Come Monday morning....will you be trading with us or against us?

Did you make it to John Carters webinars this week?

If not it's not to late to see what you missed, here is a replay of one of the webinars.

What's next? Some of us are starting John's training classes this Saturday. And we'll be putting these methods to work first thing Monday morning. Click here to sign today

The week got started when John showed us some live trades that proved that his methods of trading were working for anyone and everyone.....no matter how much money they had in their trading account.

Here's just a sample of what the webinars covered.......

*   The difference between trading for income vs. growth

*   Why attempt to double your account "before" it goes to zero in 12 months or less

*   How to control risk while being an aggressive trader

*   What Stops to use and when

*   The mindset of an aggressive trader

Click Here to Register for classes starting on Saturday

Come Monday morning.....will you be trading with us or against us?

See you in the markets!

Ray C. Parrish
President/CEO The Crude Oil Trader

While the Fed Parties, Gold & Crude Oil Have Left the Building

From guest blogger and trading partner J.W. Jones.....

Risk assets and financial markets around the world have been supported by central bank action for several years. Performing financial alchemy on a scale larger than has been seen in the history of mankind, central banks have hijacked global financial markets. Mountains of liquidity, artificially low interest rates, and the creation of future asset bubbles has been their calling card for the past few years.

Unfortunately, time is starting to run out and these great Keynesian minds are on the verge of encountering a series of problems. While central banks can create fiat currency out of thin air, they cannot create real wealth. In fact, central banks cannot print jobs, earnings growth, or an increase in wages.

Furthermore, in a paper put out by the New York Federal Reserve in 2012 and covered by zerohedge.com (“Fed Confused Reality Doesn’t Conform to Its Economic Models, Shocked Its Models Predict Explosive Inflation”) the Fed openly admits that forward outcomes cannot be predicted with accuracy by their economic models. Furthermore, one of the models known as the Smets and Wouters Model has predicted significant inflation if interest rates were held near zero for more than 8 quarters.

For inquiring minds, I would forward readers to the zerohedge.com article for a more in depth explanation. Ultimately the Federal Reserve is performing a gigantic experiment in real time while admitting their economic models do not accurately portray outcomes in the future. Nowhere can this be seen more than in recent price action in U.S. Treasury prices.

Since mid-November of 2012, the 30 Year Treasury Bond has seen prices go down by roughly 9% in value. When Treasury prices are falling, interest rates are rising as there is an inverse relationship between bond prices and yields. When longer term Treasury bonds are demonstrating rising interest rates it is a signal that the bond market is expecting higher inflation levels out into the future......

Let's look at the weekly chart of the 30 Year Treasury Bond and much more.


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OPEC Becoming a "Non Player" as North America Brings Energy Profits Home

Things have changed quite a bit in the last couple of years. Gone are the days of being glued to the TV waiting for news coming out of OPEC and it's effect on U.S. oil and gas prices. Now our days are filled with thoughts of "how do we profit on the oil and natural gas plays in North America". And we don't have to look no further than shale plays, energy service companies and offshore oil drilling opportunities in the U.S. or so says Byron King of Agora Financial LLC.

In this interview with The Energy Report, King discusses how dwindling exports to the U.S. from Latin America, Africa and the Middle East are shifting the supply and demand equation across the world. King also names companies in the service space with solid prospects for investors.

The Energy Report: Byron, welcome. You recently attended the Platts Conference in London, which addressed shifting energy trade patterns in light of growing U.S. export prospects and dwindling exports from South America and Africa. Has OPEC's role diminished?

Byron King: The short answer is yes. OPEC is struggling right now. The Middle East, the West African producers and Venezuela are struggling. The West African players and Venezuela have seen exports to the U.S. decline dramatically. In countries like Algeria, oil exports to the U.S. are essentially zero, while Nigeria's exports to the U.S. are way down. The oil these countries export tends to be the lighter, sweeter crude, which happens to be the product that is increasing in production in the U.S. through fracking.

