Natural Gas Moving into a Downtrend

Natural Gas prices have made a decided turn to the downside over the last two weeks as has the short term temperature outlook and the nuclear power outage situation... all now more biased to the bearish side than they were in July. The spot natural gas futures price peaked at about $3.28/mmbtu on July 31 and has been continuing to slide ever since. In the last eight trading sessions the spot natural gas contract has lost $0.507/mmbtu or 15.5% since hitting the high of the uptrend.

Currently the market looks like it is trying to settle into a technical trading range of around $2.70/mmbtu to about $3.17/mmbtu. If the $2.70/mmbtu level is breached the next stopping point could be down to the $2.50/mmbtu level. The Nat Gas market has had a good recovery run rising from around $1.90/mmbtu back during the second week of April to the $3.28/mmbtu high previously highlighted.

The majority of the support for the rally has come from the consistent underperformance of weekly injections throughout the entire injection season so far. In fact weekly injections have averaged around 67% of last year which has resulted in the overhang in inventory continuing to narrow throughout the season. However, even with an underperformance of around 33% so far this season there is still a considerably large amount of gas in inventory versus last year at the moment......Read the entire CME Group article.

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ONG: Crude Oil Weekly Technical Outlook For Sunday August 12th

As always we like to check in with the great staff at Oil N'Gold for their call on where crude oil is headed this week.....

Crude oil resumed the rally from 77.28 by taking out 92.94 and reached as high as 94.72 before making a temporary top there. Initial bias is neutral this week for some consolidations. But we'll stay bullish as long as 86.92 support holds. As noted before, decline from 110.55 should have finished at 77.28 already. Current rebound from there should extend and above 94.72 will target 61.8% retracement of 110.55 to 77.28 at 97.84 and above.

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

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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The Spike in Oil Prices on QE3 Expectations Should be a Warning to the Fed

Crude Oil prices for WTI were just $78 dollars in July, a month later they are $93.40 with supplies well above their five year average range, China decelerating at a rate not seen since the financial crisis, and US gasoline demand down 4.2 percent year on year and distillates down 2.8 percent.

So what the heck is going on in the Oil Markets? Well, just look at the S&P for your answer: Capital has flowed into assets based upon the expectation that Bernanke and his cohorts at the Federal Reserve will print some more money out of thin air in the form of some monetary easing initiative falling under the heading of QE3.....See Chart and complete article

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Penn West Announces 2nd Quarter 2012 Earnings Report

Penn West Petroleum [NYSE: PWE] is pleased to announce its results for the second quarter ended June 30, 2012

The broad deployment of horizontal multi stage fracture technology into primary development, secondary recovery, and exploration gives Penn West one of the largest inventories of low risk, light oil projects in North America. Through active portfolio management, we continue to position the company to drive this asset base forward. We anticipate Canadian crude oil prices strengthening over the next 12 months as slow and steady demand increases are amplified by improvements in North American pipeline infrastructure pushing Canadian crude into closer alignment with world oil pricing.

Capital programs during the first half of 2012 continued the evolution of Penn West into a leading light oil exploration and development company. At the beginning of 2010, less than two percent of production came from horizontal wells while our base vertical wells accounted for 98 percent of our production. We anticipate that by the end of this year, 30 percent of Penn West's production will come from multi stage fracture wells.

HIGHLIGHTS

Average production in the second quarter of 2012 was 163,181 boe (1) per day compared to 156,107 in the second quarter of 2011. During the second quarter of 2012, we completed significant turnaround and maintenance activities which resulted in up to 10,000 boe per day being off-line for portions of the quarter.

We drilled 208 net wells in the first six months of 2012.

Capital expenditures for the second quarter of 2012 net of property dispositions, totalled $310 million compared to $240 million for the second quarter of 2011. Second quarter activities were primarily focused on completions, tie-ins and facilities construction.

Capital expenditures in the first six months of 2012, net of property dispositions, were $648 million compared to $676 million for the first six months of 2011.

Funds flow (2) for the second quarter of 2012 was $272 million ($0.57 per share-basic (2) compared to $396 million ($0.85 per share-basic) reported in the second quarter of 2011 due to reduced commodity price realizations.

Net income for the second quarter of 2012 was $235 million ($0.50 per share-basic) compared to $271 million ($0.58 per share-basic) in the second quarter of 2011.....Read the entire earnings report.

