Tuesday, August 7, 2012

Gastar Exploration Reports Second Quarter 2012 Results

Gastar Exploration Ltd. (NYSE:GST) today reported financial and operating results for the three and six months ended June 30, 2012. Excluding non cash impairment charges and unrealized hedging gains, adjusted net loss attributable to Gastar's common shareholders was $4.1 million, or $0.06 per diluted share for the second quarter of 2012. Including the effect of a non cash impairment of natural gas and oil properties of $72.7 million and an unrealized hedging gain of $2.8 million, reported net loss for the second quarter of 2012 was $74.0 million, or $1.17 per diluted share.

Excluding the impact of an unrealized natural gas hedging gain of $502,000 and other special items in the second quarter of 2011, adjusted net loss was $377,000, or $0.01 per diluted share for the period. Including the $502,000 gain and other special items, reported net income for second quarter of 2011 was $126,000 or $0.00 per diluted share. (See the accompanying reconciliation of net income (loss) per common share and earnings per diluted share to this non-GAAP financial measure at the end of this news release.)

Our net cash provided by operating activities before working capital changes for the second quarter of 2012 was $5.5 million or $0.09 per share compared to $2.9 million or $0.05 per share for the second quarter of 2011. Our net cash provided by operating activities before working capital changes and adjusted to exclude litigation settlement expense was $9.6 million or $0.15 per share for the first six months of 2012 versus $7.5 million or $0.12 per share for the same period last year. (See the accompanying reconciliation of cash flow before working capital changes and as adjusted for special items to GAAP financial measures at the end of this news release.)

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Natural gas, oil and natural gas liquids (NGLs) revenues increased 31% to $11.1 million in the second quarter of 2012, up from $8.5 million in the second quarter of 2011. The increase was the result of an 87% growth in production volumes partially offset by a 30% decrease in realized commodity prices. Average daily production was 34.8 million cubic feet of natural gas equivalent (MMcfe) per day for the second quarter of 2012, compared to 18.6 MMcfe per day for the same period in 2011.

Liquids revenues (oil, including condensate, and NGLs) represented approximately 40% of our total natural gas, oil and NGLs revenues for the second quarter of 2012 compared to 12% for the second quarter of 2011. Liquids daily production represented approximately 19% of total production for the second quarter of 2012 compared to 16% for the first quarter of 2012 and 4% for the second quarter of 2011. Sequentially, total average daily production in the second quarter increased 18% from first quarter 2012 production of 29.4 MMcfe per day.

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Carrizo Oil & Gas [CRZO] Announces Record Production and Revenue in Second Quarter 2012 Results

Carrizo Oil & Gas, (NASDAQ: CRZO) today announced the Company's record financial results for the second quarter of 2012, which included the following highlights:

Results for the second quarter of 2012

* Record Oil Production of 7,618 Bbls/d, a 28% sequential increase from the first quarter of 2012

* Record Total Production of 2,393 Mboe, or 26,297 Boe/d, (equivalently 14.4 Bcfe, or 157,783 Mcfe/d), a 4% sequential increase from the first quarter of 2012

* Record Oil Revenue of $68.6 million, amounting to 82% of total revenue

* Record Revenue of $83.8 million, or adjusted revenue of $92.0 million, including the impact of realized hedges

* Net Income of $28.5 million, or Adjusted Net Income, (as defined below) of $10.5 million, a sequential decrease of $7.5 million from the first quarter of 2012, due to a 37% increase in DD&A, largely attributable to the April 2012 sale of Barnett Shale properties to Atlas

* EBITDA, (as defined below) of $69.3 million, comparable to the $70.2 million first quarter 2012 record

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Production volumes during the three months ended June 30, 2012 were 2,393 Mboe, an increase of 82 Mboe, or 4%, from first quarter 2012 production of 2,311 Mboe. The 4% sequential increase in production from the first quarter of 2012 to the second quarter of 2012 was due to the contribution of new wells brought on during the quarter. Second quarter production growth would have been substantially higher had it not been impacted by the sale of Barnett Shale production to Atlas Resource Partners, L.P. ("Atlas") on May 1, 2012.

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Monday, August 6, 2012

Biodiesel demand Estimates Now Provided in Petroleum Supply and Demand Balances

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Biodiesel production data were reported for the first time in U.S. and regional petroleum supply and disposition balances as published by the U.S. Energy Information Administration (EIA) in the Petroleum Supply Monthly (PSM) in May 2012. The biodiesel production data in the PSM will allow EIA to more completely account for biodiesel when calculating demand (measured as product supplied) for distillate fuel oil. Biodiesel production and other biodiesel data are now included in the item "Renewable Fuels Except Fuel Ethanol" in PSM supply and disposition tables.

