. Saudi Arabia topped off its surface reserves. Iran put oil in the floating tankers.

TER: Why isn’t this storage being reported? Is it normal for this oil to not go into the regular reporting channels?

MA: Yes. Unfortunately, it takes three or four months, and often six months, to get good data from the Organization for Economic Cooperation and Development (OECD). It’s a lag, but at least you usually get the data. We estimate that OECD data accounts for about two-thirds of global oil inventory capacity. The other third, which is just an estimate, is off the radar. Few sources really track this non-OECD data. The International Energy Agency (IEA) does not track it either, because there’s simply no reliable way of getting the information. China is probably the best example of that. It just does not tell us exactly how much it has.

TER: Could this result in dumping at some time in the future, potentially after the November election in the U.S.?

MA: It could. But even if they don’t dump it, we think there is an even bigger structural problem. We are running out of places to put the growing supply of oil. Based on our supply-demand numbers, the world is poised to build significant inventories in early 2013. There is a very real possibility that if Saudi Arabia does not initiate production cuts sometime in early 2013, we will run out of places to put this oil around the world.

TER: Your particular specialty area is oilfield services. You maintain a U.S. rig-count table, which showed a 6% drop year-to-date as of August 31, 2012. Does this indicate that it’s getting easier to get oil horizontally than it is to drill straight down?

MA: There is no question that the application of horizontal oil technology has completely changed the game for both oil and natural gas here in the U.S. Yes, it’s just a much more efficient way of extracting oil and gas, particularly from formations that are very tight. This is a trend that’s going to be here for a long time. It has led to an incredible increase in production per well.

TER: I noted dry gas rigs in your table are down 57% during that same one-year period. Even wet gas rigs are down 40%. How long can this go on before gas prices turn around?

MA: The decline in the overall rig count this year is mainly a function of the falling natural gas rig count, both wet and dry gas rigs. Early on, oil rig growth offset a lot of that gas decline, but the growth rate in oil has stagnated. So, low prices for natural gas are causing a meaningful decrease in gas drilling, but we think there will continue to be reasonable growth in gas supply from the oil wells in operation. That said, gas prices should gradually rebound as we build out infrastructure and consumers start to take greater advantage of extremely low gas prices in the U.S. Next year, we think the overall U.S. rig count will continue to deteriorate with lower oil prices. As that happens, overall gas production growth should flatten. That allows growing gas demand to offset stagnating supply growth. That should eventually drive U.S. natural gas prices higher. It will take a while, but we expect gas prices to improve steadily over the next several years.

TER: Natural gas prices were up about 3540% before summer. Was this just a bounce, or could this be the beginning of a bull market in natural gas?

MA: I wouldn’t call it a bull market in gas. Gas prices have certainly improved, but I think most people who are out there drilling for gas would say that $3 per thousand cubic feet ($3/Mcf) isn’t exactly a bull market. They simply aren’t making a whole lot of money at that price. That said, today’s prices are much better than six months ago and things are looking better. We think natural gas prices will average closer to $3.25/mcf next year and $4/Mcf the year after. Yes, we think the gas price bottom that we saw earlier this year, $2/Mcf, is well behind us. Directionally, things should continue to improve.

TER: Should investors be bullish on any segment in energy right now? If so, which ones?

MA: In light of our relatively bearish overall stance on crude, we don’t have any Strong Buy recommendations in our oil services universe. We’re not recommending a whole lot of exploration and production (EP) names at this stage either. The ones that we think do perform here are refiners that benefit from the price differential between West Texas Intermediate (WTI) and Brent crude. In addition, infrastructure companies such as master limited partnerships (MLPs) and companies that service either pipelines, refineries or other new infrastructure should outperform over the next several years.

TER: Any final thoughts?

MA: The bottom line is that we have a tough six months ahead of us for crude oil prices as inventories continue to build in Q1/13. Sometime in early 2013, oil prices should deteriorate as much as 30% from where we are today and hit bottom in mid-2013. At that point, we’ll probably get a lot more constructive on oil services and EP names.

TER: Thank you very much.

MA: Thank you for having me.

Marshall Adkins focuses on oilfield services and products, in addition to leading the Raymond James energy research team. He and his group have won a number of honors for stock-picking abilities over the past 15 years. Additionally, his group is well known for its deep insight into oil and gas fundamentals. Prior to joining Raymond James in 1995, Adkins spent 10 years in the oilfield services industry as a project manager, corporate financial analyst, sales manager, and engineer. He holds a Bachelor of Science degree in petroleum engineering and a Master of Business Administration from the University of Texas at Austin.

Posted courtesy of INO.Com's Traders Blog

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Thursday, September 27, 2012

Brazilian Court Serves Transocean Injunction to Cease Operations

Transocean (NYSE:RIG) announced today that at approximately noon Rio De Janeiro time (11 a.m., ET), September 27, 2012, the federal court in Rio de Janeiro served the company with a preliminary injunction requiring that it cease operations in Brazil within 30 calendar days from the date of service.

The company is vigorously pursuing the overturn or suspension of the preliminary injunction, including through an appeal to the Superior Court of Justice. Absent relief from the courts, Transocean will be required to comply with the preliminary injunction.

Transocean currently has 10 rigs under contract for work in Brazil, with nine currently in country, and is evaluating rig contracts and collaborating with customers to determine appropriate actions with respect to operations. For the six months ended June 30, 2012, the company's operations in Brazil accounted for approximately 11 percent of consolidated operating revenues.

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New Video: Daniel Yergin on Crude Oil's Next Geopolitical Concerns

Crude oil is higher on speculation of China stimulus and Spain's approved austerity budget. Daniel Yergin, IHS vice chairman and author of "The Quest," discusses what geopolitical concerns could continue to weigh on oil prices.



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Iraqi Crude Oil Production Approaching Highest Level in Decades

Estimated Iraqi oil production surpassed 3 million barrels per day (bbl/d) in July 2012, the highest level since the end of the Gulf War in 1990. Increased investment in Iraq's petroleum industry and export infrastructure underpin these production gains. However, many factors still constrain the Iraqi oil industry from reaching its full production potential.

Iraqi production rebounded after 2005. Production in previously developed fields such as Rumaila and West Qurna has increased in recent years. Meanwhile, new upstream investments are boosting output even further. In June 2012, the Halfaya oil field came online, increasing total Iraqi production by an estimated 70 thousand bbl/d, with the potential to produce up to 535 thousand bbl/d.

Graph of Iraqi crude oil production, as explained in article text 




With existing fields like Rumaila and West Qurna and new production coming online in Halfaya, Iraqi production has the potential to exceed 4 million bbl/d. However, constraints including pipeline bottlenecks, export capacity limitations, and security issues still may limit Iraq's oil production potential. Alleviation of these constraints could enable Iraqi oil production and exports to reach record-high levels in the near future.