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Abraxas Announces $11 Million Second Quarter Profit Despite Lower Oil Prices

Abraxas Petroleum Corporation (NASDAQ:AXAS) reported financial and operating results for the three and six months ended June 30, 2012 and provided an operational update.

Financial and Operating Results

Including Abraxas' equity interest in Blue Eagle's production, the three months ended June 30, 2012 resulted in:

* Production of 388.7 MBoe (4,272 Boepd), up 12% over Q1 2012, of which 54% was oil or natural gas liquids.

The three months ended June 30, 2012 resulted in:

* Production of 358.5 MBoe (3,940 Boepd), excluding Abraxas' equity interest in Blue Eagle's production, a 10% increase over Q1 2012;

* Revenue of $15.9 million

* EBITDA(a) of $8.9 million

* Discretionary cash flow(a) of $7.1 million

* Net income of $10.9 million, or $0.12 per share

* Adjusted net income(a) of $1.9 million, or $0.02 per share

* Debt Covenant Metrics:

Working Capital 1.09:1.0 (min 1.0:1.0)

Debt to EBITDA 2.85:1.0 (max 4.0:1.0)

Interest Coverage 7.38:1.0 (min 2.5:1.0)

(a) See reconciliation of non GAAP financial measures below.

Net income for the quarter ended June 30, 2012 was $10.9 million, or $0.12 per share, compared to a net income of $8.9 million, or $0.10 per share, for the same period in 2011.

Adjusted net income, excluding certain non-cash items, for the quarter ended June 30, 2012 was $1.9 million or $0.02 per share, compared to adjusted net income, excluding certain non cash items, of $1.0 million or $0.01 per share for the same period in 2011. For the quarters ended June 30, 2012 and 2011, adjusted net income excludes the unrealized gain on derivative contracts of $10.3 million and $8.0 million respectively. Also excluded is a full cost impairment on Canadian assets of $1.3 million for the quarter ended June 30, 2012.

Unrealized gains or losses on derivative contracts are based on "mark to market" valuations which are non cash in nature and may fluctuate drastically period to period. As commodity prices fluctuate, these derivative contracts are valued against current market prices at the end of each reporting period in accordance with Accounting Standards Codification 815, "Derivatives and Hedging," as amended and interpreted, and require Abraxas to record an unrealized gain or loss based on the calculated value difference from the previous period end valuation.

For example, NYMEX oil prices on June 30, 2012 were $84.96 per barrel compared to $103.02 on March 31, 2012......Read the entire earnings report.

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EIA: Low U.S. Injections Reflect Already High Natural Gas Storage Inventories

The increase in U.S. working natural gas inventories nearly half way through the 2012 injection season the period from April through October when most natural gas is stored underground to help meet heating demand during the upcoming winter was the lowest in 12 years. The slow start to the injection season reflects record high inventories at the end of this winter, leaving less space to be filled, and a large increase in natural gas use by the U.S. electric sector for power generation. EIA estimates that, by November, working natural gas inventories will hit a record high, exceeding 3,900 billion cubic feet (Bcf). U.S. dry natural gas production was up almost 7% from January through May of 2012 compared to the same period in 2011, so natural gas injections have not shifted lower due to a downturn in domestic natural gas production.

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The amount of working natural gas in underground storage increased 625 Bcf during April-June 2012, according to EIA's Weekly Natural Gas Storage Report. That is the smallest build since adding 564 Bcf, on a net basis, during the same period in 2000 (see chart above). While the increase in inventories is low, the amount of total gas in underground storage facilities is at a record high for this time of year, after topping 3,000 Bcf for the first time ever during any June month.

Here is the EIA injection and usage charts

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Are Oil Inflation Pains Here to Stay?

Discussing whether oil inflation is here to stay, with Addison Armstrong, Tradition Energy, and Dennis Gartman, The Gartman Letter.

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Crude Oil Pulls Back on Negative Economic Data out of China

Is Gold Close to Confirming a Breakout to All Time Highs

Oil prices have been struggling to sustain the price rally which began about a week ago as the majority of data points continue to point to the slowing of the global economy and thus the view that oil demand growth is also likely to slow (see latest IEA highlights below). Overnight China's oil import data came in at 21.6 million tons (about 5 million barrels) according to the Chinese Customs Agency. This is the lowest level of crude oil imports since December of 2011. One can question the transparency of the various macroeconomic data points out of China but the fact that oil imports are declining is very supportive of the view that the main economic growth engine of the world is actually slowing.