In addition, previously published PSM data for January-April 2012 were revised to include biodiesel production. Similar revisions will be reported for 2011 when the Petroleum Supply Annual is released at the end of August 2012.

graph of U.S. Distillate fuel demand, as described in the article text

Product supplied is a widely followed measure of demand for petroleum products. For finished petroleum products (including distillate fuel oil), product supplied is calculated as the sum of production, imports, net receipts (only for regional data), and adjustments minus the sum of stock change, refinery and blender input, and exports. While not a measure of actual consumption, product supplied has proven to be a useful approximation of demand for petroleum products.

In the case of biodiesel, EIA assumes that any biodiesel that is produced is blended with diesel fuel, adding to the diesel fuel pool. This biodiesel production amount adds to the distillate fuel product supplied level, as shown on the graph. Including biodiesel production in the distillate fuel production volume added between 50 to 70 thousand barrels per day over the first five months of 2012.

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Chesapeake Energy Corporation Reports Financial and Operational Results for the 2012 Second Quarter

Chesapeake Energy Corporation (NYSE:CHK) today announced financial and operational results for the 2012 second quarter. For the 2012 second quarter, Chesapeake reported net income to common stockholders of $929 million ($1.29 per fully diluted common share), ebitda of $2.385 billion (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization) and operating cash flow of $895 million (defined as cash flow from operating activities before changes in assets and liabilities) on revenue of $3.389 billion and production of 347 billion cubic feet of natural gas equivalent (bcfe).

The company’s 2012 second quarter results include various items that are typically not included in published estimates of the company’s financial results by certain securities analysts. Excluding such items for the 2012 second quarter, Chesapeake reported adjusted net income to common stockholders of $3 million ($0.06 per fully diluted common share) and adjusted ebitda of $803 million.

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The primary excluded items from the 2012 second quarter reported results are a net after-tax gain on investments of $584 million, primarily related to the sale of all of the company’s interests in Access Midstream Partners, L.P. (NYSE:ACMP; formerly named Chesapeake Midstream Partners, L.P.), unrealized noncash after tax mark to market gains of $490 million resulting from the company’s oil, natural gas liquids (NGL) and natural gas and interest rate hedging programs and a noncash after tax charge of $148 million related to the impairment of certain of the company’s property and equipment.

A reconciliation of operating cash flow, ebitda, adjusted ebitda and adjusted net income to comparable financial measures calculated in accordance with generally accepted accounting principles is presented on pages 20 – 24 of this release.

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Sunday, August 5, 2012

Kodiak Oil & Gas Corp. Reports Second Quarter 2012 Financial Results

Kodiak Oil & Gas Corp. (NYSE: KOG), an oil and gas exploration and production company with primary assets in the Williston Basin of North Dakota, today announced second quarter and first half 2012 financial results.

Q2 2012 Financial Results
For the quarter ended June 30, 2012, the Company reported oil and gas sales of $85.8 million, as compared to $22.1 million during the same period in 2011, a 288% increase. Kodiak reported an overall 385% increase in quarter over quarter equivalent sales volumes of 1.2 million barrels of oil equivalent (BOE) for the second quarter 2012, or an average of 12,696 BOE per day (BOE/d) during the second quarter 2012, as compared to 238 thousand BOE, or an average of 2,618 BOE/d in the same period in 2011. Crude oil revenue accounted for approximately 96% of oil and gas sales in the second quarter 2012.

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For the second quarter 2012, the Company reported net income of $93.1 million, or $0.35 per basic and diluted share, compared with net income of $14.0 million, or $0.08 per basic and diluted share, for the same period in 2011. Net income for the second quarter 2012 includes an unrealized gain of $91.7 million related to the mark to market of derivative instruments used for commodity hedging and $25.9 million in deferred income tax expense. The net effect of the non cash hedging activities credit and non cash deferred income tax expense increased Kodiak's reported net income for the second quarter 2012 by $0.25 per basic and diluted share. Detailed disclosure of the Company's derivative contracts is available in its Filing on Form 10-Q for the quarter ended June 30, 2012.

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ONG: Crude Oil Weekly Technical Outlook For Sunday August 5th

We like to drop in on the staff at Oil N'Gold to see where they think crude oil is headed. And they are looking neutral at this point.....

Crude oil rebounded strongly late last week but upside is still limited below 92.94 short term top. Initial bias remains neutral and more consolidation cannot be ruled out. But after all, even in case of another decline, near term outlook remains bullish as long as 83.65 support holds. As noted before, decline from 110.55 should have finished at 77.28 already. Current rebound from there should extend and break of 92.94 will target 61.8% retracement at 97.84 and above.

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In the bigger picture, price actions from 114.84 are viewed as a three wave consolidation pattern with fall from 110.55 as the third leg. Such decline could have finished earlier than we expected at 77.28. Sustained trading above 90 psychological level will bring stronger rally towards 114.83 resistance level. And break there will resumption whole up trend from 33.2. On the downside, another fall cannot be ruled out yet. But even in that case, strong support should be seen below 74.95 and above 61.8% retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise.

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.