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Wednesday, September 26, 2012

Crude Oil and Natural Gas ETF Performance Lacking Spark

The poor performance of commodity exchange based funds relative to underlying crude oil and natural gas prices over recent years stems from inherent inflexibility of ETFs, suggesting investors may be better off going directly to futures markets, according to a study by CME Group directors Richard Co and John Labuszewski.

One popular ETF, the United States Oil Fund LP, underperformed spot crude prices by nearly 200% from December 2008 through April 2011, a period when the market rallied while maintaining a "contango" pattern. The United States Natural Gas Fund ETF also lagged the spot market during that period.

Such ETFs "are generally unable to replicate the performance of the benchmark spot commodity values," Co and Labuszewski wrote. That primarily reflects requirements that these ETFs can’t hold physical inventory, must maintain 100% collateralization with no leverage and must maintain a fixed rollover strategy, regardless of the shape of the forward futures curve.

"The investment and administrative policies of some of the major commodity ETFs contribute to their inability to replicate the performance of the commodities that they purport to represent," they said. "These shortcomings may be addressed by introducing a certain degree of flexibility in the management strategy (and) by relaxing restrictions on collateralization and rollover strategy."

Astute investors, they added, should consider "whether the option of direct investment in futures should be considered as an alternative to investment in an ETF."

Read the full CME Group Report


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Kase and Company....Bad news for November Crude Oil Bulls

It's Wednesday and that means it's time to check in with Kase and Company for their call on November crude oil action.....

The outlook for November crude is negative. Prices have sustained a close below $92.1 for the past two days and should test support at $89.5 tomorrow. A close below this would call for $88.8 and then key support at $87.7 to be met.

Intraday momentum indicators show that the move down is becoming exhausted, so corrections may take place. Initial resistance is $92.5, but until there is a close over $94.3, the near-term bias will remain negative.....Here's the entire post and charts.

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Tuesday, September 25, 2012

Musings: Energy, Unemployment And The Health of The US Economy

There is nothing more important in determining the outlook for a nation's energy demand than understanding the health of its economy. This is especially true for the United States today as it faces a presidential election focused on dramatically different economic and governing philosophies of the candidates and their views about how fast the economy may grow and, in turn, how much energy the nation will need.

Most people are aware of President Barack Obama's "all of the above" energy strategy, which provides a number of popular talking points about him being open to all forms of energy while campaigning, but in reality means only a few energy sources will be favored. Those favored energy sources seem to be only "green" ones. On the other side of the issue is the Republican standard bearer, Mitt Romney, who is advocating for increased development and use of domestic fossil fuel resources while mandating that very expensive green energy sources need to achieve commerciality on their own and without government mandates and subsidies.....Read the entire Musings article.


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Monday, September 24, 2012

Investor Gold Buying to Resume & Fed Doubling Their Balance Sheet AGAIN!

A leading precious metals consultancy, Thomson Reuters GFMS, has forecast that investors will buy record amounts of gold in the remainder of 2012. GFMS produces the benchmark supply and demand statistics for the gold market. GFMS forecasts that investors will purchase 973 tons of gold in the second half of 2012, more than during the wild gold market of the summer of 2011. This surge in demand for the yellow metal, GFMS says, will move gold above the $1850 an ounce level, not far from the record high of $1920 hit in September 2011.

GFMS may be right. This past week, gold hit its high for this year at $1790 an ounce on the back of the various global stimulus plans launched by a number of countries around the globe. Primary among the recently announced stimulus plans was the Federal Reserve’s QE3 or as some in the market have called it, QE infinity. Philip Klapwijk of GFMS said that, for the gold market, “QE3 has become talismanic”.

The Federal Reserve said it would purchase $40 billion a month in mortgage-backed securities indefinitely. In addition, the Fed will continue Operation Twist – the buying of longer dated U.S. treasury notes and bonds. When all is totaled, the market is looking at about $85 billion a month in government bond purchases for an unlimited period of time.

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The main characteristic of QE3 that drives the gold market is the fact that the open ended purchases of all of these Treasuries will be financed by money that does not yet exist! And it’s not just about a fear of future inflation being ignited by all this money creation. It’s a very logical move higher by gold based on recent history of Fed actions and gold prices.

Even ignoring Operation Twist, the Fed will add $40 billion a month, or $480 billion a year, to its balance sheet. If one looks at the Fed’s own website, you will see that it shows current assets of $2.8 trillion. Add $480 billion annually to that and in about five years the Fed’s assets (the foundation of the money supply) will have nearly doubled.

That is exactly what happened in the last five years too…the Fed’s assets doubled. And in what should not be a surprise to gold investors, the price of gold also doubled! For the past decade or so, gold has tracked the increase in Federal Reserve’s assets. Do not be shocked if that pattern continues over the next five or ten years too.

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Chris Vermeulen

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Saturday, September 22, 2012

This Weeks Crude Oil, Natural Gas and Gold Weekly Technical Outlook

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Time for our weekly call from the great staff at Oil N'Gold.Com. Do they think the bulls are still in charge?.......

100 psychological level proved to be a difficult level for crude oil to break through. Last week's sharp decline and break of 94.08 support indicates that rebound from 77.28 has finished at 100.42 already. Deeper decline should be seen in near term back to 61.8% retracement of 77.28 to 100.42 at 86.12 and possibly below. Though, we'd expect strong support ahead of 77.28 to contain downside. Another rally is anticipated for 110.55 after completing the current consolidation.

In the bigger picture, current development suggests that price actions from 114.83 are a triangle consolidation pattern. Fall from 100.42 is likely the fifth and the last leg of such consolidation. Having said that, downside should be contained above 77.28 and bring an upside breakout eventually. Break of 110.55 will strongly suggest that whole rebound from 33.29 has resumed for above 114.83.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Natural gas retreated last week but managed to hold well above 2.575 support and recovered. Overall development suggests firstly that price actions from 3.277 are corrective in nature. Secondly, there is no clear sign of breakout yet and more sideway trading could be seen in near term inside 2.575/3.277 range. Though, an upside break would be mildly in favor.

In the bigger picture, firstly, natural gas is still being supported by 50% retracement of 1.902 to 3.277 at 2.590. Secondly, price actions from 3.277 are corrective looking. The development indicates that rebound from 1.902 isn't over yet. Another rally will likely have 3.255 support turned resistance taken out decisively. And in that case, medium term decline from 6.108 should be confirmed to have completed. And, stronger rally would be seen back to 4.983 resistance and possibly above. This is now the preferred scenario as long as 2.575 support holds.

