Musings: Trying To Solve Mystery Of Missing Marcellus Resource

A tenant of America's gas shale revolution is that shale is ubiquitous and uniformly spread under our oil and gas producing basins. That belief has translated into growing estimates of the resource's potential and how it has radically changed the long term outlook for America's, and potentially the world's energy future. Is it possible this tenant has been knocked into a cocked hat by the latest estimate of the resource potential of one of our largest gas shale basins.... the Marcellus Shale?

The recent assessment by the U.S. Geological Survey (USGS) that the Marcellus Shale contains 84 trillion cubic feet (Tcf) of undiscovered natural gas and 3.4 billion barrels of undiscovered natural gas liquids was greeted with both joy and consternation. The joy came from the recognition that the USGS estimate was a huge increase from its prior assessment made in 2002 that said there was only about 2 Tcf of gas reserves in the shale formation that stretches from Alabama to New York.

The consternation stems from the assessment being about 80% less than an estimate promoted earlier this year by the Energy Information Administration (EIA) that there was 410 Tcf of gas in the basin. Talk about a gap wide enough to drive a truck through, how about a whole fleet of pickups?

First, it is important to understand that the USGS estimate is the mean of various estimates the agency prepared. Each estimate was assigned a confidence level based on how sure the agency was that the estimated volume actually is present. The estimates ranged from a very highly confident (95%) estimate of 43 Tcf to the estimate with the lowest confidence (5%) of 144 Tcf. The 50% confidence scenario estimated total gas reserves of 78.7 Tcf, or somewhat below the mean estimate the agency decided to publish.

Second, it is important to understand that these estimates reflect a view that the resources are technically recoverable, which, to quote from the agency's press release, means "are those quantities of oil and gas producible using currently available technology and industry practices, regardless of economic or accessibility considerations." The USGS went on to say, "…these estimates include resources beneath both onshore and offshore areas (such as Lake Erie) and beneath areas where accessibility may be limited by policy and regulations imposed by land managers and regulatory agencies."

Importantly, the USGS attributed the increase in its undiscovered resource estimate to the "new geologic information and engineering data, as technological developments in producing unconventional resources have been significant in the last decade." Clearly, the USGS was referring to the improvements in horizontal drilling and hydraulic fracturing, which the petroleum industry has embraced wholeheartedly in driving the gas shale revolution......Read the entire article.

Crude Oil Technical Outlook For Wednesday Morning Sept. 14th

Crude oil met strong resistance in overnight trading as the continued financial crisis in Europe weighs on traders. Worse then expected retail spending in the U.S., the IEA cut in global oil consumption forecasts for 2011 and 2012, the prospect of Libyan oil production coming back online and the end of hurricane season all contribute to the inability of oil to push through the 50 moving average near $91 per barrel.

Closes below last Tuesday's low crossing at 83.47 would confirm that the corrective rally off August's low has ended while opening the door for a possible test of August's low crossing at 76.61 later this fall. If November extends the rebound off August's low, the May-July downtrend line crossing near 92.92 is the next upside target. WTI Stochastics and RSI are overbought this morning.

First resistance is last Wednesday's high crossing at 90.48. Second resistance is the May-July downtrend line crossing near 92.66. First support is last Tuesday's low crossing at 83.47. Second support is the reaction low crossing at 79.76. Crude oil pivot point for Wednesday morning trading is 89.51.

Adam Hewison: The Big Picture

Let’s take a look at the big picture and what it means today. There are a number times when the markets trade erratically. When this happens, you get out of the market with some quick move either up or down against you. Then, the market immediately goes your way the next day and afterwards you say to yourself, “I should’ve stayed in!”

That’s why it’s important to look at the big picture, and the big trends. What looked like a possible reversal yesterday, did not change the big trends in the markets. It just doesn’t happen in one day.

So let’s look at the big trends in the various markets we cover. Equity markets, the big trend is down. Metal markets, the big trend is up. Crude oil, the big trend is down. The dollar index, the big trend is up. And lastly, the CRB index, the big trend is down. Providing you are trading in the direction of the major trend, you have the odds in your favor. Always remember to keep your trading logs and game plan up to date. They will help you become a better trader.

Let's look at where we stand in the crude oil and gold markets......

The crude oil market once again came very close to moving over the $90 a barrel level, and at the time of this report has failed. Presently the Trade Triangles are mixed, indicating that this market is in a trading range. We would use a trading range type strategy to trade this market. Those tools would consist of the Williams % R indicator, the Donchian Trading Channels, and the Parabolic SAR indicator. The big trend monthly Trade Triangle remains negative for this market. Look for crude oil to continue to move in a sideways to lower manner.

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 60

With a golds chart analysis Score of + 55, it would appear that the gold market is in near term trading range. Providing that our monthly and weekly Trade Triangles remain intact, we want to approach this market from the long side. The Williams % R is not yet in an oversold condition. The $1,850 to $1,900 levels are resistance for gold, at the moment. Support comes in around the $1,800 area and extends all the way down to $1750. Looking at the market, it would possibly appear as though we have put in a double top. This will only be confirmed with a close below the $1,750 level. Intermediate and long term traders should maintain long positions with the appropriate money management stops in place.

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 55


Here is a preview of our MarketClub Trade Triangle Chart Analysis and Smart Scan technology

Rigzone: Iraq Energy Panel Approves Gas Deal

A top Iraqi government energy committee has approved a deal with Royal Dutch Shell PLC (RDSA) to capture and exploit gas from its giant southern oil fields, the country's oil minister said Sunday.