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DeCarley Trading is Joining the Zaner Group

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DeCarley Trading has announced that they have teamed up with the Zaner Group. With their new brokerage arrangement, they are able to offer the same great rates for both full service and discount online traders with the extraordinary service our brokerage clients have grown to expect!

For over 30 years, Zaner has provided brokerage services to traders worldwide in the futures, commodities, metals, currencies, energies and forex markets. We are confident the reliable clearing through various FCMs and top notch research offered by Zaner will be great assets to our clients.

Zaner is a member of the National Futures Association (NFA) and is registered with the Commodity Futures Trading Commission (CFTC). In addition, Zaner is a member of the National Introducing Brokers Association, Illinois Chamber of Commerce and has an A+ rating from the Better Business Bureau.

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Saturday, August 4, 2012

Phillips 66 Reports Second Quarter Earnings of $1.2 Billion or $1.86 Per Share

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Phillips 66 (NYSE: PSX) announces second quarter earnings of $1.2 billion and adjusted earnings of $1.4 billion. This compares with earnings and adjusted earnings of $1.0 billion in the second quarter of 2011. In addition, Phillips 66’s Board of Directors has approved the repurchase of up to $1.0 billion of the company’s outstanding common shares.

“We’re off to a solid start, running well in a positive margin environment,” said Greg Garland, chairman and chief executive officer. “The location of our domestic refining, midstream and chemicals facilities enabled us to access advantaged feedstocks, creating strong earnings and cash flow. The announcement of our share repurchase plan is evidence of our commitment to strong and growing shareholder distributions.”

As previously announced, Phillips 66’s Board of Directors has declared a $0.20 per share dividend, which is payable in the third quarter.


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Friday, August 3, 2012

EOG Resources Reports Second Quarter 2012 Results, Increases 2012 Crude Oil Production Growth Target to 37 Percent

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EOG Resources, Inc. (NYSE: EOG) today reported second quarter 2012 net income of $395.8 million, or $1.47 per share. This compares to second quarter 2011 net income of $295.6 million, or $1.10 per share.

Consistent with some analysts' practice of matching realizations to settlement months and making certain other adjustments in order to exclude one time items, adjusted non GAAP net income for the second quarter 2012 was $312.4 million, or $1.16 per share. Adjusted non GAAP net income for the second quarter 2011 was $299.2 million, or $1.11 per share.

The results for the second quarter 2012 included impairments of $1.5 million, net of tax ($0.01 per share) related to certain non-core North American assets, net gains on asset dispositions of $75.1 million, net of tax ($0.28 per share) and a previously disclosed non cash net gain of $188.4 million ($120.7 million after tax, or $0.45 per share) on the mark to market of financial commodity contracts. During the quarter, the net cash inflow related to financial commodity contracts was $173.2 million ($110.9 million after tax, or $0.41 per share). (Please refer to the attached tables for the reconciliation of adjusted non-GAAP net income to GAAP net income.)

With 86 percent of North American wellhead revenues currently derived from crude oil, condensate and natural gas liquids, EOG delivered strong earnings per share growth of 64 percent for the first half of 2012 compared to the same period in 2011. Discretionary cash flow increased 29 percent and adjusted EBITDAX rose 28 percent over the first half of 2011. (Please refer to the attached tables for the reconciliation of non-GAAP discretionary cash flow to net cash provided by operating activities (GAAP) and adjusted EBITDAX (non-GAAP) to income before interest expense and income taxes (GAAP).)

"EOG's financial and operating results get better and better. We are achieving this consistent string of home runs because EOG has captured the finest inventory of onshore crude oil assets in the entire United States and has the technical acumen to maximize reserve recoveries," said Mark G. Papa, Chairman and Chief Executive Officer. "EOG is the largest crude oil producer in the South Texas Eagle Ford and North Dakota Bakken with the sweet spot positions in both plays. In addition, we are uniquely positioned to market a significant portion of this crude oil at robust Brent type pricing through our own rail offloading facility at St. James, Louisiana, and to reach the Houston Gulf Coast market via the recently completed Enterprise Eagle Ford pipeline."

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U.S. Proved Reserves Increased Sharply in 2010

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On August 1, the U.S. Energy Information Administration (EIA) released its summary of the nation's proved reserves of oil and natural gas for 2010. Proved reserves of both oil and natural gas in 2010 rose by the highest amounts ever recorded in the 35 years EIA has been publishing proved reserves estimates.

Technological advances in drilling and higher prices contributed to gains in reserves. The expanding application of horizontal drilling and hydraulic fracturing in shale and other "tight" (very low permeability) formations, the same technologies that spurred substantial gains in natural gas proved reserves in recent years, played a key role. Further, rising oil and natural gas prices between 2009 and 2010 likely provided incentives to explore and develop more resources.

graphs of proved reserves and changes in proved reserves for oil and natural gas, as described in the article text

Oil proved reserves (which include crude oil and lease condensate) rose 12.8% to 25.2 billion barrels in 2010, marking the second consecutive annual increase and the highest volume since 1991. Natural gas proved reserves (estimated as "wet" natural gas, including natural gas plant liquids) increased by 11.9% in 2010 to 317.6 trillion cubic feet (Tcf), the twelfth consecutive annual increase, and the first year U.S. proved reserves for natural gas surpassed 300 Tcf.

