Ohio Shale Drilling Spurs Job Hopes in Rust Belt

A rare sight in hard-luck Youngstown, a new industrial plant, has generated hope that a surge in oil and natural gas drilling across a multistate region might jump start a revival in Rust Belt manufacturing. The $650 million V&M Star mill, located along a desolate stretch that once was a showcase for American industry, is to open by year's end and produce seamless steel pipes for tapping shale formations.

It will mean 350 new jobs in Youngstown, a northeast Ohio city that is struggling with 11 percent unemployment. V&M Star's parent company Vallourec, based in Boulogne-Billancourt, France, hopes increased interest in shale formations will produce a ready made market. Vast stores of natural gas in the Marcellus and Utica shale formations have set off a rush to grab leases and secure permits to drill. Industry estimates show the Marcellus boom could offer robust job numbers for 50 years.

Similar hopes are alive in Lorain, Ohio, where U.S. Steel will add 100 jobs with a $100 million upgrade of a plant that makes seamless pipe for the construction, oil-gas exploration and production industries. Erin DiPietro, a company spokeswoman in Pittsburgh, said the expansion will make the Lorain operation more competitive and help it tap into expanding shale developments.....Read the entire article.


How to Trade Using Market Sentiment & the Holiday Season

ONG: Crude Oil Weekly Technical Outlook For Saturday November 26th

Crude oil rose to as high as 103.37 last week but failed to sustain above 100 psychological level and retreated. A short term top should be formed and initial bias is mildly on the downside for deeper pull back towards 94.65 support. Nevertheless, downside is expected to be contained by 89.16/17 cluster support (50% retracement of 74.95 to 103.37) and bring rebound. On the upside, above 100.15 minor resistance will turn bias neutral and bring consolidations. But break of 103.37 resistance is needed to confirm rally resumption. Otherwise, we'll stay near term neutral and expect more sideway trading first.

In the bigger picture, current development indicates the fall from 114.83 has finished at 74.95. The structure suggests it's merely a correction or part of a consolidation pattern. Hence, rise from 33.2 is not finished yet. As long as 89.16/7 support holds, we'd now favor a break of 114.83 resistance to resume the rally from 33.2. Meanwhile, break of 64.23 support is needed to confirm completion of the whole rise from 33.2. Otherwise, we'll continue to stay bullish in crude oil.

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

Phil Flynn: Can Turkeys Lay Eggs?

Well can turkeys lay eggs? We know that can't fly. Can they? Well even if they can't, there is plenty of egg laying going on whether you are focusing on the purchasing manger data in China and Europe and perhaps what may be a bit more disturbing is the subpar German bund auction.

China PMI readings fell to 48 from 51 in October, the biggest month over month drop in over 32, hitting the lowest level since march of 2009. Germany's 10 year auction was not well received to say the least with 35% of the bunds unsold. Still the yield in Germany at 1.98%. is much better than say a country like Spain which currently is around 7%, yet Germany is supposed to be the strong economy in Europe. The lack of interest in this auction shows that the market believes it will be up to Germany to take on the debt of its less than, shall we say, industrious neighbors. Or is it because German Chancellor Angela Merkel challenged the effectiveness of the common European bond.

Add to that a subpar reading on Eurozone manufacturing that surprisingly contracted coming it at a less than expected at 47.9, below a forecast of 50.1. But the country’s flash services PMI was up at 51.4 against an expected 46.6. What was more disturbing was that industrial new orders showed the largest decline since records began in 2005, coming in at a -6.4 and was only expected to fall -2.4.

After data like that it is no wonder that the US is calling for more stress tests on our banks to head off what might be a crisis in the Euro Zone that may be already impacting China and may threaten the economic data in the US that, as of late, has been over whelming positive. With all of this uncernatainty is it any wonder why OPEC is trying to hang onto their existing production quotas despite the fact that if Europe rolls over and China slows, there might be a slowdown in demand. Oh sure, in the short term despite the slowdown in manufacturing China demand will remain solid as the country is trying desperately to keep ahead of distillate demand ahead of winter. Yet perhaps the flattening of the crude curve may be signaling tougher demand times ahead.

OPEC Secretary General Abdalla Salem el-Badri told said, "Prices are comfortable" for both producers and consumers. What consumers he talked to I am not sure. They are probably not in China or Europe. Ali Naimi, the Oil Minister of Saudi Arabia, said he is "very happy" with oil prices. If Ali is happy then OPEC is happy. Don't you feel better?

Dow Jones says that in the first half of 2012, demand for OPEC crude is expected to fall by more than 1.3 million barrels a day, compared with the fourth quarter of 2011, to an average of 29.29 million barrels day, according to the group's latest report. That is lower than OPEC's current production of about 30 million barrels a day.

Now all of this bad economic news and uncertainty, while bearish, might have been wildly bearish if it were not for the worries surrounding Iran and Egypt. Sanctions and increased pressure on Iran, as well as the uncertainty surrounding Egypt, is raising the geopolitical risk premium. So instead of oil prices crashing we may see the market try to stabilize or rebound. That may be even more true because of the impending turkey day holiday as traders give thanks that they are not Europe. Besides, with the geo-political risk, being short over an extended holiday with global supply risk possibilities does not go well with cranberries or pumpkin pie. We should see some short covering before the end of the day.