In the longer term picture, as long as 3.255 resistance holds, whole down trend from 13.694 (2008 high) is still in progress, so is that from 15.78 (2005 high). Another fall could be seen to 1999 low of 1.62 on resumption. But decisive break of 3.255 will now be an important sign of long term bottoming,

Nymex Natural Gas Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Gold edged higher to 1790 last week but lost much momentum ahead of 1792.7/1804.4 resistance zone. Nonetheless, as long as 1720 minor support holds, current rise is still expected to continue. Decisive break of 1792.7/1804.4 resistance zone will have larger bullish implication and would pave the way to 1923.7 historical high. Though, break of 1720 will indicate near term reversal and will turn outlook bearish for 1674/1 support first.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7/1804.4 resistance zone will argue that the long term uptrend is possibly resuming for a new high above 1923.7.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run

Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Friday, September 21, 2012

SeaDrill is at it again....files for a new IPO, SDLP

COT fund favorite SeaDrill [ticker SDRL] is at it again as today the file with the SEC for a new IPO. SDLP, a new limited liability corporation.

Seadrill Partners, who owns and operates offshore drilling rigs, files for an IPO under the ticker SDLP with a proposed maximum offering price of $225 million. SDLP operating revenues moved to $497 million in FY11 from $478 million in FY10. For H1 2012 revenues improved 11% to $275 million.

Seadrill Partners said it is an “emerging growth company” that currently has long term contracts with oil majors Chevron Corp. (NYSE: CVX), Total SA (NYSE: TOT), BP plc (NYSE: BP), and Exxon Mobil Corp. (NYSE: XOM). Seadrill is majority owned by the Fredriksen Group, which also owns majority interests in Golar LNG Ltd. (NASDAQ: GLNG), Golar LNG Partners LP (NASDAQ: GMLP), and Frontline Ltd. (NYSE: FRO).

Seadrill Ltd. will own 70% of the common units of Seadrill Partners following the IPO. The new company also plans “to make accretive acquisitions of drilling rigs from Seadrill and third parties” under an agreement that will give Seadrill Partners a first right to purchase additional interests in a jointly owned operating company and “a right to purchase any drilling rigs acquired or placed under contracts of five or more years after the closing date of this offering.”

According to the filing, Seadrill Partners will use the proceeds from the filing “as consideration for the acquisition of our interest in [the jointly owned operating company] from Seadrill.”

This was just announced today so we still don't have it sorted out but anything SeaDrill is sure to get investors attention.

Here is the complete SEC filing.

Update/Edit for Monday Sept. 24th....

Hamilton, Bermuda, September 21, 2012 - Seadrill Partners LLC ("Seadrill Partners") announced today that it has filed a registration statement with the U.S. Securities and Exchange Commission (the "SEC") for an initial public offering of Seadrill Partners' common units. Seadrill Partners has applied to list its common units on The New York Stock Exchange under the symbol "SDLP".

Seadrill Partners was formed by Seadrill Limited to own, operate and acquire offshore drilling rigs under long-term contracts. Seadrill Partners' initial fleet will consist of two semi-submersible rigs (West Capricorn and West Aquarius), one drillship (West Capella) and one tender rig (West Vencedor).

Citigroup will act as the lead book running manager of the offering.

The offering of the common units will be made only by means of a prospectus. A written prospectus meeting the requirements of Section 10 of the Securities Act of 1933, when available, may be obtained from the offices of Citigroup Global Markets, Inc., Attention: Prospectus Department, Brooklyn Army Terminal, 140 58th Street, 8th Floor, Brooklyn, NY 11220, Email: BATProspectusdept@citi.com, Telephone: 800-831-9146.

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Thursday, September 20, 2012

EIA Natural Gas Weekly Report For Thursday Sept. 20th

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Let's take a look at the EIA's overview for natural gas for the Week Ending Wednesday, September 19, 2012.....

* Natural gas prices declined at most trading locations this week, erasing gains from last week. The spot price at the Henry Hub fell from $2.96 per million British thermal units (MMBtu) last Wednesday, September 12, to $2.70 per MMBtu yesterday, September 19.

* Natural gas futures prices declined along with spot prices. The New York Mercantile Exchange (NYMEX) near month contract (October 2012) fell from $3.063 per MMBtu last Wednesday to $2.762 per MMBtu yesterday.

* Working natural gas in storage rose last week to 3,496 Bcf as of Friday, September 14, according to EIA’s Weekly Natural Gas Storage Report (WNGSR). An implied storage build of 67 Bcf for the week positioned storage volumes 320 Bcf above year ago levels.

* The natural gas rotary rig count, as reported by Baker Hughes Incorporated on September 14, fell by 4 to 448 active units.

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Bearish Inventory Report Sends Crude oil Prices Lower

The downside correction to oil prices moved into a third day with a bearish weekly oil inventory snapshot adding a bit more selling momentum. In fact oil prices are now at the lowest level they have been at in about six weeks. Certainly the post QE3 euphoria has been pushing oil prices lower but today's huge crude oil build was a catalyst for a strong round of not only profit taking selling but I suspect some new shorts coming into the market.

It does not happen very often in the oil complex but the current fundamentals have trumped all of other short term price catalysts today sending prices into a bit of a tailspin. It certainly changes the short term dynamics for me and as such we may see the downside move last a bit longer than I was originally expecting. The buy the dip mentality that I thought might come as early as this week may now be postponed until next week at the earliest.

In addition to the surprisingly large crude oil build the Saudi oil ministers comments from last week are still hanging over the market. He said global supply, demand and inventories do not justify the current price (around $100/bbl last week). The Saudis have been working with Kuwait the UAE and other members of the Gulf Cooperation Council to keep production at high levels to discourage higher prices. Saudi production is over 10 million barrels per day and at the highest level in years.

It is also serving to offset the 1 million barrels per day or so of lost Iranian crude oil production due to the sanctions.....Read Dominick Chirichellas entire article.

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Wednesday, September 19, 2012

Exxon [XOM] Applies for a Natural Gas Export License

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The natural gas revolution has yielded many benefits to America in terms of its economy, environment, and energy security....

* Job creation
* Lower home heating bills
* Lower feedstock costs for the petrochemical and refining businesses
* Reduction in the number of active coal plants
* Increased U.S. energy security

Low domestic natural gas prices have given the U.S. a clear competitive advantage in the world economy. Consider the price differential in this chart, taken from the Wall Street Journal's recent article Should the U.S. Export Natural Gas?, which compares U.S. nat gas prices to those of Japan and Korea.