The east-to-west trade pattern for oil imports to the U.S. has essentially gone away. This does not mean that the oil goes away. It means these countries have to find new markets for their oil which they are doing, in India and the Far East. But that disrupts trade patterns as well. Imports from the Middle East to the U.S. are falling as well. These barrels tend to be the heavier, sourer crude that U.S. refineries are geared to process.

As the U.S. imports less oil, our balance of trade gets better. The recent strengthening of the dollar has a lot to do with importing less oil. Strengthening the dollar decreases gold and silver prices, so there is some monetary blowback from the good news out of the oil patch. Strengthening the dollar increases the broad stock market for the non resource, non commodity and non-energy plays. There's an astonishing dynamic at work.

TER: When it comes to countries like Venezuela, part of the reason for the decrease in exports is because it has not invested its profits in infrastructure.

BK: Good point. In Venezuela, the government has taken so much money out of the oil industry to use for social spending, military spending and government overhead that the sustaining capital is not there. Even with Hugo Chavez's death and new leadership in Venezuela, it will require years of sustained and increased investment to get Venezuela's output up. After 10 years of dramatically bad underinvestment, the infrastructure is worn out. It will take a lot of time, money and some seriously hard political decisions to redeploy capital inside a country like Venezuela.

TER: If OPEC can no longer control the price of oil through supply because it does not have as much control of supply, what is keeping it from flooding the market with oil to get more revenue?

BK: That would work both ways. If OPEC floods the market with more oil, it will drive the price of oil down. Then OPEC nations would get fewer dollars for each barrel. All of that extra output, if sold at a lower price, might still yield less money, which is not a good thing if you are an oil exporter and need the funds.

"The east-to-west trade pattern for oil imports to the U.S. has essentially gone away."

The big swing producer is still Saudi Arabia. Saudi has spare capacity, but I suspect not as much as it wants people to believe. It gets back to that idea of peak oil. We've discussed it before, and yes, I know fracking is changing the game to some extent. But you still need to keep all the books about peak oil on your shelf. Fracking is what happens on the back side of the peak oil curve, when you need barrels, are willing to pay high prices and throw lots of capital and labor at the problem.

A country like Saudi Arabia could increase its output, but not for long and not in a heavily sustainable way. It would damage its oil fields. Beyond that, the trick for OPEC is going to be getting several countries to agree to cut output to make up for the extra output from North America, in the hope of keeping prices where they are right now.

Brent crude which is what the posting is for much of the OPEC contracts is about $103/barrel ($103/bbl). If OPEC wants to keep that number or not let it fall too much further it has to cut output, not increase output. That is a very difficult and politically charged issue within OPEC. The Middle Eastern countries can afford a minor amount of financial turmoil right now. The other OPEC countries absolutely cannot afford financial problems stemming from low oil prices.

TER: Is there informal price control going on in the shale oil fields? As the price of natural gas has dropped, the oil rig count has dropped and once the price goes up, those oil rigs could start up again. Could there be an OPEC of North America?

BK: I do not see an organized North American OPEC because there are too many companies in the mix. Too many people have a bite at the apple for anybody to control things. It is more like a tangle of accidental circumstances driving production levels. We are seeing a slight drop in the oil rig count in the U.S. right now. Part of that has to do with the natural gas cutback, but part also has to do with the efficiency of the fracking model. Fracking can be energy inefficient, but also can be industrially efficient.

Five years ago and earlier, the idea of drilling wells was to look for oil fields. You were drilling into specific regions enriched with hydrocarbons that could flow into a well under reservoir energy or with just modest amounts of pumping or pressurization.

Today, with fracking, you are not really looking at oil fields. You are drilling into an entire formation. You are drilling into a large-scale resource and introducing energy into a formation to break up the rock and get the oil or natural gas out. To do that successfully is much more a manufacturing model than the traditional oil drilling model. This is why you see drilling pads that have room for 10 or 12 wells. You drill the wells directionally outward.

In western Pennsylvania I have seen some of the drilling maps for companies like Range Resources Corp. (RRC:NYSE). These companies have very efficient ways of corkscrewing pipe into the sweet spots of the formations with multistage fracks. They are draining the formations very efficiently. You see fewer rigs because each rig is being used in a manufacturing type of process, as opposed to the olden days when drilling was similar to craftwork.