Proved reserves reflect volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. It should be noted that the 2010 summary was delayed due to budgetary restrictions that limited EIA's survey data collection efforts.

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Thursday, August 2, 2012

Silver Suffers The Most From Bernanke And What Is Next

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While the exchange traded funds for gold and copper fell today due to investors expressing disappoint at the modest response of the Federal Reserve to declining economic growth, it was silver that was off the most.

SPDR Gold Shares (GLD) fell in trading today by 0.89%. IPath Dow Jones Copper (JJC) dropped 1.89%.  Plunging the deepest was iShares Silver Trust (SLV), off by 2.14%.

Traders were hoping for more aggressive action by Federal Reserve Chairman Ben Bernanke. But that will not come until after the November elections in the United States. Remember that Quantitative Easing 2 did not begin until November 2010, though it was announced at the Jackson Hole economic policy summit in August of 2010.

Silver is in what would seem to be the “sweet spot” between gold and copper.  Almost all of gold is used for investment or decorative purposes.  Almost all of The Red Metal goes for industrial needs.   For silver, it comes almost down right in the middle between commercial and a commodity for investments or jewelry.  The charts below show the trading relationship for each of the exchange traded funds when paired against each other.

JJC Copper ETF Trading


Even though silver has a much higher industrial usage, the SLV moves along with the GLD.   As a result, it soared during Quantitative Easing 2.  Obviously, the charts reveal that most of the trading is from speculators as the JJC should move in an inverse relationship with the GLD.  That is due to gold being used almost entirely for non-industrial end uses while copper is used almost industrial for industrial uses.

Up slightly for the week as traders thought more dramatic economic stimulus efforts would result from the Federal Open Market Committee meeting  other than an extension until the end of the year for Operation Twist, the SLV is down for the last month, quarter, six months and 52 weeks of market action.  Year to date, the SLV is off by 1.48%.

For the last year, however, the SLV is down 33.35%.  Volume was up today, with the SLV below its 20 day, 50 day and 200 day moving averages.  In the most obvious trend, it is trading much lower under its 200 day day moving average at 11.67% down than underneath the 20 day moving average, beneath it by only 0.17%.  The only move worth noting in the technical indicators for silver were the long engulfing green bodies last week after Treasury Secretary Geithner’s  gloomy testimony on The Hill and more bad economic news from the US peaked buying as traders thought Quantitative Easing 3 was coming.

SLV ETF Trading


If traders long on silver are looking for help from Bernanke, it will not be coming until after the November election, though it could be announced when he speaks later this month at Jackson Hole.

Chris Vermeulen


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Wednesday, August 1, 2012

Murphy Oil Announces Preliminary Second Quarter 2012 Earnings

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Murphy Oil Corporation (NYSE: MUR) announced today that income from continuing operations was $295.4 million ($1.52 per diluted share) in the 2012 second quarter, up from $280.0 million ($1.44 per diluted share) in the second quarter 2011.

The increase in 2012 earnings from continuing operations was mostly attributable to improved downstream results compared to the prior year’s quarter. Net income in the second quarter of 2012 was also $295.4 million ($1.52 per diluted share) compared to net income of $311.6 million ($1.60 per diluted share) in the second quarter of 2011. Net income in the 2011 second quarter included income from discontinued operations of $31.6 million ($0.16 per diluted share), which related to operating results of two U.S. refineries that were sold in the second half of 2011.

For the first six months of 2012, income from continuing operations was $585.5 million ($3.01 per diluted share), an improvement from $518.5 million ($2.66 per diluted share) in 2011. For the six month period of 2012, net income totaled the same $585.5 million ($3.01 per diluted share), but net income of $580.5 million ($2.98 per diluted share) for the first six months in 2011 included income from discontinued operations of $62.0 million ($0.32 per diluted share).


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Devon Energy Earns $477 Million in Second Quarter, Crude Oil Production Increases 26 Percent

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Devon Energy Corporation (NYSE:DVN) today reported net earnings of $477 million for the quarter ended June 30, 2012, or $1.18 per common share ($1.18 per diluted share). This compares with second quarter 2011 net earnings of $2.7 billion, or $6.50 per common share ($6.48 per diluted share). A one time gain of $2.5 billion resulting from the divestiture of assets in Brazil enhanced the company’s second quarter 2011 earnings.

Devon’s second quarter 2012 financial results were impacted by certain items securities analysts typically exclude from their published estimates. Adjusting for these items, the company earned $224 million or $0.55 per diluted share in the second quarter 2012. The adjusting items are discussed in more detail later in this news release.

Strong Oil Growth Drives Production Increase

Devon continued to deliver strong oil production growth in the second quarter 2012. In aggregate, oil production averaged 149,000 barrels per day, a 26 percent increase compared to the second-quarter 2011. This increase is largely attributable to growth from the company’s Jackfish and Permian Basin projects.