The current price of natural gas is unsustainable. Companies will either shut-in production until it becomes more profitable, or significant new demand will be created. Exxon Mobil (XOM), struggling to reap the rewards of its massive XTO takeover and the subsequent drop in nat gas prices, has recently applied for a natural gas export license. The question the U.S. Department of Energy faces (or at least should face...) becomes.... is exporting natural gas smart, strategic energy policy?

Exporting natural gas would be good in a number of ways including....Read the Michael Fitzsimmons entire article.

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Kazakhstan as an oil producer....a bigger player then you probably think

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Kazakhstan, an oil producer since 1911, has the second largest oil reserves as well as the second largest oil production among the former Soviet republics after Russia....

With total liquids production estimated at 1.6 million barrels per day (bbl/d) in 2012, Kazakhstan is a major producer; however, key to its continued growth in liquids production will be the development of its giant Tengiz, Karachaganak, and Kashagan fields. Furthermore, development of additional export capacity will be necessary for production growth.

Rising natural gas production over the last decade has transformed Kazakhstan from a net gas importer to a country that as of 2011 was self sufficient. Natural gas development has lagged oil due to the lack of domestic gas pipeline infrastructure linking the western producing region with the eastern industrial region, as well as the lack of export pipelines.

Kazakhstan is land locked and lies a great distance from international oil markets. The lack of access to a seaport makes the country dependent mainly on pipelines to transport its hydrocarbons to world markets. It is also a transit state for pipeline exports from Turkmenistan and Uzbekistan. Neighbors China and Russia are key economic partners, providing sources of export demand and government project financing.....Read the entire EIA article.

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Tuesday, September 18, 2012

Has the Arab Spring Effected Crude Oil Prices?

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Crude oil prices hit a four month high this week on the back of rising tensions in the Middle East and North Africa and the unfortunate murder of the U.S. ambassador to Libya. Added impetus on the upside was given to oil by the announcement of more money printing (QE3) by the Federal Reserve which said it would launch an open ended commitment to purchase $40 billion of mortgage backed securities monthly. The global benchmark for oil, Brent crude oil, jumped to about $117 a barrel.

It maintained its roughly $18 premium to U.S. based WTI crude oil which was trading at $100 a barrel on a couple days ago. Non futures investors can easily participate in the oil market through the use of exchange traded funds. The ETF which tracks Brent crude oil futures is the United States Brent Oil Fund (NYSE: BNO) and the ETF which tracks WTI crude oil futures is the United States Oil Fund (NYSE: USO). The real story behind the story in the oil market, however, is the ongoing Arab Spring which is sweeping throughout the Middle East and North Africa, pushing aside some regimes and threatening others.

The countries whose governments, such as Saudi Arabia and the other Gulf states, feel threatened by popular uprisings are where investors should put their focus. Saudi Arabia in particular is key because it accounts for more three quarters of the world’s spare oil production capacity. So it is very important to note that the kingdom is no longer a price ‘dove’ in OPEC as it has been for decades. It has joined Iran, Venezuela and others in being a price ‘hawk’. The reason behind the change in attitude is simple…Arab Spring. Like its neighbors in the Gulf region, Saudi Arabia has gone on a public spending spree to appease its restless citizens.

It has sharply increased outlays on subsidies for items like food, fuel and housing in an attempt to appease its citizens. In 2011, the kingdom raised its domestic spending by $129 billion – the equivalent of more than half its oil revenues. Much of this increased spending will go toward upgrading the country’s infrastructure. Take electricity, for example. Saudi Arabia has revealed plans to spend more than $100 billion dollars on power plants and distribution networks by 2020. The kingdom has also set a goal to electrify 500,000 new homes that are being built in an attempt to mollify political unrest among its population of 27 million people.

This spending spree led the International Monetary Fund and other analysts to estimate that the kingdom and other Gulf countries need oil to be selling between $80 and $85 a barrel in order for the governments to balance their budgets. This is up, in Saudi Arabia’s case, from a mere $25 a barrel a few short years ago! Unfortunately for oil consumers, this trend looks set to continue in years ahead.

According to the Institute of International Finance, by 2015 the Saudi government will only be able to balance its budget if oil prices are at $115 a barrel if current spending trends remain in place. So in effect, with the Arab Spring forcing governments to spend more on their citizens, it has put a floor under the price of oil. OPEC will do everything in its power to keep the price above the budget breakeven points for governments in the Gulf region.

Keep up to speed on the oil and precious metals markets 

Chris Vermeulen

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Monday, September 17, 2012

Crude Oil Tumbles 2.4% in Sharp, Late Session Drop

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U.S. crude futures took a violent tumble Monday, dropping more than $3 in less than a minute on a huge spike in trading volume, shaking broader markets and sparking confusion across trading floors. At 1:54 p.m. EDT, light, sweet crude for October delivery plummeted to a low of $94.83 a barrel on the New York Mercantile Exchange after trading above $98 a barrel throughout the session. Volume surged to more than 12,500 contracts in a minute, after trading near 100 contracts for most of the session.

The decline took investors by surprise across markets, leading to sharp drops in stocks, the euro and other commodities. CME Group Inc. (CME) said there were no technical trading issues involved in the selloff, and the lack of a discernable reason for the decline sent traders scrambling to the phones looking for answers. "Traders were looking like deer in the headlights," said Peter Donovan, a Nymex floor trader at Vantage Trading. "It was just confusion as traders were scrambling. I called four different desks, and they all said, 'we don't know.'"

U.S. crude futures pared some losses to settle $2.38, or 2.4%, lower at $96.62 a barrel, the lowest in a week. Brent crude on the ICE futures exchange settled $2.87 lower at $113.79 a barrel. The sharp slump comes amid growing jitters among analysts, traders and other market watchers, fearful that renewed turmoil in the Middle East, particularly surrounding Israel and Iran, could quickly lead to big moves in the oil pits.

"The market is just showing its vulnerability. We've got a $10 to $15 premium just on Iran, so the market is susceptible to just come off," said Tony Rosado, a broker at Dorado Energy Services. Gen. Mohamad Ali Jafari, head of Iran's Revolutionary Guard Corps., said Sunday if Iran was attacked, the country would retaliate against U.S. bases in the Middle East and Israel, and aim to disrupt oil shipments through the Strait of Hormuz, according to Agence-France Presse.

Meanwhile, on Sunday Israeli Prime Minister Benjamin Netanyahu called for the U.S. to establish a "red line" on Iran's nuclear program that would result in a military response. Conversely, the potential for a release of strategic stockpiles by the U.S. to combat high prices has raised fears of sharp declines. On Monday, rumors quickly circulated that a strategic release was behind the sharp slump. But a White House official said the administration currently has no plan to release oil from the 700 million barrel Strategic Petroleum Reserve.