The Iraqi oil ministry struck a deal in July with Shell and Japan's Mitsubishi Corp. (8058.TO, MSBHY) to develop gas production in southern Iraq. To become valid the deal needs approval from the Baghdad government.

"It was agreed upon by the energy committee and was sent to the cabinet for approval," Abdul Kareem Luaiby told Dow Jones Newswires on the sidelines of an Iraqi energy meeting in Amman, Jordan. The committee is chaired by the deputy prime minister for energy affairs, Hussein al-Shahristani, and its members include the ministers of oil, electricity and finance.

Luaiby declined to say when exactly the cabinet would approve the deal. The agreement must first be examined by the cabinet's legal and specialized offices, he said......Read the entire article.

Lower Inventory Forecast Boost Oil Prices Before Tuesdays Open

According to Bloomberg news this morning a survey of analyst [according to the median of 10 analyst estimates in a Bloomberg News survey] shows the U.S. Energy Department may say U.S. crude supplies dropped by 3 million barrels last week in a report due out tomorrow. Giving crude oil bulls a boost before Tuesdays open in the U.S.

But that boost is only enough to bump traders into the "new normal" resistance in the 90+ area with Stochastics and RSI remaining overbought and diverging. Turning bearish signaling that sideways to lower prices are still likely near term.

Closes below last Tuesday's low crossing at 83.20 would confirm that the corrective rally off August's low has ended while opening the door for a possible test of August's low crossing at 76.15 later this fall. If October renews the rebound off August's low, the May-July downtrend line crossing near 92.66 is the next upside target.

First resistance is last Wednesday's high crossing at 90.48. Second resistance is the May-July downtrend line crossing near 92.66. First support is last Tuesday's low crossing at 83.20. Second support is the reaction low crossing at 82.95. Crude oil pivot point for Tuesday morning is 87.39.


Just click here for your FREE trend analysis of crude oil ETF USO

Commodities Bounce Back as Japanese Sell Off Euro Overnight

Reuters is reporting that the dollar came off it's seven month highs against major currencies after Japanese exporters were detected selling it. Falling 0.7 percent to 77.07, helping lift dollar denominated commodities such as gold, copper and crude oil.

The euro held firm on Tuesday morning after a choppy session overnight saw a wave of short covering lift it by more than two cents on hopes that China will bolster Italy by buying its bonds, but traders found few reasons to stay upbeat about the currency.

Read the entire Reuters article.

Oil Tankers to Lose Money on Saudi - U.S. Route Through 2012

The U.S. is importing the smallest amount of Persian Gulf crude in 14 years as demand weakens and domestic production climbs, signaling that tankers on the route will lose money for at least another year.

The world’s biggest oil consumer bought 1.7 million barrels a day from Saudi Arabia and six other Persian Gulf states in the first half, the least since 1997, according to the latest Department of Energy data. Daily U.S. output averaged 5.58 million barrels, the most since 2004, the data show. Some owners have paid clients to charter their tankers on the route since March and will probably have to keep doing so until at least the end of 2012, Arctic Securities ASA in Oslo estimates.

The U.S. is boosting output of oil, shale gas and ethanol as President Barack Obama seeks to cut the nation’s dependence on foreign fuel. Fewer cargoes from the Middle East to the U.S., the world’s second-biggest tanker route, mean an expanding vessel glut. There are about 25 percent more supertankers than cargoes available in the Persian Gulf, the most since October, according to Bloomberg surveys of shipbrokers and owners.

“The U.S. is awash with domestic oil and increasingly divorced and less reliant on foreign imports,” said Andreas Vergottis, the research director at Tufton Oceanic Ltd. in Hong Kong, which manages the world’s largest shipping hedge fund. “Not only is end use of oil shrinking, but domestic production of crude oil is rising rapidly”......Read the entire article.

Sharon Epperson: Where Are Commodities Headed on Tuesday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets and looks at where oil and precious metals are likely headed tomorrow.

Euro Rebound Gives Crude Oil Bulls Hope

Crude oil closed higher on Monday due mostly to a rebound in the Euro against the dollar. The high range close sets the stage for a steady to higher opening on Tuesday and bulls are under pressure to follow through if they stand a chance of gaining the upside momentum this week or anytime soon. Stochastics and the RSI are overbought, diverging and are turning neutral to bearish signaling that a short term top might be in or is near.

And we know traders are getting tired of hearing it but closes below the reaction low crossing at 83.20 would confirm an end to the corrective rally off August's low. Closes above the May-July downtrend line crossing near 92.66 would confirm an end to this summer's decline.

First resistance is still last Wednesday's high crossing at 90.48. Second resistance is the May-July downtrend line crossing near 92.66. First support is the reaction low crossing at 83.20. Second support is the reaction low crossing at 79.38.

The U.S. ...... Top Crude Oil Producer By 2017?

We have been known to poke some fun at the oil futures predictions that have come out of Goldman Sachs the past couple of years. Most have been almost laughable. But we can't help but report on a statement coming out of Goldman Sachs this week as they predict the U.S. to be the leader in crude oil production in 2017. Honestly, if we had some leadership in Washington we would be the worlds leading oil producer and all of our economic woes a thing of the past. Both, are yet to be seen.

In the release Goldman Sachs is saying that U.S. oil production should reach 10.9 million barrels a day by 2017, a third higher than 8.3 million barrels currently. Russia, now the top oil producer, should see production increase only 100,000 barrels in the same period, for an output of 10.7 million barrels a day.