Bearish Inventory Report Sends Crude oil Prices Lower

The downside correction to oil prices moved into a third day with a bearish weekly oil inventory snapshot adding a bit more selling momentum. In fact oil prices are now at the lowest level they have been at in about six weeks. Certainly the post QE3 euphoria has been pushing oil prices lower but today's huge crude oil build was a catalyst for a strong round of not only profit taking selling but I suspect some new shorts coming into the market.

It does not happen very often in the oil complex but the current fundamentals have trumped all of other short term price catalysts today sending prices into a bit of a tailspin. It certainly changes the short term dynamics for me and as such we may see the downside move last a bit longer than I was originally expecting. The buy the dip mentality that I thought might come as early as this week may now be postponed until next week at the earliest.

In addition to the surprisingly large crude oil build the Saudi oil ministers comments from last week are still hanging over the market. He said global supply, demand and inventories do not justify the current price (around $100/bbl last week). The Saudis have been working with Kuwait the UAE and other members of the Gulf Cooperation Council to keep production at high levels to discourage higher prices. Saudi production is over 10 million barrels per day and at the highest level in years.

It is also serving to offset the 1 million barrels per day or so of lost Iranian crude oil production due to the sanctions.....Read Dominick Chirichellas entire article.

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Exxon [XOM] Applies for a Natural Gas Export License

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The natural gas revolution has yielded many benefits to America in terms of its economy, environment, and energy security....

* Job creation
* Lower home heating bills
* Lower feedstock costs for the petrochemical and refining businesses
* Reduction in the number of active coal plants
* Increased U.S. energy security

Low domestic natural gas prices have given the U.S. a clear competitive advantage in the world economy. Consider the price differential in this chart, taken from the Wall Street Journal's recent article Should the U.S. Export Natural Gas?, which compares U.S. nat gas prices to those of Japan and Korea.

The current price of natural gas is unsustainable. Companies will either shut-in production until it becomes more profitable, or significant new demand will be created. Exxon Mobil (XOM), struggling to reap the rewards of its massive XTO takeover and the subsequent drop in nat gas prices, has recently applied for a natural gas export license. The question the U.S. Department of Energy faces (or at least should face...) becomes.... is exporting natural gas smart, strategic energy policy?

Exporting natural gas would be good in a number of ways including....Read the Michael Fitzsimmons entire article.

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Kazakhstan as an oil producer....a bigger player then you probably think

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Kazakhstan, an oil producer since 1911, has the second largest oil reserves as well as the second largest oil production among the former Soviet republics after Russia....

With total liquids production estimated at 1.6 million barrels per day (bbl/d) in 2012, Kazakhstan is a major producer; however, key to its continued growth in liquids production will be the development of its giant Tengiz, Karachaganak, and Kashagan fields. Furthermore, development of additional export capacity will be necessary for production growth.

Rising natural gas production over the last decade has transformed Kazakhstan from a net gas importer to a country that as of 2011 was self sufficient. Natural gas development has lagged oil due to the lack of domestic gas pipeline infrastructure linking the western producing region with the eastern industrial region, as well as the lack of export pipelines.

Kazakhstan is land locked and lies a great distance from international oil markets. The lack of access to a seaport makes the country dependent mainly on pipelines to transport its hydrocarbons to world markets. It is also a transit state for pipeline exports from Turkmenistan and Uzbekistan. Neighbors China and Russia are key economic partners, providing sources of export demand and government project financing.....Read the entire EIA article.

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Has the Arab Spring Effected Crude Oil Prices?

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Crude oil prices hit a four month high this week on the back of rising tensions in the Middle East and North Africa and the unfortunate murder of the U.S. ambassador to Libya. Added impetus on the upside was given to oil by the announcement of more money printing (QE3) by the Federal Reserve which said it would launch an open ended commitment to purchase $40 billion of mortgage backed securities monthly. The global benchmark for oil, Brent crude oil, jumped to about $117 a barrel.

It maintained its roughly $18 premium to U.S. based WTI crude oil which was trading at $100 a barrel on a couple days ago. Non futures investors can easily participate in the oil market through the use of exchange traded funds. The ETF which tracks Brent crude oil futures is the United States Brent Oil Fund (NYSE: BNO) and the ETF which tracks WTI crude oil futures is the United States Oil Fund (NYSE: USO). The real story behind the story in the oil market, however, is the ongoing Arab Spring which is sweeping throughout the Middle East and North Africa, pushing aside some regimes and threatening others.

The countries whose governments, such as Saudi Arabia and the other Gulf states, feel threatened by popular uprisings are where investors should put their focus. Saudi Arabia in particular is key because it accounts for more three quarters of the world’s spare oil production capacity. So it is very important to note that the kingdom is no longer a price ‘dove’ in OPEC as it has been for decades. It has joined Iran, Venezuela and others in being a price ‘hawk’. The reason behind the change in attitude is simple…Arab Spring. Like its neighbors in the Gulf region, Saudi Arabia has gone on a public spending spree to appease its restless citizens.

It has sharply increased outlays on subsidies for items like food, fuel and housing in an attempt to appease its citizens. In 2011, the kingdom raised its domestic spending by $129 billion – the equivalent of more than half its oil revenues. Much of this increased spending will go toward upgrading the country’s infrastructure. Take electricity, for example. Saudi Arabia has revealed plans to spend more than $100 billion dollars on power plants and distribution networks by 2020. The kingdom has also set a goal to electrify 500,000 new homes that are being built in an attempt to mollify political unrest among its population of 27 million people.

This spending spree led the International Monetary Fund and other analysts to estimate that the kingdom and other Gulf countries need oil to be selling between $80 and $85 a barrel in order for the governments to balance their budgets. This is up, in Saudi Arabia’s case, from a mere $25 a barrel a few short years ago! Unfortunately for oil consumers, this trend looks set to continue in years ahead.

According to the Institute of International Finance, by 2015 the Saudi government will only be able to balance its budget if oil prices are at $115 a barrel if current spending trends remain in place. So in effect, with the Arab Spring forcing governments to spend more on their citizens, it has put a floor under the price of oil. OPEC will do everything in its power to keep the price above the budget breakeven points for governments in the Gulf region.

Keep up to speed on the oil and precious metals markets 

with my free newsletter at www.Gold & Oil Guy.com

Chris Vermeulen

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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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