"As we have made clear, all options remain on the table, but we have nothing to announce at this time," the official said. Front month October reformulated gasoline blendstock, or RBOB, settled 2.4% lower at $2.9433 a gallon. October heating oil dropped 2.4% to $3.1634 a gallon.

Posted courtesy of Rigzone.Com

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Sunday, September 16, 2012

Projected Alaska North Slope Oil Production at Risk Beyond 2025 if Oil Prices Drop Sharply

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Oil production on Alaska's North Slope, which has been declining since 1988 when average annual production peaked at 2.0 million barrels per day, is transported to market through the TransAlaska Pipeline System (TAPS). Because TAPS needs to maintain throughput above a minimum threshold level to remain operational, its projected lifetime depends on continued investment in North Slope oil production that itself depends on future oil prices. In the Annual Energy Outlook 2012 low oil price case, North Slope production would cease and TAPS would be decommissioned, which could occur as early as 2026.

The 48 inch diameter, 800-mile long TAPS crude oil pipeline transports North Slope crude oil south to the Valdez Marine Terminal, where the oil is then shipped by tankers to West Coast refineries. TAPS is currently the only means for transporting North Slope crude oil to refineries and the petroleum consumption markets they serve.

Graph of projected Alaska North Slope oil production under three oil price scenarios, as explained in article text

Low flow rates on crude oil pipelines can cause operational issues, particularly in the frigid Arctic. On June 15, 2011, the TAPS operator, Alyeska Pipeline Service Company, released the TAPS Low Flow Impact Study that identified the following problems that might occur as North Slope oil production progressively declines below 600,000 bbl/d, thereby resulting in declining TAPS throughput:

* Potential water dropout from the crude oil, which could cause pipeline corrosion

* Potential ice formation in the pipe if the oil temperature were to drop below freezing

* Potential wax precipitation and deposition

* Potential displacement of the buried pipeline due to soil freezing and thawing, as pipeline operating temperatures decline

Other potential operational issues at low flow rates include: sludge drop-out, reduced ability to remove wax, reduction in pipeline leak detection efficiency, pipeline shutdown and restart, and the running of pipeline pigs that both clean and check pipeline integrity.

The severity of potential TAPS operational problems is expected to increase as throughput declines; the onset of TAPS low flow problems could begin around 550,000 bbl/d, absent any mitigation. As the types and severity of problems multiplies, the investment required to mitigate those problems is expected to increase significantly. Because of the many and diverse operational problems expected to occur below 350,000 bbl/d, considerable investment might be required to keep the pipeline operational below this throughput level.

Analysis of Alaskan production in the Annual Energy Outlook 2012 (AEO2012) assumed that the North Slope oil fields would be shutdown, plugged, and abandoned and TAPS would be decommissioned, when two conditions were simultaneously satisfied: 1) TAPS throughput was at or below 350,000 bbl/d and 2) total North Slope oil production revenues were at or below $5.0 billion per year. These conditions are satisfied only in the AEO2012 low oil price case, when North Slope oil production is shutdown and TAPS is decommissioned in 2026.

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Saturday, September 15, 2012

ONG Crude Oil, Natural Gas and Gold Weekly Technical Outlook for Saturday Sept. 15th

Well, it's Saturday and that means it's time to check in with the staff at Oil N Gold and get their call on crude for this week......

Crude oil's rally finally resumed last week and breached 100 psychological level before closing at 99.06. Near term outlook stays bullish as long as 94.08 support holds. Current rise is expected to continue higher. However, as noted before, rise from 77.28 is viewed as the fourth leg inside the triangle pattern from 114.83. Hence, we'll be cautious on topping between 100 and 110. Meanwhile, break of 92.94 will indicate reversal and bring decline back to 55 days EMA and below.

In the bigger picture, price actions from 114.83 are viewed either a three wave consolidation pattern that's completed at 77.28, or a five wave triangle pattern that's still unfolding. In any case, break of 110.55 resistance will strongly suggest that whole rebound from 33.29 has resumed for above 114.83. While another fall could be seen before an eventual upside breakout, downside should be contained above 77.28 support.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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Natural gas jumped to as high as 3.070 last week and the development firstly suggests that fall from 3.277 has completed at 2.575. More importantly, the corrective three wave structure of the fall argues that natural gas hasn't topped yet. Further rally is mildly in favor this week and break of 3.070 will target a test on 3.277 resistance. Meanwhile, break of 2.888 resistance turned support will mix up the near term outlook and turn focus back to 2.575. In the bigger picture, the failure to sustain above 3.255 support turned resistance didn't confirm medium term trend reversal. That is, whole decline from 6.108 could still extend and a break below 2.168 will pave the way to a new low below 1.902. Nonetheless, again, sustained break of 3.255 will confirm trend reversal and a test on 4.983 key resistance level should at least be seen.

In the longer term picture, as long as 3.255 resistance holds, whole down trend from 13.694 (2008 high) is still in progress, so is that from 15.78 (2005 high). Another fall could be seen to 1999 low of 1.62 on resumption. But decisive break of 3.255 will now be an important sign of long term bottoming,

Nymex Natural Gas Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Your kidding right....How can I not be endorsing this?

Gold's rally continued last week and reached as high as 1780.2 so far. Near term outlook remains bullish with focus on 1792.7/1804.4 resistance zone. Decisive break there will have larger bullish implication and would pave the way to 1923.7 historical high. Nonetheless, before that, rise from 1526.7 is viewed as a leg inside the medium term ranging pattern only. Below 1720 minor support will indicate reversal and turn near term outlook bearish.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7/1804.4 resistance zone will argue that the long term uptrend is possibly resuming for a new high above 1923.7.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run

Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

What is the Gold and Oil Guys call this week?

Friday, September 14, 2012

CME Group Energy Market Recap for Friday Sept. 14th

October crude oil prices eclipsed the $100.00 level earlier in the session and registered its eight consecutive higher close. While crude oil closed in positive territory, it was $1.40 off its best level of the session.

Further weakness in the US dollar and a drastic improvement in risk taking sentiment inspired the gains in October crude oil. Gains were also seen in the product markets on the hopes that more US Fed quantitative easing could stimulate demand. It also seemed that more unrest in the Middle East region provided an added level of support for the crude oil complex.

Meanwhile, this morning's US reading on Consumer Prices showed their largest jump in three years, with 80% of the gains coming from higher gasoline prices. October crude oil ended the week with a gain of 2.6% and the highest close since May 7th.

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Working Natural Gas Storage Capacity Grows 3% Year over Year

EIA estimates that the demonstrated peak working gas capacity for underground storage in the lower 48 states rose 3%, or 136 billion cubic feet (Bcf), to 4,239 Bcf in 2012 compared with 2011. EIA's report compares data from April to April; since April 2012, EIA analysts said 7.5 Bcf has been added to working gas storage capacity cited in the report, and they estimated that another 32 Bcf could potentially be added by year end.

