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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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.



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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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?

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.




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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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.

 
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.



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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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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.

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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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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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. 



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.



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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

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Strait of Hormuz is Chokepoint for 20% of World’s Crude Oil

International crude oil and liquefied fuels movements depend on reliable transport through key chokepoints. In 2011, total world crude oil and liquefied fuels consumption amounted to approximately 88 million barrels per day (bbl/d), and more than one half was moved by tankers on fixed maritime routes. Chokepoints are narrow channels along widely used global sea routes, some so narrow that restrictions are placed on the size of the vessel that can navigate through them. The map shows chokepoints that are critical areas for global energy security because of the high volume of oil that moves through waterways.

The Strait of Hormuz, located between Oman and Iran, is the world's most important oil chokepoint due to its daily oil flow of about 17 million bbl/d in 2011, roughly 35% of all seaborne traded oil and almost 20% of oil traded worldwide. More than 85% of these crude oil exports went to Asian markets, with Japan, India, South Korea, and China representing the largest destinations. The blockage of the Strait of Hormuz, even temporarily, could lead to substantial increases in total energy costs.

 

Among the major oil exporters that ship oil through the Persian Gulf, only Iraq, Saudi Arabia, and the United Arab Emirates (UAE) presently have pipelines to bypass Hormuz, and only the latter two countries currently have unutilized pipeline capacity on these pipelines. At the start of 2012, the total unused pipeline capacity from Saudi Arabia and the UAE combined was approximately 1 million bbl/d. The amount available could potentially increase to 4.3 million bbl/d by the end of this year, as both countries have recently completed steps to increase their capacity to bypass the Strait (see table).

 

Notes: All estimates are as of August 17, 2012 and expressed in million barrels per day (bbl/d).
¹ Although the Kirkuk-Ceyhan Pipeline has a nominal nameplate capacity of 1.6 million bbl/d, its effective capacity is 0.4 million bbl/d because it cannot transport additional volumes of oil until the Strategic Pipeline to which it links can be repaired to bring in additional volumes of oil from the south of Iraq.
² "Unused Capacity" is defined as pipeline capacity that is not currently utilized and can be readily available.
³ All estimates for 2012 are rates around the mid-year point; not the forecast average for 2012.
⁴ Throughput rates for 2012 are assumed to be the same as average throughput rates in 2011.

*   Iraq cannot send additional volumes through its Kirkuk-Ceyhan (Iraq-Turkey) Pipeline to bypass the Strait of Hormuz unless it receives more oil from southern Iraq via the Strategic Pipeline linking northern and southern Iraq, but portions of the Strategic Pipeline are currently inoperable.

*    Saudi Arabia recently increased its additional unused pipeline capacity to 2.8 million bbl/d when it converted one of the two pipelines connected to the Petroline system back to transporting crude oil.

*   The UAE recently opened a 1.5 million bbl/d Abu Dhabi Crude Oil Pipeline, which runs from Habshan, a collection point for Abu Dhabi's onshore oil fields, to the port of Fujairah on the Gulf of Oman, allowing crude oil shipments to circumvent Hormuz.

*   EIA's World Oil Transit Chokepoints analysis brief contains additional information on Hormuz and the other chokepoints, and the Middle East & North Africa overview contains additional information about countries in the region.

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My buddy Doc is really ticking Some people off today

Doc Severson, is making some really big waves...

He just came out with a video presentation that's probably going to tick off a lot of people (especially if you're still struggling to make money trading and investing).

But I've got to say, he makes a REALLY good point...Click here to check out the video that's raising all the fuss.

Seriously, you've got to check out this video, it's a real shocker!

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Ignoring Liquidity is a Recipe for Option Trading Losses

One of the traps for budding options traders is to attempt to apply various strategies to any underlying that exhibits a familiar technical pattern. This is a mistake. Option trading strategies must only be applied to underlying assets that have very liquid options.

To attempt to trade thin options puts the trader at serious risk of the situation the Eagles described in their signature song. You may be able to negotiate reasonable prices to enter the trade, but your exit will not reliably be so easy to exit due to low volume levels and generally wide bid / ask spreads.

So what are the bench marks that allow the new trader to recognize what are liquid options and what are not? Perhaps the easiest fundamental characteristic of an option that is liquid is to glance at the bid / ask spread of the front series option at-the-money strike. These strikes will almost always be the most active series and have the tightest bid / ask spread.