Total production of oil, natural gas and natural gas liquids averaged 679,000 oil equivalent barrels (Boe) per day in the second quarter. A number of production interruptions primarily related to natural gas processing facilities reduced the company’s second quarter production by 16,000 Boe per day. The most significant occurrence was maintenance downtime at Devon’s Bridgeport facility in North Texas which reduced natural gas liquids production by approximately 10,000 barrels per day in the quarter. Due to the low natural gas liquids price environment, the second quarter was an opportune time for plant maintenance activities. Other minor disruptions at third party facilities in the Permian Basin, Mid-Continent and Gulf Coast regions also contributed to the reduced volumes. In spite of these issues, which have now been resolved, companywide production increased three percent compared to the second quarter 2011.

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Heat Wave Can't Get You $8 Natural Gas in 2012

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From the staff at EconMatters.......

The Energy Department reported that natural gas in storage grew by 26 billion cubic feet to 3.189 trillion cubic feet for the week ended July 20. The inventory level was 15.8% above the five year average of 2.754 trillion cubic feet, and 18% above last year's level.

Low natural gas prices in the U.S. this year has not only tanked the stocks of many gas weighted producers, but also dragged down profits of U.S based oilfield services companies as a result of reduced gas drilling activity (See Chart Below). However, since hitting a 10 year low of below $2/mmbtu in April, Henry Hub benchmark prices has surged 69% hitting $3.214/mmbtu on Monday, July 30, the high of the year.



The latest bullish sentiment is fueled mostly by forecasts for more unusual heat this summer to increase air conditioning use. In addition, there's also an increase in usage/demand as lower natural gas prices have also attracted many utilities to switch from coal to natural gas for power generation. According to the EIA, electricity generated using natural gas was roughly even with coal for the first time ever in April. Historically, natural gas typically supplied just over 20% of the domestic electricity needs.


These positive indicators have prompted at least one article at Forbes to predict $8.00/mcf natural gas by "the approaching winter", that means another 160% rise in about four months.

Well, EIA did raise its estimate for domestic natural gas consumption this year, expecting demand to climb 3.3 bcfd, or 4.9%, from 2011 to 69.91 bcf daily driven mainly by a 21% jump in utilities coal-to-gas switching for power generation in 2012, offsetting declines in residential and commercial use, primarily due to a weak U.S. economy.



Nevertheless, the problem is natural gas starts to lose its cost advantage to coal at around $2.40 to $2.50 per mmbtu. So the current $3.20/mmbtu levels, if sustained, could take away one significant bullish swing factor in the natural gas fundamentals--demand from the power gen sector. If that happens, it is very likely there could be another record storage level before "the approaching winter," let alone $8/mmbtu.



The natural-gas market this year is now outpacing even the returns in oil and copper (i.e. Every dog has its day). However, our observation is that the NYMEX natural gas market a lot of times could be in a somewhat irrational "trend trading" mode driven mostly by traders totally disregarding the fundamentals. The current run-up seems to be in one of those "trend-trading" momentum, and likely will not last long after reality sets in. For now, we see Henry Hub continue to hover within the $2-$3/mmbtu range in the next twelve months barring a super sized hurricane knocking out production in the U.S. Gulf.

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Tuesday, July 31, 2012

BP Announces Second Quarter 2012 Results

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BP today reported its quarterly results for the second quarter of 2012. Underlying replacement cost profit for the quarter, adjusted for non operating items and fair value accounting effects, was $3.7 billion, compared with $5.7 billion for the same period in 2011 and $4.8 billion for the first quarter of 2012.

Compared to the previous quarter, the underlying results were depressed by weaker oil and US gas prices together with reductions in output due to extensive planned maintenance, particularly affecting high margin production from the Gulf of Mexico, and lower net income from TNK-BP. This was partly offset by a beneficial consolidation adjustment to unrealised profit in inventory.

BP’s share of net income from TNK-BP was $700 million lower than the first quarter, driven by the impact of the rapid fall in oil prices amplified by the lag in Russian oil export duty, which is based on earlier higher oil prices. At current Urals prices, net income in the third quarter is expected to show some positive reversal of the duty lag.

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Bob Dudley, BP group chief executive, said: “We recognise this was a weak earnings quarter, driven by a combination of factors affecting both the sector and BP specifically. “The effects of price movements have impacted our earnings in the quarter. Our extensive turnaround and maintenance programme, which will continue into the third quarter, is also affecting some aspects of our near term results. All of this will take time, but it is important investment that will enhance safety and reliability for the long term.

As we deliver this major transformation, we are also committed to generating sustainable efficiencies in our operations. “Rebuilding trust with our shareholders and other stakeholders is vitally important. We are making progress against the critical strategic and operational targets we have set ourselves and are confident that this will deliver long term, sustainable value.”