Demonstrated peak capacity is the aggregate peaks for a rolling five year period of what storage operators actually put in the ground. It differs from design, or engineered, capacity (a larger volume), which is what the nation's storage facilities could physically hold. The demonstrated peak volume is what typically is considered a proxy for full storage.

map of natural gas storage facilities, as explained in article text


The report data are as of April in each year. Since April 2012, however, another 7.5 Bcf has been added to working gas storage capacity, and EIA analysts believe from anecdotal information that there is the potential for another 32 Bcf to be in operation by year-end.....Read the entire EIA article.

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Thursday, September 13, 2012

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Wednesday, September 12, 2012

Transocean Announces Agreements to Sell 38 Shallow Water Drilling Rigs to Shelf Drilling

This week Transocean (RIG) announced that the company has reached definitive agreements to sell 38 shallow water drilling rigs to Shelf Drilling International Holdings, Ltd. ("Shelf Drilling") for approximately $1.05 billion. The list of rigs to be acquired by Shelf Drilling in the transactions is provided as Appendix A. Shelf Drilling is a newly formed company sponsored equally by Castle Harlan, Inc., CHAMP Private Equity and Lime Rock Partners. 

The sales price includes approximately $855 million in cash, subject to working capital and other closing adjustments, and $195 million in seller financing. Seller financing will be in the form of preference shares issued by an affiliate of Shelf Drilling. As a component of the agreement, Transocean will provide various transition support services to Shelf Drilling for a period subsequent to the closing of the transactions. The transactions are expected to close in the fourth quarter of 2012, subject to certain conditions.

"This agreement marks an important milestone in our asset strategy to increase our focus on high-specification floaters and jack ups, improving our long-term competitiveness," said Steven L. Newman, President and Chief Executive Officer of Transocean Ltd.

David Mullen, President and Chief Executive Officer of Shelf Drilling, added, "This is an exciting opportunity with great potential. Our strategy will be to maintain an exclusive focus on shallow water drilling, leveraging decades of complementary industry experience of management, three leading investment firms, and our employees, to provide best in class drilling operations for our customers."

Related to the Shelf Drilling transactions, Transocean expects its third quarter 2012 results to include a non-cash charge related to impairment of the long-lived assets or goodwill allocable to these assets. As of June 30, 2012, the aggregate carrying amount of the long-lived assets included in the transactions was approximately $1.4 billion. The sales price includes approximately $200 million related to the net current assets associated with the transactions. Transocean's total aggregate consolidated goodwill as of June 30, 2012 was $3.1 billion, a portion of which is expected to be allocated to the assets included in the transactions.


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This Weeks EIA Short Term Outlook Highlights

• EIA expects U.S. total crude oil production to average 6.3 million barrels per day (bbl/d) in 2012, an increase of 0.7 million bbl/d from last year. Projected U.S. domestic crude oil production increases to 6.8 million bbl/d in 2013, the highest level of production since 1993

• World liquid fuels consumption grew by an estimated 1.0 million bbl/d in 2011. EIA expects consumption growth of 0.8 million bbl/d in 2012 and 1.0 million bb/d in 2013, with China, Russia, the Middle East, Brazil, and other countries outside of the Organization for Economic Cooperation and Development (OECD) accounting for most of the consumption growth. Although forecast liquid fuels consumption in the United States increases by 0.1 million bbl/d in 2013, total OECD liquid fuels consumption falls by 0.2 million bbd/d in 2013, led by declines in consumption in Europe and Japan.

• EIA expects non OPEC liquid fuels production to rise by 0.5 million bbl/d in 2012 and by a further 1.2 million bbl/d in 2013. The largest area of non-OPEC growth is North America, where production increases by 1.0 million bbl/d and 0.6 million bbl/d in 2012 and 2013, respectively, due to continued production growth from U.S. onshore shale and other tight oil formations and from Canadian oil sands. EIA expects that Kazakhstan will commence commercial production in the Kashagan field next year, increasing its total production by 160 thousand bbl/d in 2013. In Brazil, EIA projects output to rise by 200 thousand bbl/d in 2013, with increased output from its offshore, pre-salt oil fields. Forecast production also rises in Columbia, Russia, and China over the next two years, while production declines in Mexico and the North Sea.

• EIA expects that OPEC member countries will continue to produce more than 30 million bbl/d of crude oil over the next two years. Projected OPEC crude oil production increases by about 1.0 million bbl/d in 2012 and 0.1 million bbl/day 2013. The growth in OPEC supply is due in part to Iraq, where new infrastructure has enabled the country to increase production to the highest level since 1989. Following a disruption in early July, Libya restored oil production and exports to about 1.5 million bbl/d in August. OPEC non-crude oil liquids (condensates, natural gas liquids, and gas-to-liquids), which are not covered by OPEC's production quotas, averaged 5.3 million bbl/d in 2011. EIA forecasts that non-crude oil liquids will increase by 0.3 million bbl/d in 2012 and by 0.2 million bbl/d in 2013.

• EIA's forecast of Iranian crude oil production is unchanged from last month's Outlook, with forecast production falling by about 1 million bbl/d by the end of 2012 relative to an estimated output level of 3.6 million bbl/d at the end of 2011, and by an additional 0.2 million bbl/d in 2013.

• EIA estimates that OECD commercial liquid fuel inventories ended 2011 at 2.60 billion barrels, equivalent to 56 days of forward cover. OECD stocks at the end of August 2012 are estimated to be about 22 million barrels higher than at the end of 2011, but are projected to fall back to 2.60 billion barrels by the end of 2012. OECD commercial inventories increase to 2.65 billion barrels and 57 days of forward cover by the end of 2013.

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Pad Drilling and Rig Mobility Lead to More Efficient Drilling

Is it Time to Buy into Silver?

Developments in drilling methods and technology are leading to efficiency gains for oil and natural gas producers. For example, "pad" drilling techniques allow rig operators to drill groups of wells more efficiently, because improved rig mobility reduces the time it takes to move from one well location to the next, while reducing the overall surface footprint. A drilling pad is a location which houses the wellheads for a number of horizontally drilled wells. The benefit of a drilling pad is that operators can drill multiple wells in a shorter time than they might with just one well per site.

Moving a drilling rig between two well sites previously involved disassembling the rig and reassembling it at the new location ("rigging down" and "rigging up") even if the new location was only a few yards away. Today, a drilling pad may have five to ten wells, which are horizontally drilled in different directions, spaced fairly close together at the surface. Once one well is drilled, the fully constructed rig can be lifted and moved a few yards over to the next well location using hydraulic walking or skidding systems, as demonstrated by Range Resources.