Modern drilling and fracking, at least in North America, is much more of an assembly line process. Companies are using the same drill pits over and over again. They are using the same drilling mud and the same fracking water. Much of the same equipment gets used multiple times on several different wells. In the olden days, each well was its own special unique construction. Of course, every oil or gas well is different, and the results depend on how you drill it.

TER: Which companies are doing this the best and are they actually making money?

BK: Five years ago, people would talk about how this well made money or how that well does not make money anymore. That's harder to do today. The economics of the current fracking world are still up in the air.

The jury is out on many of these fracking plays. Companies are drilling a lot of wells and they are expensive. They are fracking the wells and that is very expensive. At a recent conference, a gentleman from Halliburton Co. (HAL:NYSE) said up to 50% of the different fracking stages on wells do not work. They either fail at the beginning or soon after they go into production due to many reasons geotechnical failure; equipment failure; blockages in the holes, in the pipe, in the perforations; things like that. Once a company has put the steel in the ground, done its fracking and inserted its equipment, it is very difficult to get down there and fix what is broken.

"North American shale oil plays have had an extensive ripple effect through the U.S. economy."

Right now natural gas prices are so low that if a company is drilling for dry gas, it is almost a given that it is not making any money. If the company is drilling for wet gas and is producing, the gas helps pay for the investment. When you get into some of the oil plays in the Bakken formation in North Dakota, or the Eagle Ford down in Texas, you are starting to get a mid continent price or even better for the gas plus associated oil or liquids. When I say mid-continent, I mean West Texas Intermediate; the WTI price as opposed to the Brent price.

Regarding the pricing structure within North America, the oil sands coming out of Alberta are selling at the low end of the market scale. If West Texas Intermediate is about $90/bbl, the Canadian sand oil might be $60/bbl. That is a one third differential. Is that because the quality is so different? Not necessarily. The oil sand product quality is slightly lower than the WTI, but it is not a one-third difference in terms of molecules or energy content or refinability. The difference is in stranded infrastructure. The cheaper oil is geographically stranded up in the frozen north of Canada, and you have to get it out through pipelines and railcars. You cannot get it over the Rocky Mountains to the Pacific Coast. There are only a few places for that oil to go, so it comes south. In its first stop across the U.S. border, in North Dakota, it competes with the Bakken plays.

The great mover of mid-continent oil today is the North American rail system the tanker cars. Back in the days of John D. Rockefeller, he could control oil markets with access to rails, rail shipping and tankers cars. Now you have to look at the cost of moving oil from mid-continent to another destination. If you are in North Dakota, you can move oil west to Washington or California, where there are refineries. Or you could move it to Chicago or farther east, to the refineries there. Or you could move it south, where you compete with imported oil at the Houston refineries. It is a very complex arrangement. And you must deal with the usual suspects BNSF Railway Company and Union Pacific the two biggies of hauling oil.

"The jury is out on many of these fracking plays."

We're seeing some truly astonishing developments here. Look at Delta Air Lines Inc. (DAL:NYSE), which spent $300 million buying the old Trainer refinery in Philadelphia. Actually, less than that when you take in the subsidy from the state of Pennsylvania. So now, Delta is importing oil from the Bakken to Trainer on railroad cars. Delta feeds its East Coast operations with jet fuel coming out of the Trainer refinery, including planes flying out of John F. Kennedy International Airport, which gives it a price advantage in the North Atlantic market. The price differential of just a few pennies a gallon on jet fuel is the difference between making or losing money on the North Atlantic routes.

Then, Delta can go to other airports where it operates, and beat up on the fuel supplier by threatening to bring in its own fuel. So Delta is extracting price concessions from vendors. It's sort of an old-fashioned "gas war," like when service stations used to see who could sell fuel the cheapest.

Mid-continent oil, mid-continent economics and transport by rail have completely altered the economics of other industries, including the rail and airline industries. North American shale oil plays have had an extensive ripple effect through the U.S. economy.

TER: Could building more pipelines to export facilities in the U.S. shrink those differentials?