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Anadarko Announces Second Quarter 2012 Results [APC]

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Anadarko Petroleum Corporation (NYSE: APC) today announced a second quarter 2012 net loss attributable to common stockholders of $380 million, or $0.76 per share (diluted). These results include certain items typically excluded by the investment community in published estimates. In total, these items decreased net income by approximately $804 million, or $1.61 per share (diluted), on an after-tax basis.(1) Cash flow from operating activities in the second quarter of 2012 was approximately $2 billion, and discretionary cash flow totaled $1.951 billion.(2)

Second Quarter 2012 Highlights

* Delivered record daily sales volumes of 742,000 barrels of oil equivalent (BOE)
* Increased oil sales volumes by approximately 20,000 barrels per day over first quarter 2012
* Generated more than $1.9 billion of discretionary cash flow from operating activities
* Discovered second major natural gas complex offshore Mozambique
* Increased estimated recoverable resources at the Gulf of Mexico Vito field to more than 300 million BOE

"Anadarko's positive momentum continued through the second quarter of 2012 with strong operating performance, delivering record sales volumes and enabling us to increase the midpoint of our full-year sales-volumes guidance by 3 million BOE without increasing capital," Anadarko President and CEO Al Walker said. "With record sales volumes and significant free cash flow during the first half of the year, our deep portfolio and efficient capital allocation continues to deliver growth and value in the current price environment. We are committed to operating within cash flow and selectively accelerating the value of longer dated projects, as we did at the Gulf of Mexico Lucius development and the Salt Creek field in Wyoming during the quarter. The execution of our strategy is expected to continue to deliver industry leading operating performance and exploration success, offering very competitive value creation opportunities."