Three-dimensional representation of oil or natural gas development of a large underground area, from four drilling pads on the surface, as described in the article text  
Source: U.S. Energy Information Administration, reproduced with permission from Statoil.
Note: Three-dimensional representation of oil or natural gas development of a large underground area, from four drilling pads 


In the picture above, each of the four drilling pads hosts six horizontal wells. Pad drilling allows producers to target a significant area of underground resources while minimizing impact on the surface. Concentrating the wellheads also helps the producer reduce costs associated with managing the resources above-ground and moving the production to market.

Bentek Energy, LLC analysis shows that drilling operators are achieving efficiency gains in the well-drilling process. In June 2012, operators in the Eagle Ford shale formation averaged about 19 days to drill a horizontal well, down from an average of 23 days in 2011. Reducing the time it takes to drill wells can save oil and gas producers a significant amount of money. In the North Dakota section of the Bakken formation, the increase in drilling rigs in the area has begun to slow, but production levels continue to reach record highs each month.

Recent studies by the University of Pittsburgh and Rigzone, as well as analysis of financial reports from E&P companies Abraxas, EQT, and El Paso, show that drilling costs alone are only a portion of the total drilling and completion expenses that producers face. EIA analysis of average Bakken, Eagle Ford, and Marcellus well-related expenses finds that total costs per horizontal well can vary between approximately $6.5 million and $9 million. The cost of completing and hydraulic fracturing typically exceeds the cost of drilling the well.

image of a fully constructed rig being moved between two drilling pads, as described in the article text

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ConocoPhillips Looking to Enter China Natural Gas Shale

Is it Time to Buy into Silver?

ConocoPhillips is looking into expanding its China operations to include shale gas, a company executive said Tuesday.

A move by ConocoPhillips [ticker COP] would help China, a country with no commercial shale gas production in 2011, along on its ambitious target to produce 229.5 billion cubic feet a year of shale gas by 2015. ConocoPhillips, which currently holds stakes in Chinese offshore drilling projects, is "looking into expanding into shale" in the country, Mark Nelson, ConocoPhillips's vice president of commercial and sustainable development, told Dow Jones Newswires.

Mr. Nelson spoke on the sidelines of the U.S.- China Oil & Gas Industry Forum in San Antonio, where Chinese government officials and energy executives met with their U.S. counterparts to discuss....Read the entire Rigzone article.

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Monday, September 10, 2012

Is it Time to Buy into Silver? SLV

The price of silver reached a 5 month high this past week as investor interest seems to have been rekindled in both gold and silver as belief in financial markets increases that the latest round of monetary easing from the Federal Reserve, QE3 , will soon be on its way. Many investors had largely stayed away from silver in recent months after some had got caught up in its volatility. Silver had touched a 30 year high in April 2011 before plunging 35 percent in a few short weeks.

Now the volatility is back, but on the upside, as prices have climbed more than 20 percent in less than a month. The gains have outpaced that of gold which rose roughly 10 percent during the same time frame. Importantly for investors, the ratio between the two precious metals has moved about 10 percent in silver’s favor since mid August. This is the first time silver has outperformed gold since the start of 2012.

For non futures investors, the two precious metals can easily be tracked through the use of exchange traded funds (ETFs). The most liquid ETFs for the two precious metals are the iShares Silver Trust (SLV) and the SPDR Gold Shares (GLD) respectively.

Silver Bullion Spot Price


Gold Bullion Spot Price



You can take a look at my long term outlook analysis from last week here "Gold Standard to be Reinstated Through the Back Door"

Some may wonder why has silver outperformed gold in the past several weeks? The answer goes deeper than just confidence that QE3 is coming soon, but it is still rather a simple one. The sharp rally in silver was fueled largely by short covering. That is, some investors (hedge funds, etc.) had made rather large bets that silver would continue falling and were caught off guard by its recent rise. According to data from the Commodities Futures Trading Commission, the silver market during the week of August 27-31 saw the largest amount of short covering since May 2011. At the same time. Bloomberg reported that hedge funds were the least bullish on silver in almost four years.

It is unknown for how long silver will outperform gold. But even some long term fundamental investors such as legendary commodities investor Jim Rogers has said that he believes silver right now is a better investment than gold. He points to the fact that historically gold has been worth about 12 to 15 times what silver is worth, but that recently it has been worth roughly 50 times silver’s value. Silver is also the only major commodity not to have reached a new all time high in the decade long commodity bull market and is still cheaper than it was 32 years ago.

So it may be worth a look. But since silver is so volatile, wait for a downward spike before initiating or adding to a long position.

If you would like to get my weekly analysis on precious metals
and the board market join my free newsletter at www.TheGold&OilGuy.com

Chris Vermeulen


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Plains Exploration [PXP] to Acquire Shell Offshore Holstein Field Working Interest

Plains Exploration & Production Company [NYSE: PXP] today announces it has entered into a definitive agreement to acquire from Shell Offshore Inc. ("Shell") its 50% working interest in the Holstein Field for $560 million.

At the end of July 2012, these properties were producing an estimated 7,400 barrels of oil equivalent net per day of which nearly 86% is oil and natural gas liquids with an average American Petroleum Institute gravity of 33 degrees. Upside production potential exists in the currently producing reservoirs through numerous low risk, high margin drilling/recompletion and well workover opportunities. The transaction is subject to preferential rights, title and environmental due diligence and other customary closing conditions. This transaction is effective October 1, 2012 and is expected to close by year end 2012.

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Sunday, September 9, 2012

ONG: Crude Oil, Natural Gas and Gold Weekly Technical Outlook For Sunday Sept. 9th

Well it's that time again. It's Sunday and it's time to check in with the staff at Oil N Gold.com to get their call on crude oil, natural gas and gold.....

Crude oil's consolidation from 98.29 continued last week and outlook remains unchanged. With 92.94 support intact, further rally is still expected. Above 98.29 will extend the rise from 77.28 to 100 psychological level and above. However, as noted before, such rise could be the fourth leg inside the triangle pattern from 114.83. Hence, we'll be cautious on topping between 100 and 110. Meanwhile, break of 92.94 will be the first signal of reversal and turn focus to 86.92 support for confirmation.

In the bigger picture, price actions from 114.83 are viewed either a three wave consolidation pattern that's completed at 77.28, or a five wave triangle pattern that's still unfolding. In any case, break of 110.55 resistance will strongly suggest that whole rebound from 33.29 has resumed for above 114.83. While another fall could be seen before an eventual upside breakout, downside should be contained above 77.28 support.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Natural gas' recovery was limited by near term falling channel and retreated. Near term outlook remains bearish so far and fall from 3.277 is still expected to continue. Below 2.575 will target 2.168 support and below. However, break of 2.888 resistance will now confirm that fall from 3.277 has completed. More importantly, the corrective structure will raise the odd that rise fro 1.902 is resuming and will turn focus back to 3.277 resistance instead.

