Bloomberg: Crude Oil Rises as U.S. Consumer Confidence Improves

Crude oil rose for a fourth day on reports as U.S. consumer confidence improved, signaling the economy is recovering, and rising tension in the Middle East. Futures capped a third weekly gain as the Thomson Reuters/University of Michigan consumer sentiment index beat expectations and the Conference Board’s leading economic indicators climbed more than forecast. Prices also gained as Hezbollah threatened to retaliate if Israel attacked Iran and security concern grew in Syria and Lebanon.

“The economic data are getting better,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “You have a lot of tension ratcheting up in the Middle East and oil’s been having a rally”....Read the entire Bloomberg article.

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Phil Flynn: Precautionary Demand

Crude oil prices were rising early Friday and there is better than expected data from Germany and Microsoft, yet in the big picture, there are those that are saying that oil prices have risen in recent months not due to speculation but what we should call “precautionary demand”. According to Dow Jones U.S. sanctions against Iran are hurting growth in that country and creating "precautionary demand" for oil, which is part of the reason oil prices remain at current high levels according to Caroline Freund, the World Bank's chief economist for the Middle East and North Africa.

In other words, countries have been hoarding oil in the event that oil supply might get cut. This has increased demand and prices have gone higher. It is a valid fundamental reason for oil prices to rise and has been a major factor in the pricing oil. The rise is not due to speculators, as the uninformed would have you believe, but the physical buying of extra barrels. As the Iran risk seems to be pushed back that buying has eased a bit.

Dow Jones reported overnight that European Union member states have agreed to postpone by one month the deadline for a review of the oil embargo on Iran. The EU agreed in January to implement a full oil embargo on Iranian crude oil exports by July 1 in response to its nuclear program. But as a concession, to Greece in particular, it agreed to hold by May 1 a review of the effect of a full embargo. That left next Monday's Foreign Affairs Ministers Summit as the last opportunity to agree any change to the embargo.....Read the entire article.

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Global Natural Gas Production Doubled Between 1980 and 2010

Global dry natural gas production increased 110% between 1980 and 2010, from 53 trillion cubic feet (Tcf) in 1980 to 112 Tcf in 2010. The combined share of North America and the Former Soviet Union, the top two producing regions during the time period, fell from 72% in 1980 to 49% in 2010. While all regions increased natural gas production between 1980 and 2010, the Middle East grew most rapidly, increasing more than eleven fold.

Natural gas production in the United States has grown rapidly in the past several years. Rapid increases in U.S. natural gas production from shale gas formations resulted from widespread application of two key technologies: horizontal drilling and hydraulic fracturing.

Shale gas resources, which have recently provided a major boost to U.S. natural gas production, are also available in other regions of the world. An initial assessment of 48 shale gas basins in over 30 foreign countries includes 5,760 Tcf of technically recoverable shale gas resources.

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Geopolitical Worries Boost Crude

Crude oil futures jumped nearly 3.6 percent Tuesday, driven by worries that geopolitical tensions could impede global supplies, as well as encouraging U.S. economic data that boosted the stock market as well.

Light, sweet crude for January delivery ended the day up $3.34, at $97.22 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange settled up $3.09, or 3 percent, to $106.73 a barrel. The January Nymex contract expired at the end of trading Tuesday; the February contract, which becomes the front month contract Wednesday, settled up $3.19 to $97.24. Volume was light in both contracts, at about half the average because of the holiday week.

Iranian news dominated the oil market. Leaders of 11 nations including the U.S. and Saudi Arabia were scheduled to meet Tuesday to discuss sanctions of Iranian oil exports. Iran is the world's third largest oil exporter, supplying 2.2 million barrels per day to the world. Though the U.S. does not buy crude from Iran, the fear is that an already tight global supply portfolio would be further pinched. The U.S. and other western countries are targeting Iran's oil and financial sectors in response to Iran's nuclear ambitions. Meanwhile, the Pentagon sought to downplay comments by U.S. Defense Secretary Leon Panetta saying Iran could have a nuclear weapon in a year or less. Separately, Iran invited UN weapons inspectors into the country.

Concerns were also rising over an apparent breakdown in Iraq's central government, just as the oil industry there is beginning to show signs of progress in its recovery from the war. And in Kazakhstan, the government declared a state of emergency in the Caspian oil town of Zhanaozen after clashes between laid-off oil workers and security forces during an anti-government protest, and at least 11 people were reported killed. Kazakhstan exported 1.5 million barrels of oil a day in 2010.