China's July exports of all good increased by just 1% compared to year earlier levels but a significant downturn versus the 11.3% increase in the month of June. In addition industrial output is also slowing as new lending levels dropped significantly in July from 919.8 billion Yuan to 540.1 billion Yuan. Sales to China's number one customer... the EU declined by 16.2% last month while sales to the US declined by 0.6%.....Read Dominik Chirihellas entire article.

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Is Gold Close to Confirming a Breakout to All Time Highs

Is late summer or fall of 2012 going to be remembered for gold making a run to all time highs. Today David Banister gives us his take on where this gold market is headed in the near future......

Back in the fall of 2011 I was warning my subscribers and the public via articles to prepare for a large correction in the price of GOLD. The metal had experienced a primary wave 3 rally from $681 per ounce in the fall of 2008 to the upper $1800’s at the time of my warnings in the fall of 2011. A 34 Fibonacci month rally was sure to be followed by an 8-13 month consolidation period, or what I would term a Primary wave 4 correction pattern.

We have seen GOLD drop at low as the $1520’s during this expected 8-13 month window, but at this time it looks to me like a break over $1630 on a closing basis will put the nail in the wave 4 coffin. I expect GOLD to rally for about 8-13 months into at least June of 2013 and our longstanding target has been in the $2300 per ounce arena in US Dollar terms. Some pundits have much higher targets in the $3,500 per ounce or higher area but I am using my low end targets for reasonable accuracy.

This 5th wave up can be difficult to project because 5th waves in stock or metals markets can be what are called “Extension” waves. This means they can have a potentially much larger percentage movement relative to the prior waves 1 and 3 of the primary bull market since 2001. You can end up with a parabolic move at the end of wave 5, where those $3000 plus targets are possible. I expect the 5th wave to be about 61% of the amplitude of wave 3, which ran from 681 to 1923, or about $1242 per ounce. If we were to apply that math, we come up with $767 per ounce of rally off the wave 4 lows. $1520 plus $767 puts us at $2287 per ounce, or roughly $2300 an ounce low end target.

In summary, crowd behavior is crucial to the next coming movement in GOLD and it could be a sharp rally that catches many off guard, much like the downdraft last fall did the same to the Bulls. Be prepared to go long GOLD once over $1630 per ounce and buy dips along the way up to $2300 into the summer of 2013.

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Do You Agree.... The SP 500 Nearing a Cyclical High

One of our favorite traders to follow is David Banister [make sure to sign up for his calls] and he just sent over this great post on his thoughts on the SP 500 nearing a cyclical high in the coming two weeks of trade. And here's what he is thinking.......

The SP 500 has rallied to a post June 4th high of 1409 this week, about 13 points shy of the Bull Market cycle highs of 1422 earlier this year.

The rally has overlapped along the way, forming a series of “3′s” which are sometimes found in impulsive bullish moves, but usually found at the end of bull cycles whether they be short term or long term cycles.

To wit, the first 11 trading days off the 1267 SP 500 lows saw a 97 point rally, again in only 11 trading days.

The last 34 trading days we have only been able to move up about 44 further points, indicating the rally is getting long in the tooth and a bit tired at that.

So 11 days, 97 points… 34 more days, only 44 further points.

Another 10 trading days would mark a 55 fibonacci trading day cycle, so we should be alert to potential rally highs between August 13th and August 22nd as a window for a top.

A few days ago I discussed we may see a continual sloppy drift up to 1425-1445 ranges, with 1434 a key pivot line to watch.

Although the count doesnt really fit for me, if this rally from the June lows is a 5th and final wave up… then a 5th wave rally to complete a larger cycle often is characterized by a series of 3′s.

To summarize:

The first leg of the rally was a 3 wave rally to 1363, about 97 points in 11 days. We have continued with overlapping 3′s. This final stage of the rally is likely going to be 5 waves or ABCDE in nature to complete the entire cycle up from 1267

That cycle high should come within the Aug 13th-22nd window and in the 1425-1445 ranges.

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