In the modern world, that spread should be 6¢ or less for “normal” priced stocks such as XOM, CAT, or GS. For “super size” stocks such as AAPL, GOOG, or AMZN spreads are a bit wider but typically around 25-30¢ or less.

In stocks with lower price points that have very liquid option series such as XOM and INTC, it is not uncommon to see markets quoted a penny wide during periods of relatively calm markets. However, and this is an important point, in times of market turmoil, the spreads typically widen much beyond their normal size. In severe market turmoil the spreads may reach a point even in liquid underlying assets that precludes any semblance of reasonable ability to execute trades.

The higher-priced underlying assets such as GOOG, because of their characteristically wider spreads, are more easily executed at negotiated prices in which the bid ask spread is reduced. This is particularly the case on multi legged positions; the spreads usually give the counter party, in this case our beloved option market makers, a straightforward way to hedge their risk. For this the trader will often be given a discount.

The rule of thumb for calculating this discount is to reduce the aggregate bid / ask spread by one third. A corollary of this is not to waste your time trying to negotiate out the total 2 – 4¢ spread that may exist in the most liquid series. Ultimately these strategies will not work – the market maker’s kids need to eat too.
Let us look at a practical example of what might be an appropriate starting point. Consider GOOG, one of our super sized stocks that recently trades on average a bit over $33 million of options per day.

GOOG Call Option Chain

GOOG has recently climbed to multi year highs in a parabolic move with a very aggressive angle of attack and currently trades a bit over $678 / share. It may be ready for a pull back or at least a period of price consolidation before resuming its course.

For those who agree with this hypothesis and may be considering an actionable idea, consider the September 680/685 call credit spread, a bearish play. This spread is constructed by selling the September 680 call and buying the September 685 call. As is readily apparent from the option chain, the bid ask / spread for each of these is 30¢.

To introduce another term useful for options traders, consider the “natural” price of this spread. You would sell the 680 strike at the quoted bid, $14.10 and buy the 685 strike at the quoted price of $12.10 for a “natural” price of $2.00 credit. The aggregate bid / ask spread for this is 60¢ – the sum of the spread for each of the two legs.

Using our rule of thumb to expect a 33% discount on such spreads, we should be able to execute the spread for a net credit of $2.20 ($2 plus one-third of the 60¢ spread). This obviously increases our net credit and potential profitability by 10% and would result in significant improvement of trading results over a series of similar trades.

Just so you have seen an example of an options board in which the Hotel California syndrome could be expected to occur, consider the pricing in this option chain for symbol STRA:

Options Trading Strategies

As you can see, the spreads for the 65 strike, the current at-the-money strike, are in excess of $1. Stay away from these sorts of traps; the only one who can make money with any reasonable probability is the market maker.

The point of today’s missive is that you should choose carefully the field on which you wish to play. Careless selection of the underlying to trade can put you at a significant disadvantage regardless of the attractive chart pattern of the underlying stock in question.
Happy Trading!

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Crude Oil Falls as U.S. and European Manufacturing Pulls Back

Crude oil fell as U.S. and euro-area manufacturing contracted in August, raising concern that slower economic growth will reduce demand. Prices dropped 1.2 percent after the Institute for Supply Management’s U.S. factory index declined more than analysts forecast. Manufacturing slipped more than initially estimated in the euro area, London based Markit Economics reported yesterday.

“We are seeing downward prices because of the poor economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The ISM number compounds the earlier manufacturing number from Europe, and overall, the economic data is weak.” Oil for October delivery decreased $1.17 to settle at $95.30 a barrel on the New York Mercantile Exchange. Prices are down 3.6 percent this year.

Brent oil for October settlement fell $1.60, or 1.4 percent, to end the session at $114.18 a barrel on the London based ICE Futures Europe exchange. The U.S. manufacturing index decreased to 49.6 in August from 49.8 a month earlier, the Tempe, Arizona based ISM said today.

Economists in a Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction.....Read the entire Bloomberg article.

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ONG: Crude Oil Weekly Technical Outlook for Saturday Sept. 2nd

It's time for our weekly call from the staff at Oil N Gold.....

Crude oil continued to consolidate below 98.29 short term top last week and overall outlook remains unchanged. Further rally is still expected with 92.94 support intact. Above 98.29 will extend the rise from 77.28 to 100 psychological level and above. However, as noted because, such rise could be the fourth leg inside the triangle patter 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  

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