BK: More pipelines will shrink the differential, but pipelines take time. In the environmentalist political world we live in today, it takes years to do all the permitting, and pretty much nobody wants to have a pipeline running through the backyard. Existing pipelines are golden because they are already there. Maybe they can be expanded, the pumps improved; we can tweak them or put additives in the fluid to make the product move faster. There are all sorts of possibilities with existing pipelines.

For the pipelines that are not built yet, you have the whole NIMBY (Not In My Backyard) issue. The railroad lobby and the lobbies of companies that build railroad cars also do not want to see new pipelines because these companies are more than happy to ship oil on railcars, even though in terms of energy efficiency safety and spillage, rail is less efficient overall.

TER: Based on this reality, how are you investing in shale space or are you?

BK: Right now, I am investing in the shale space at the very fundamentals. It is a pick-and-shovel approach to investing. I focus on what I call the big three of the services companies Halliburton, Schlumberger Ltd. (SLB:NYSE) and Baker Hughes Inc. (BHI:NYSE)because these companies have people are out there in the fields with the trucks and equipment, doing the work and getting paid for it. Another company that I really like is Tenaris (TS:NYSE), one of the best makers of steel drill pipe. You could buy U.S. Steel Corp. (X:NYSE), for example, which is doing very well in tubular goods, but it is a big, integrated steel company with iron mines and coal mines. It owns railroads, and sells steel to the auto industry, the appliance industry and the construction industry. Tubular and oilfield goods are just a part of U.S. Steel. With a company like Tenaris, it is more of a pure play on the oilfield development.

TER: Are you are a fan of oil services companies at this point in time?

BK: Yes. In terms of a company that is actually out there doing the work, I have great admiration for Range Resources. Its share price seems bid up pretty high. In terms of the large caps, I am looking at global integrated players: BP Plc (BP:NYSE), Royal Dutch Shell Plc (RDS.A:NYSE), Statoil ASA (STO:NYSE) and Total S.A. (TOT:NYSE), the French company. They are big, global and pay nice dividends. Even BP, for all of its troubles, is still paying a respectable dividend.

TER: Those are companies that also have exposure to the offshore oil area. Is that a growth area?

BK: Offshore is booming. Some companies are very good at what they do, and when you look at the pick-and-shovel plays, that would be companies like Halliburton, Schlumberger and Baker Hughes, among others. Transocean Ltd. (RIG:NYSE), the big offshore drilling company, is making a nice comeback, as is Cameron International Corp. (CAM:NYSE), which is in wellhead machinery, blowout preventers and things like that. FMC Technologies (FTI:NYSE) is a fabulous subsea equipment builder, and Oceaneering International (OII:NYSE), which makes remote operating vehicles (ROVs), has done great the last couple of years and is still growing.

"Fracking is changing the game to some extent. But you still need to keep all of the books about peak oil on your shelf."

A couple of points about offshore. In the U.S. offshore space, in March and April 2010, right after the BP blowout, the U.S. government basically shut it down. The offshore space was utter road kill. By the second half of 2010, it was dead. It went from being a $20 billion ($20B)/year industry to about a $3B/year industry. Here we are, three years later, and the offshore industry in the U.S. is recovering. There is still growth.

If you look at the rest of the world's coastlines, you see an increasing amount of concessions, leasing and acreage whether it is in the Russian Arctic or the North Sea or off the coast of Africa. There are booming areas offshore of West Africa and East African plays, with companies like Anadarko Petroleum Corp. (APC:NYSE) and its huge natural gas discovery off of Mozambique. In the Far East, off of Australia, there is a whole liquefied natural gas (LNG) boom. Much of the Australia hydrocarbon story is in offshore LNG. These are huge plays involving great big companies, a lot of money, steel in the ground and lots of equipment that either floats on the water or sits on the seafloor. It is all good for the offshore space.

TER: Are there any particular projects that a BP or Shell is doing right now that you are excited about?