"There is an undercurrent in crude oil with the issues happening in the Middle East, and the massacre in Kazakhstan," said Bill O'Grady, chief market strategist for Confluence Investment Management in St. Louis. "It's just further evidence that you've got unrest in energy producing areas...It's just like, 'Oh my God, another energy producer. What's next, are we going to start having riots in Texas?"

Crude oil was also boosted by a report from the Commerce Department saying housing starts increased to the highest level in 19 months. Stocks soared as well, with the Dow Jones Industrial Average up 325 points in mid-afternoon. Front month January reformulated gasoline blendstock, or RBOB, rose 8.96 cents, or 3.6 percent, to $2.5787 a gallon. January heating oil was up 6.9 cents, or 2.5 percent, to $2.8494 a gallon.

Posted courtesy of Rigzone

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U.S. Shale Boom Reduces Russian Influence Over European Gas Market

The U.S. shale gas boom has not only virtually eliminated the need for U.S. liquefied natural gas (LNG) imports for at least two decades, but significantly reduced Russia’s influence over the European natural gas market and "diminished the petro power" of major gas producers in the Middle East and Venezuela.

According to a study by Rice University’s Baker Institute, "Shale Gas and U.S. National Security", U.S. shale gas has substantially reduced Russia’s market share in Europe from 27 percent in 2009 to 13 percent by 2040, reducing the chances that Moscow can use energy as a tool for political gain.

European customers now have an alternative supply to Russian gas in the form of LNG displaced from the U.S. market. The shale boom also has exerted pressure on the status quo by indexing gas sales to a premium marker determined by the price of petroleum products. Russia already has had to accept lower prices for its gas and is now allowing a portion of its sales in Europe to be indexed to spot gas markets, or regional market hubs, rather than oil prices.

"This change in pricing terms signals a major paradigm shift," noted study authors Kenneth B. Medlock III, Amy Myers Jaffe, and Peter R. Hartley. Investment in LNG export facilities in the Middle East and Africa during the 1990s also have been rendered obsolete.....Read the entire Rigzone article.


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Crude Oil Rises for a Sixth Day on Iran’s Nuclear Speculation

Crude oil rose a sixth day in New York on speculation Iran’s nuclear plans threaten Middle East stability and an offer to resign by Italy’s Prime Minister Silvio Berlusconi brings Europe closer to solving its debt crisis.

Futures advanced as much as 0.5 percent, matching the longest run of gains since the six days ended Nov. 8, 2010. The U.S. may pursue additional sanctions against Iran following release of a United Nations report that concludes the Islamic Republic was working to develop a nuclear weapon, according to two U.S. officials. Fuel stockpiles fell last week, the American Petroleum Institute said yesterday.

“This current supply shock potential that the markets are looking at with Iran has pushed the price well above our outlook,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who had forecast oil to trade from $80 to $90 a barrel. “The situation in Europe will still take some time for the corrective activities to flow through to the real economy”.....Read the entire Bloomberg article.


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Take a Look at Occidental Petroleum (OXY)

As a follow up to my trade alert for Macro Millionaires to buy the double leveraged oil major ETF (DIG), I thought you’d like to know what my second choice was. There are a lot of belles at the ball, but you can’t dance with all of them. 

While a student at UCLA in the early seventies, I took a World Politics course which required me to pick a country, analyze its economy, and make recommendations for its economic development. I chose Algeria, a country where I had spent the summer of 1968 caravanning among the Bedouins, crawling out of the desert half starved, lice ridden, and half dead.  I concluded that the North African country should immediately nationalize the oil industry, and raise prices from $3/barrel to $10.  I knew that Los Angeles based Occidental Petroleum (OXY) was interested in exploring for oil there, so I sent my paper to the company for review. They called the next day and invited me to their imposing downtown headquarters, then the tallest building in Los Angeles.

I was ushered into the office of Dr. Armand Hammer, one of the great independent oil moguls of the day, a larger than life figure who owned a spectacular impressionist art collection, and who confidently displayed a priceless Fabergé egg on his desk. He said he was impressed with my paper, and then spent two hours grilling me. Why should oil prices go up? Who did I know there? What did I see? What was the state of their infrastructure? Roads? Bridges? Rail lines? Did I see any oil derricks? Did I see any Russians? I told him everything I knew, including the two weeks in an Algiers jail for taking pictures in the wrong places. His parting advice was to never take my eye off the oil industry, as it is the driver of everything else. I have followed that advice ever since. 