In the bigger picture, the failure to sustain above 3.255 support turned resistance didn't confirm medium term trend reversal. That is, whole decline from 6.108 could still extend and a break below 2.168 will pave the way to a new low below 1.902. Nonetheless, again, sustained break of 3.255 will confirm trend reversal and a test on 4.983 key resistance level should at least be seen.

In the longer term picture, as long as 3.255 resistance holds, whole down trend from 13.694 (2008 high) is still in progress, so is that from 15.78 (2005 high). Another fall could be seen to 1999 low of 1.62 on resumption. But decisive break of 3.255 will now be an important sign of long term bottoming,

Nymex Natural Gas Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Gold jumped further to as high as 1745.4 with a strong close at 1737.6. Initial bias remains on the upside and current rally should now extend to 1792.7/1804.4 resistance zone next. On the downside, below 1689.3 minor support will turn bias neutral and bring consolidations. But break of 1647.1 is needed to indicate near term reversal. Otherwise, we'll stay bullish in gold.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7 resistance is needed to be the first signal of up trend resumption. Otherwise, the consolidation would extend further.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run

Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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Friday, September 7, 2012

Natural Gas Demand at Power Plants Was High in Summer 2012

Natural gas use for power generation rose this summer because of hot weather driven electricity demand for air conditioning coupled with low natural gas prices. According to Bentek Energy, estimated daily natural gas use to produce electric power (also called power burn) averaged 26.3 billion cubic feet per day (Bcf/d) so far in 2012 (Jan.1st - Aug. 15th), up 24% compared to the same period for 2011.

Bentek Energy, which has been estimating power burn since January 2005, said that 17 of the 25 highest days of power burn since 2005 occurred this summer between June 28 and August 9.

The two main drivers of the increased use of natural gas at power plants this year are weather and a structural shift toward generating more electricity from natural gas fired power plants. 

graph of estimated daily total U.S. power burn, as described in the article text

The National Oceanic and Atmospheric Administration reported the warmest first half of the year since 1895 in 28 states, and that heat continued in July and August. U.S. population weighted cooling degree days (CDDs), a measure of cooling requirements, averaged 26% higher than the 30 year average from January 1 through August 15, and has been consistently above average for most of the year.

Regionally, CDDs in the Midwest, where hot, dry weather was particularly severe, were 59% above their 30 year average, with the Northeast, South, and West at 43%, 18%, and 14%, respectively, above their corresponding averages. In April 2012, EIA reported that monthly shares of coal and natural gas fired generation were equal for the first time. This is a result of several factors, including:

*   Lower natural gas prices, the result of new drilling technologies, growing production, a large increase in proved reserves, and robust natural gas infrastructure additions over the last several years.

*  Power plant efficiencies, with newer natural gas units more efficient than older coal units and rising capacity factors of natural gas fired units.

*  Coal unit retirements, expecting almost 9,000 MW of coal fired capacity to be retired in 2012, with additional retirements in subsequent years.

graph of estimated average daily power burn by region through August 15, 2012, as described in the article text

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Wednesday, September 5, 2012

Can it be true...is it even possible? Gold Standard To Be Reinstated Through The Back Door


With political season upon there is plenty of talk about the U.S. going back to the gold standard. Most people think it's just a play by the right to appease Ron Paul and his supporters. But really, is it even possible at this point to go back to the gold standard. One of my business partners Chris Vermeulen just sent over a great article he just wrote.......

For the first time in over 30 years, talk of a return to the gold standard has become part of mainstream politics in the United States. Part of the official Republican policy adopted it at the recent Republican Convention and called for the commission to look at reestablishing the link between gold and the U.S. dollar. No doubt that plank was added to soothe supporters of Texas Congressman Ron Paul.

However, gold bugs holding gold bullion or even those holding gold ETFs such as the SPDR Gold Shares (NYSE: GLD) shouldn’t hold their breath in anticipation of the gold standard returning. There was a similar commission – the Gold Commission – set up in 1981 by President Ronald Reagan. After a lot of ‘commissioning’, the decision was made to go with the status quo of using fiat Federal Reserve dollars.

Any commission set up under the current president would likely come to the same conclusion. There are simply too many practical obstacles to return to a full fledged gold standard. Even pro-gold advocates including the World Gold Council and the Gold Anti-Trust Action Committee (GATA) don’t see a gold standard returning.

The key problem would be at what price of gold would the United States peg its currency. Great Britain returned to the gold standard in 1925, after going off it in 1914, at the 1914 peg price. This was a mistake made by Winston Churchill (he called it the biggest he ever made) since it basically ignored the vast inflation in the British pound in those intervening years. The result was a vast overvaluation of the pound and deflation and high unemployment soon followed.

What price would a new Gold Commission set as the “correct” price of the U.S. dollar versus gold? $1,000? $2,000? $5,000? The answer is that there is no “correct” price. Whatever price is set will eventually be tested by the financial markets and fail much as the pegged currencies system failed. So there will be no return to the gold standard.

But that does not mean there will not be a ‘back-door’ gold standard. The move to such as a system is already underway as central banks all over the world are rebuilding their stockpiles of gold. After two decades of heavy selling, central banks became net buyers of gold in 2010 and the momentum has built since. Gold will likely end up being used as ‘good’ collateral by global central banks, as opposed to the shaky collateral sovereign bonds are turning into.

Central bank purchases, led by the emerging markets, are on track this year to hit a record high according to the World Gold Council. China alone in 2011 bought around 490 tons of gold. Other countries including Russia, Turkey and South Korea have added gold to their official holdings in recent months. This buying showed up as central bank purchases in the second quarter of 2012 were more than double the level reported a year earlier at 157.5 metric tons. If the buying continues at current levels, central banks gold purchases would total around 500 tons this year, easily surpassing last year’s 458 tons.

The bottom line for investors from the global central banks’ buying of gold? The gold standard is working its way back into the international monetary system through the back door. This should, in the long term, put a floor under gold and help maintain it on its steady upward path.

 Just last week we started to see gold bullion, silver bullion and gold miner share prices start to breakout to the upside of a 12 month consolidation pattern. This could be the start of the next major rally in precious metals as future uncertainty fears continue to rise. The large bullish technical pattern we see on the gold chart points to much higher prices over the coming 24 months. But keep in mind this is a monthly chart and it could still take months to truly breakout to new highs and start another rally.

Gold Bullion Trading
Gold Bullion Trading

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Chris Vermeulen



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