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Monday, July 30, 2012

The Federal Reserve, Gold, Crude Oil and the Dollar’s Demise

The Federal Reserve through its various monetary mechanisms has a major impact on the value of the U.S. Dollar and over time has destroyed the purchasing power of the fiat base currency used in the United States.
Interestingly enough, the following quote comes directly from the Federal Reserve’s website regarding one of its primary mandates, “In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee’s assessment of its maximum level.”
The chart below illustrates the horrific job the Federal Reserve has done of protecting the purchasing power of the U.S. Dollar since its creation.
Dollar Creation By The Federal Reserve
In light of the longer-term malaise seen above, the Dollar Index futures have recently rallied sharply higher as Europe continues to flail in a slow and agonizing decline which will ultimately lead to a complete fiscal disaster.
Sovereign debt concerns continue to mount regardless of what the European technocrats spew publicly and the U.S. Dollar has been the primary beneficiary of these seemingly growing concerns.
This brings me to the purpose of this article. Most of the articles I write are focused on option based trades, but I decided it was time to put forth a more comprehensive scenario that could unfold over the next few years as a result of excessive monetary stimulus through various quantitative easing mechanisms developed by the Federal Reserve Bank.  “A mild change” to say the least . . .
As discussed above, the U.S. Dollar Index futures have moved higher throughout most of 2012. Any significant increase in the U.S. Dollar is a growing concern among central bankers as it correlates toward deflation. Deflation is the Fed’s biggest enemy, besides themselves of course.
Next week the Federal Reserve will release statements relating to the economic condition of the United States. Furthermore, the Fed also will discuss if it will initiate another dose of monetary crack for a capital market place that is addicted to cheap money and zero interest rates. At this point, the so-called marketplace is the antithesis of free by all standard measures.
Consider the long-term monthly chart of the U.S. Dollar Index futures illustrated below:
Dollar Index Value Chart
The U.S. Dollar Index futures are in an uptrend that dates back to mid 2011. The orange line illustrates the uptrend and represents a key price level for the U.S. Dollar Index. For those unfamiliar with basic technical analysis, the rising orange trendline will act as buying support until the Dollar eventually breaks down through it signaling the bullish move higher has ended.
This brings us to a rather interesting potential observation. Today Mario Draghi, Chairman of the European Central Bank (ECB), made public comments regarding the readiness of the ECB to act if need be to safeguard the European Union. The Dollar Index Futures plummeted on the statement and remained under selling pressure most of the trading session on Thursday.
If a mere comment from the ECB can have such a damaging impact on the valuation of the Dollar, what would happen to the Dollar if the Fed initiated a new easing mechanism?
The answer is simple, the U.S. Dollar would immediately be under selling pressure. Selling pressure in the U.S. Dollar Index generally leads to a rally in risk assets such as equities and oil futures. Over the longer-term, a weak Dollar is also positive for precious metals and other hard assets.
As an example to illustrate the power of Quantitative Easing as it relates to the price of both gold and oil, consider the following chart:
Spot Gold Price Chart
Obviously the price action is pretty clear that Quantitative Easing has a positively correlated impact on the price performance of hard assets, specifically gold and oil. Now consider a price chart of the Dollar Index shown below courtesy of the Federal Reserve Bank, the annotations are mine.
Quantitative Easing Effects
The chart above tells an interesting story about the impact that Quantitative Easing has on the Dollar. How can the Federal Reserve claim to be protecting the purchasing power of the U.S. Dollar when its actions have a direct negative correlation to the greenback’s price?
Furthermore, based on the chart above I am of the opinion that Quantitative Easing III is a foregone conclusion. The current price of the Dollar Index is clearly above the previous high where QE2 was launched. So far, the rally in the Dollar Index has not pushed equity prices considerably lower. However, should the Federal Reserve refrain from initiating additional easing measures it is likely based on the chart above that the U.S. Dollar Index will rally.
Upon the conclusion of both QE and QE2, the Dollar Index rallied sharply higher. With the Fed announcement coming closer by the hour, financial pundits will attempt to predict the future action of the Fed.
I have no interest in making predictions about what the Fed will do. It is a certainty that QE3 will take place at some point in the future whether it be sooner or later. The Federal Reserve simply has no choice, otherwise the Dollar would continue to rally and we would begin to go through a deflationary period which the Federal Reserve simply cannot tolerate.
The scenario that I would urge inquiring minds to consider would be as follows. If the Fed does nothing we can likely assume that the U.S. Dollar Index will continue to rally to the upside. Based on the price chart of the U.S. Dollar Index shown above, we can expect that sellers would certainly step in around the 86 – 88 price range based on previous resistance.
If the U.S. Dollar makes it anywhere near the 86 – 88 price range without the Federal Reserve initiating QE3 it would be expected that risk assets would be under considerable selling pressure somewhere along the way. Should the Fed act to break the Dollar’s rally either through more easing or “other” mechanisms, the result would be a potentially monster rally for risk assets, at least initially.
Equities, oil, and precious metals would rally on a falling Dollar as shown above. The question then becomes what if this is the last gasp rally before a monster selloff ensues in the Dollar Index?
If the Fed breaks the rally early or initiates a monster-sized easing program, the initial reaction will be quite positive, especially for equities. As the selloff in the Dollar Index worsens, equities would eventually begin to underperform as oil prices would surge putting pressure on the economy.
In addition to oil rallying on the weaker Dollar, we could also see sellers start to show up in droves dumping U.S. Treasury’s to any buyer left standing. International debt holders would especially have incentive to sell Treasury’s as the real purchasing power of the bonds’ interest payments would decline as the Dollar fell in value.
The way I see it, whether the Fed launches QE3 now or later, the outcome will not change. An extremely weak Dollar could wreak havoc across a variety of assets and the broader economy. Imagine where gasoline prices would be if oil prices hit $125 / barrel. The average price in the U.S. would be well above $5 / gallon based on current prices and possibly higher.
What happens to the economy if interest rates start to react violently to the price action in the Dollar? What if Treasury’s start to sell off viciously and interest rates start to rise wildly and volatility among bond holdings runs rampant? Are we to believe that the very entity that has created boom and bust cycles through easy monetary policies and has been oblivious to the bubbles that it has created is capable of solving the issues that would potentially arise from a currency crash in the U.S. Dollar?
The track record of the Federal Reserve is quite clear. They are generally late to the party and rarely are able to forecast events in the future with any clarity. Do you really think they will know what to do? The free market wants to destroy debt through deflationary pressure and price discovery and the Federal Reserve continues to get in the way.
The free market will win as it always does, but the American people will lose. This process may take months, years, or even decades to play out. Eventually the game will end. There is only one certainty should any portion of the scenario discussed above come to fruition, when the Dollar is inevitably broken the only safe place to hide during the potential currency crash will be in physical gold and silver. Paper money and paper assets will come under extreme selling pressure and in some cases will simply........disappear.
Here’s to hoping I am totally wrong!
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Sunday, July 29, 2012

Crude Oil Prices Will Be Driven by the Externals This Week

From CME Group contributor Dominick Chirihella......

Last week was all about jawboning out of Europe. First from ECB President Draghi followed up by comments from Germany's Merkel reinforcing Draghi's main comment that the ECB will do everything to support the euro. Support for this type of comment from Merkel is very important as Germany is where the money is. For now the jawboning was enough to send many risk asset markets into a modest end of the week short covering rally. However, we can't lose sight that these type of comments have been coming out of Europe for the last three years and so far the sovereign debt issues are still not solved.

The big question is will the bold comments finally be converted to actions. Especially this coming week as the ECB holds its monthly meeting on Thursday August 2. Will the ECB initiate a bold solution that puts the EU problems on the back burner once and for all which has not been the case for the last several years. Will they simply lower short term interest rates and issue the usual support of the euro comments or will their actions include stimulus and some form of bond backing or buying of bonds from the troubles EU member states?

Whatever the ECB decides to do this week the market is now expecting actions that will support the debt problems and drive down the bond yields of the problem countries as well as send the euro into a much longer lasting rally that goes well beyond a simple modest short covering rally like we saw the last two trading days of last week. With the market now trading over the last few session with a strong ray of hope that the ECB and the EU will finally get a handle on the problems any disappointment next week will result in a huge push to the downside in the euro as well as in global equity markets.