When I went back to UCLA I told a CIA friend of mine that I had just spent the afternoon with the eminent doctor (Marsha, call me!). She told me that he had been a close advisor of Vladimir Lenin after the Russian Revolution, had been a double agent for the Soviets ever since, that the F.B.I had known this all along, and was currently funneling illegal campaign donations to President Richard Nixon. Shocked, I kicked myself for going into an interview so ill prepared, and had missed a golden opportunity to ask some great questions. I never made that mistake again. 

Some 40 years later, while trolling the markets for great buying opportunities set up by the BP oil spill, I stumbled across (OXY) once more. (OXY) has a minimal offshore presence, nothing in deep water, and huge operations in the Middle East and South America. It was the first US oil company to go back into Libya when the sanctions were lifted in 2005. (OXY’s) substantial California production is expected to leap to 45% to 200,000 barrels a day over the next four years. Its horizontal multistage fracturing technology will enable it to dominate California shale. The company has raised its dividend for the eighth year in a row, by 15% to 1.60%. Need I say more?   

The clear message that has come out of the BP oil spill is that onshore energy resources are now more valuable than offshore ones. I decided to add it to my model portfolio. Energy is one of a tiny handful of industries I am willing to put my money in these days (technology and commodities are the others), and BP has handed me a rare opportunity to get in as the tightwad that I truly am. 

Oh, and I got an A+ on the paper, and the following year Algeria raised the price of oil to $12.

From the desk of John Thomas

The Mad Hedge Fund Trader

Friday, April 8, 2011

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Crude Oil Cools Off While Gold Never Even Warmed up.....Is Gold Going Lower Yet?

It seems the announcement by Egyptian President Hosni Mubarak to step down by not running for office in September has given commodity traders some reason to take pressure off of oil prices. But where was gold in all of this? Why didn't gold rocket higher like it has during every other middle east crisis over the last 60 years? Despite all the turmoil in Egypt and the Arab world, gold has stubbornly refused to rally. This probably causes great concern amongst the gold bugs and the folks who are bullish on gold. As we have mentioned before many times on this blog, "perception is more powerful than fundamentals."

While the gold permabulls argue that the market is being manipulated, we are more realistic and respect what the market is actually doing. The big question on everyone's mind is....Why are food prices and other commodity markets soaring, while gold is plummeting into the $1,330 area? Our best estimation at this point in time is that we are going to see more sideways action and probably some recovery from current levels. However, we would like to see some concrete evidence that the market has actually put in a low and that we will see a recovery in this yellow metal in the future.

In todays short video, we explained what we mean and show you some concrete examples of our strategy and how to make money on this move lower in gold. And of course we have your pivot, support and resistance numbers for crude oil, natural gas and gold for Wednesdays trading......

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Crude oil was higher overnight as it consolidates some of Tuesday's decline. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If March extends the rally off last Friday's low, January's high crossing at 93.46 is the next upside target. Closes below the 10 day moving average crossing at 88.88 would temper the near term friendly outlook. First resistance is Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 20 day moving average crossing at 90.20. Second support is the 10 day moving average crossing at 88.88. Crude oil pivot point for Wednesday morning is 91.18.

Natural gas was higher overnight as it consolidates some of the decline off January's high. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short term low might be in or is near. Closes above the 10 day moving average crossing at 4.481 are needed to confirm that a short term low has been posted. If March extends the decline off January's high, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. First resistance is the 20 day moving average crossing at 4.469. Second resistance is the 10 day moving average crossing at 4.481. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Wednesday morning is 4.364.

Gold was lower overnight but continues to consolidate above the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Stochastics and the RSI are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1356.90 are needed to confirm that a short term low has been posted. If February extends the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 10 day moving average crossing at 1337.50. Second resistance is the 20 day moving average crossing at 1356.90. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Wednesday morning is 1336.80.

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Let Them Eat Cake....That Might Be Tough With These Wheat Prices

After an initial pull back crude oil gained some strength overnight as investors seem to consider the Egypt unrest as little threat to the flow of oil through the Suez canal. It is great to play the threat of disruption in our trades but there is little proof that oil and energy is ever effected by these tense situations.

Still, many hedge funds and commercial traders got stuck on the wrong side of the trade last week as the Egypt fiasco unfolded right as many fund managers were peeling back their long crude positions. But maybe the trade we should be talking about is wheat. Wheat is the cause of the tension in Egypt as the population faces food shortages and other governments around the globe are increasing their wheat and rice inventory. Jordan bought 150,000 metric tons of wheat last Thursday and is in the market for more. And Libya did the same, buying 100,000 metric tons of wheat. Many companies in the middle east are selling gold reserves just to fund these massive purchases of wheat and rice.