Products have been getting support because of the renewed interest in Brent as well as strong global demand for distillate and a rebounding appetite for gas ahead of the holiday. Today we get both the Energy Information Agency petroleum stocks as well as the natural gas storage. The American Petroleum Institute reported that crude oil inventories tanked by a stunning 5.57 million barrels. Yet what we lost in crude we gained in gas, rising by 5.42 million barrels. That increase is the bonus from strong distillate production that led to a drop of 886,000 barrels.

Get a trial to Phil's daily trade levels by emailing him at pflynn@pfgbest.com

How to Trade Using Market Sentiment & the Holiday Season

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.


How to Trade Oil ETFs When $100 Per Barrel is Reached

Over One-Third of Natural Gas Produced in North Dakota is Flared or Otherwise Not Marketed

Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.

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Natural gas production in North Dakota has more than doubled since 2005, largely due to associated natural gas from the growing oil production in the Bakken shale formation. Gas production averaged over 485 million cubic feet per day (MMcfd) in September 2011, compared to the 2005 average of about 160 MMcfd.
However, due to insufficient natural gas pipeline capacity and processing facilities in the Bakken shale region, over 35% of North Dakota's natural gas production so far in 2011 has been flared or otherwise not marketed. (It is generally better to flare natural gas than to vent it into the atmosphere because natural gas—methane—is a much more powerful greenhouse gas than carbon dioxide.) The percentage of flared gas in North Dakota is considerably higher than the national average; in 2009, less than 1% of natural gas produced in the United States was vented or flared.

Natural gas production in the Bakken shale. North Dakota natural gas production from the Bakken shale, which is situated in the northwest portion of the State, increased more than 20-fold from 2007 to 2010, and the number of wells producing natural gas increased 7-fold.

Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.

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Natural gas infrastructure. The necessary natural gas infrastructure—gathering pipelines, processing plants, transportation pipelines—surrounding the Bakken shale play has not expanded at the same pace, effectively stranding the natural gas that is produced during oil production. A 2010 report by the North Dakota Pipeline Authority highlights an example of this, stating that one county was able to reduce its flaring from December 2008 to December 2009 by 62% with the addition of two new natural gas plants and the expansion of associated gas gathering systems. The report also details several other projects that have either come online recently or are planned to for the immediate future, which may reduce the amount of natural gas flared.

Natural gas flared or otherwise not marketed. The North Dakota Department of Mineral Resources estimated that in May 2011, nearly 36% of the natural gas produced did not make it to market. Most of this gas—29% of the total gas produced—was flared. The remaining natural gas that did not make it to market—7% of total gas produced—is unaccounted for or lost, which means the gas may have been used as lease and plant fuel, or encountered losses during processing or transportation.

Natural gas flaring regulations. According to current North Dakota state regulations, producers can flare natural gas for one year without paying taxes or royalties on it, and can ask for an extension on that period due to economic hardship of connecting the well to a natural gas pipeline. After one year, or when the extension runs out, producers can continue flaring but are responsible for the same taxes and royalties they would have paid if the natural gas went to market.

Crude Oil, Natural Gas and Gold Market Summary For Thursday Nov. 24th

Crude oil closed down $1.66 a barrel at $96.34 on Wednesday. Prices closed near mid-range today and were pressured by a stronger U.S. dollar index and lower U.S. stock indexes. Recent price action in crude hints a near term market top is in place. Crude bulls do still have the overall near term technical advantage.

Natural gas closed up 5.4 cents at $3.615 on Wednesday with prices closing nearer the session high and scoring a bullish “outside day” up on the daily bar chart today. Short covering in a bear market was featured today. Bears still have the solid overall near term technical advantage.

Gold futures closed down $5.00 an ounce at $1,697.50 on Wednesday. Prices closed nearer the session high today, and well up from the daily low, and saw some bargain hunting and short covering late in the session. However, the key “outside markets” were bearish for gold today and kept prices below unchanged. The U.S. dollar index was sharply higher while crude oil and the rest of the commodity sector was lower. Near term technical damage has been inflicted recently.


How to Trade Oil ETFs When $100 Per Barrel is Reached

How to Trade Using Market Sentiment & the Holiday Season

The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks.

Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs.

Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet.

What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.

Take a look at the SP500 & Volatility index below:

This chart allows us to get a feel for fear in the market. Me being a contrarian trader, I focus on market sentiment extremes. When the masses are losing money hand over fist I’m generally on the other side of that trade with open arms. Trading off fear is one of the easiest ways to trade the market. That is because fear is much more powerful than greed and it shows up better on the charts. Spotting panic selloff bottoms is something that can be traded successfully if you know what to look for and how to trade them.

On the chart you can see the pullbacks in the SP500 which triggered a panic selling spike in my green indicator. What I look for is a pullback in the SP500 and for my panic selling indicator to spike over 20. When that happens I start watching the volatility index for a spike also. The good news is that the volatility index typically rises the following day making my panic indicator more of a leading one…

Market Sentiment Trading

I could write a 20 page report going into depth this with topic, but that’s not the point of this report. Just realize that the stock market is likely going to put in a bottom very soon and likely end with a STRONG panic selling washout this week or next. 