Who said August is a quiet and sleepy time for global risk asset markets? Yes many participants are at the peak of the summer vacation season coupled with the London Summer Olympics at its peak but that is not going to prevent the markets from potentially active and volatile trading over the upcoming week and possibly for the rest of the summer. In addition to what is setting up to be a major ECB meeting on Thursday the US Federal Reserve FOMC will meet on Tuesday and Wednesday with many expecting the Fed to embark on a new round of quantitative easing of some form. The US economy has slowed to just a 1.5% growth rate a decline of 0.5% from the first quarter. The employment situation is not getting any better and the plethora of economic data that has hit the media airwaves over the last month or so has been supportive of further slowing of the US economy.

Is there enough negative data to support the Fed taking action now (as a recent WSJ article suggested) or will the Fed take a wait and see of what comes out for the ECB on Thursday while it awaits more data points like Friday's latest nonfarm payroll data? A new round of easing out of the US Fed is not a slam dunk at this meeting in my opinion. I think there are many reasons why it will be prudent for the Fed to wait another month or two before initiating a new round of easing that many believe will have limited success in bolstering the US economy and spurting the private sector hiring process. I do not think the Fed will act at this meeting and save their next so called silver bullet until the end of August at the Jackson Hole symposium (possibly mentioned in Bernanke's speech) or until the mid September FOMC meeting.

Just click here to read Dominick Chirihellas entire article

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Saturday, July 28, 2012

Still Doubting COT Favorite SeaDrill? SDRL

If you are still doubting the crew at Seadrill's (SDRL) ability to keep up with the current dividend this may be yet another reason to....think again. The latest news of a $4 billion commitment for the use of three offshore rigs in the Gulf of Mexico should assuage concerns about the company's ability to contract out all the rigs it has ordered as speculation rigs. Calculating the contract works out to $576,800 per rig per day over six plus years and increases SDRL's contract revenue backlog by nearly a third.

Here is your free trend analysis for SDRL

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EIA: Rail Deliveries of Crude Oil and Petroleum Products up 38% in First Half of 2012

How To Position Yourself for a 10 Year Pattern Breakout

Railroads are playing a more important role in transporting U.S. crude oil to refineries, especially oil production from North Dakota's Bakken formation where there is limited pipeline infrastructure to move supplies. The amount of crude oil and petroleum products transported by U.S. railways during the first half of 2012 increased 38% from the same period in 2011, according to industry data.

The number of rail tanker cars hauling crude oil and petroleum products totaled close to 241,000 during January-June 2012 compared to 174,000 over the same period in 2011, according to the Association of American Railroads (AAR). Rail deliveries of crude oil and petroleum products in June alone jumped 51% to 42,000 tanker cars from a year earlier to an average weekly record high of 10,500 tanker cars for the month.

One rail tanker car holds about 700 barrels. This would be equivalent to about 927,000 barrels per day (bbl/d) of oil and petroleum products shipped, on average, during the first half of 2012 versus 673,000 bbl/d in the same period in 2011, and June 2012 shipments were almost 980,000 bbl/d.

graph of Average weekly U.S. rail carloads of crude oil and petroleum products, as described in the article text
Source: U.S. Energy Information Administration, based on Association of American Railroads.
Note: Crude oil and petroleum products rail shipments do not include ethanol. 



In 2009, crude oil accounted for 3% of the combined deliveries in the oil and petroleum products category tracked by AAR. The trade group estimates crude oil now accounts for almost 30% of the rail deliveries in this category, and says that crude oil is responsible for nearly all of the recent growth.

Much of the growth in shipping oil by rail is due to the rise in North Dakota's oil production, which has more than tripled in the last three years. North Dakota surpassed California in December 2011 to become the third biggest oil producing state and took over the number two spot from Alaska in March 2012.

Most crude oil is moved in the United States by pipeline. However, because of limited pipeline infrastructure in North Dakota's Bakken region, oil producing companies there rely on rail to move their barrels. Shipping oil by rail costs an average $10 per barrel to $15 per barrel nationwide, up to three times more expensive than the $5 per barrel it costs to move oil by pipeline, according to estimates from Wolfe Trahan, a New York City based research firm that focuses on freight transportation costs. Wolfe Trahan also notes that using rail tank cars allows oil producers to separate grades of crude more easily and ensure their purity than when different oils are mixed in a pipeline.

Argus Media reports that rail rates for unit trains moving Bakken oil to major refining centers on the Gulf Coast are about $12.75 per barrel to St. James, Louisiana and $12.25 per barrel to Port Arthur, Texas. The unit train delivery rate to New York Harbor is around $15 per barrel.
BNSF is the biggest railway mover of U.S. crude, transporting one-third of Bakken oil production alone with unit trains carrying up to 85,000 barrels of oil. The company's carloadings of crude oil and petroleum products increased 60% during the first six months of 2012.

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