Have we missed this trade and is a short on wheat in order? Stochastics and the RSI are overbought and are turning bearish hinting that a double top with last August's high might be forming. Closes below the 20 day moving average crossing at 8.03 3/4 are needed to confirm that a short term top has been posted. With everything else that has gone on in wheat in the past year it would take a lot of nerve to sit on a short position in wheat at this point. This may only be the beginning.

Here's your pivot point, support and resistance numbers for Monday morning......

Crude oil was slightly lower overnight before gaining some strength as it consolidates some of last Friday's rally. However, stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 90.12 are needed to confirm that a short term low has been posted. If March extends this month's decline, the 50% retracement level of the May-January rally crossing at 83.06 is the next downside target. First resistance is the 20 day moving average crossing at 90.12. Second resistance is this month's high crossing at 93.46. First support is the 38% retracement level of the May-January rally crossing at 85.51. Second support is the 50% retracement level of the May-January rally crossing at 83.06. Crude oil pivot point for Monday morning is 88.06.

Natural gas was higher due to short covering overnight as it consolidates some of the decline off last Monday's high. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. If March extends last week's decline, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. Closes above the 10 day moving average crossing at 4.506 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 4.492. Second resistance is the 10 day moving average crossing at 4.506. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Monday morning is 4.315.

Gold was lower overnight and remains poised to extend this month's decline. Stochastics and the RSI are oversold and are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1363.20 are needed to confirm that a short term low has been posted. If February extends this month's decline, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 10 day moving average crossing at 1343.7. Second resistance is the 20 day moving average crossing at 1363.20. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Monday morning is 1332.70.

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The World’s Biggest LNG Producer Holding Onto it’s Gas

On paper, it should be a perfect match. Qatar has huge amounts of gas to export and its neighbours are desperately prowling for reliable energy supplies to power their emerging economies. But Qatar’s recent decision to rule out significant gas exports to its allies in the Gulf Cooperation Council from a huge gas project inaugurated earlier this month illustrates just how acute the gas needs are among some of the globe’s biggest oil producers.

The new Qatari jewel is the second phase of Al-Khaleej Gas, which is now producing about 1.25 billion cubic feet a day, equivalent to about 17% of the country’s production. Combined with AKG-1, the two projects account for more than a quarter of the country’s overall output. (Most of the remainder is liquefied and exported around the world.)

Qatar’s deputy prime minister and energy minister, Abdullah al-Attiyah, recently said that all of the gas production from AKG-2 would be used to meet domestic demand, especially for electricity generation, and to continue feeding the relentless double-digit economic growth of the past few years.

Qatar is already the world’s biggest LNG producer. It’s also a growing player in gas to liquids. But over the next decades, the country’s domestic gas demand is expected to double. And that increased gas demand can be seen throughout the region as oil rich countries work to grow their economies, especially for petrochemical and industrial sectors, as well as domestic desalination and electricity demand.

Regional electricity demand is expected to increase annually by more than 6% and it is already competing with gas demand from petrochemical plants, with countries like Kuwait forced to prioritize power over industrial output.....Read the entire article.

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Halliburton Profit Drops Less Than Analysts Estimated

Halliburton Co.’s third-quarter profit dropped less than analysts estimated on projects the world’s second largest oilfield services provider is working on outside of North America. Net income fell to $262 million, or 29 cents a share, from $672 million, or 74 cents, in the third quarter of 2008, Houston based Halliburton said today in a statement. Excluding costs for job cuts, profit was 31 cents a share, 5 cents higher than the average of 24 analyst estimates compiled by Bloomberg.

Oil futures in New York averaged $68.24 a barrel in the third quarter, 42 percent lower than a year earlier. Crude climbed from $59.79 in the second quarter. Operating profit from a region that includes Africa, Europe and the former Soviet Union fell 2 percent, and income declined 16 percent in the Middle East and Asia. The drop in North America was 93 percent. “I thought that the numbers in the Middle East and Europe came in stronger than I expected, both in terms of revenues and margins,” said Mark Brown, a senior analyst at Pritchard Capital in New York who has a “buy” rating on Halliburton shares and owns none. “I thought that was a good sign for Halliburton”.....Read the entire article

Iraq Warily Moving Ahead on Contracts With Oil Companies

On Monday, when Iraq puts development rights to some of its largest oil fields up for auction to foreign companies, the bidding will be a watershed moment, representing the first chance for petroleum giants like ExxonMobil to tap into the resources of a country they were kicked out of almost 40 years ago. Yet, there are widespread doubts about whether Iraq is ready for a sudden infusion of capital from international oil corporations.....Complete Story