Prepare for a sharp drop in the market which should kick start a holiday rally in the next few trading sessions.

Chris Vermeulen
Just Click Here to visit Chris' site and get his Index, Commodity and Currency Trading Alerts

Let's Get Started Trading Gold, Crude Oil & Index ETF's

Musings: Upcoming Winter Could Be A Repeat Of Last Year's Winter

Recently, ImpactWeather, a Houston based weather forecasting and consulting firm, held a webinar in which they discussed their view of the weather trends that will impact temperatures and precipitation in the United States during both the next 30 days and the winter period of December through February. The bottom line is that the developing La Niña in the South Pacific Ocean is controlling the weather patterns. So far the pattern has allowed an active hurricane season to develop but has contributed to only a few of the storms entering the Gulf of Mexico and making landfall on the U.S. coast.

ImpactWeather showed a chart that contained the various global sea surface temperature (SST) anomalies that are influencing global weather patterns. ENSO (El Niño/La Niña Southern Oscillation) is probably the most prominent SST anomaly, but the Pacific Decadal Oscillation (PDO) Pattern, the Atlantic Multi-decadal Oscillation (AMO) Pattern and the Indian Ocean Dipole (IOD) Pattern are also strong weather influencing factors. As shown in the accompanying chart (Exhibit 3), ENSO and PDO are in their cold phase while the AMO and IOD are in their warm phase.

Exhibit 4. La Niña Dominates Winter Weather
 
Source: ImpactWeather

The impact of the PDO and La Niña phases is best shown by the forecasts showing the deviation in temperatures that can be expected in the future as a result of these patterns. As shown in Exhibit 5, the 2011-2012 winter forecast shows that temperatures should average between 1°C and 1.4°C below normal. The forecast for November called for a 1.4°C lower temperature range, which would seem to be consistent with the cooling that has been experienced since late October. The chart shows a multitude of temperature forecasts generated by computer models, virtually all of them showing negative deviations. If one compares the forecasted temperatures for this winter with the temperatures experienced last winter (the far left side of the chart), they look similar, but the forecasted temperature anomalies don't show the move back to zero as experienced last summer. That would suggest that in the United States we may not experience the extreme heat witnessed last summer. That doesn't mean that the drought conditions will end, but lower temperatures would be a welcome relief......Read the entire Musings From The Oil Patch Article.


Today’s Stock Market Club Trading Triangles

Crude Oil Market Summary and Trend Analysis For Tuesday November 22nd

We are now tracking the January contract. No change in our commentary from yesterday. As mentioned last week, we felt that the crude oil market was topping out. In retrospect, we have confirmation that is indeed the case. We are now expecting and look for support to come in at $94.55 (basis the January contract), which is a 61.8% Fibonacci retracement.

At the present time, both our monthly and weekly Trade Triangles remain in a positive mode, which is the direction of the major long term trend. Resistance is the $100 level. Long term, Intermediate term should be long this market with appropriate money management stops.

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 = +85

EIA: North Dakota's Oil Production Has More Than Quadrupled Since 2005

North Dakota's oil production averaged over 460 thousand barrels per day (bbl/d) in September 2011, more than four and one half times its September 2005 level. Although the State's oil production growth slowed during the first few months of 2011, more favorable weather conditions helped operators significantly boost output in June, July, August, and September. North Dakota currently trails only Texas, Alaska, and California among oil-producing States.

The early 2011 slowdown in the State's oil production growth was due in large part to an especially severe winter and spring flooding that hampered exploration and development activity. Through May, monthly increases averaged just over 1%, well below the average monthly production growth of about 3% in 2010.

Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.

North Dakota operators reported stronger production gains more recently. In June 2011, oil production averaged 385 thousand bbl/d, an increase of nearly 6% over May. In July, oil production grew by more than 10% from the previous month, averaging 424 thousand bbl/d. Production in August and September rose by 5% and 4%, respectively. According to North Dakota's Department of Mineral Resources (DMR), warmer and dryer weather has resulted in a sharp increase in active drilling rigs and hydraulic fracturing activity as operators escalate exploration and development programs.

Production increases in North Dakota are mainly associated with accelerating horizontal drilling programs in the Bakken shale formation situated in the northwest portion of the State (and extending into Montana and portions of Canada). By combining horizontal wells and hydraulic fracturing (the same technologies used to significantly boost the Nation's shale gas production), operators increased North Dakota's Bakken oil production from less than 3 thousand bbl/d in 2005 to over 230 thousand bbl/d in 2010.

Citing a backlog of over 350 wells awaiting fracturing services, the DMR anticipates further oil production increases through the remainder of 2011 and over the next several years (reaching as much as 750 thousand bbl/d by about 2015, up from its earlier estimate of 700 thousand bbl/d mentioned in This Week in Petroleum). According to the DMR, the State's crude oil takeaway capacity (via pipeline, rail, and truck) is adequate to accommodate near term projected production increases.


Risk Surrounds Gold and the SP 500