BK: Shell has a big play onshore in the U.S., part of the whole shale gale. Shell is a big global integrated explorer, but is backing away from the offshore East African plays because they are a little too expensive for the company's taste. Shell has made investments in West Africa, off of Gabon, and also in South Africa, in the Orange Basin. I think Shell envisions itself as a future key player in South Africa, which is good because South Africa is a big, industrially developed country with a large population and big markets. South Africa has ongoing social problems, but it needs energy. So if Shell is successful in offshore South Africa, there's a built-in market. Shell doesn't have to tanker oil in or pipe it in or somehow move it halfway across the world.

TER: In light of what happened with BP, are these offshore oil plays riskier, since one accident can shut everything down. Or are large companies like Shell diversified enough that it doesn't matter?

BK: I will never say that accidents do not matter. As we learned from the Gulf of Mexico, an offshore accident can be a company killer. BP literally went through a near-death experience. In the minds of some people, BP is still not out of the woods. The company has made settlement after settlement and it is still not done paying. It has divested itself of many attractive assets over the past couple of years to raise enough cash to pay settlements, fees and fines.

The good news about the aftermath of the accident is that, globally, there is a heightened sense of safety awareness in the oil industry. Companies have watched the BP issues very closely and learned every lesson they possibly can. All of the solid operators are hypersensitive and hypercautious toward offshore operations.

It all comes back to benefit some of the service players I mentioned earlier. The fact that many offshore drilling platforms had to upgrade blowout preventers to a much higher specification benefited the likes of Cameron and FMC Technologies. In the new environment, your subsea equipment must be built to a higher specification. So say thank you to FMC Technologies which will gladly build it to that higher spec and charge you a higher price.

The numbers of inspections that companies must do when they work at the surface of the ocean are enormous. If a company has to inspect every 48 hours, it needs more ROVs. Who makes ROVs? That would be Oceaneering. There are other opportunities in other spaces, such as dealing with existing offshore platforms, existing offshore pipelines and existing offshore rig populations. One company that has done very well in our portfolio in the last couple of years is Helix Energy Solutions Group Inc. (HLX:NYSE). It deals with offshore repairs and servicing issues, and offers decommissioning services.

Individuals who go into these kinds of investments want to become educated about them. We are in these investments with a long term, multiyear horizon because that is the investment cycle. From prospect to producing platform, these kinds of investments can take 1015 years to play out. It's like an oil company annuity for the well run oil service guys.

The good news is that there is long-term reward, because large volumes of oil come from offshore. When looking at the shale gale, on the best day of the year in the Eagle Ford or the Bakken onshore, a really good well can produce 1,000 barrels per day (1 Mbbl/d). Six months from now that well could produce 400 (400 bbl/d), and a year from now it might produce 200 bbl/d. The decline rates are really steep. On some of the offshore wells, we are talking 1520 Mbbl/d, which can be sustained for several years. The economics of a good well and a good play offshore are for the long term.

TER: It sounds like your advice is for people to do their homework and be in it for the long term.

BK: Yes. My newsletter, Outstanding Investments, talks about oil and oil investments all the time; subscribers receive my views over the long term. As an investor, you want to educate yourself about different companies in the space, what equipment is used in the space and what the processes are. You do not have to be a geologist or an engineer to invest, but you need to be willing to learn. There is an entire offshore vocabulary that you need to understand to appreciate the investment opportunities. You also need to be able to keep your sanity during times of tumult, when the rest of the market might be losing its grip. And you need to understand why you went into a certain investment in the first place and when it is time to get out.

TER: That is great advice. Thank you so much for taking the time to talk with me today.

BK: You are very welcome.

Byron King writes for Agora Financial's Daily Resource Hunter and also edits two newsletters: Energy Scarcity Investor and Outstanding Investments. He studied geology and graduated with honors from Harvard University, and holds advanced degrees from the University of Pittsburgh School of Law and the U.S. Naval War College. He has advised the U.S. Department of Defense on national energy policy.

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The Bible for Commodity Traders....Get our free eBook now!

John Carters "Small Account Growth Secrets" Webinar

Last week we showed you some live trades from our trading partner John Carter that proved....with the right mindset and a little training anyone can earn a regular income trading.

Whatever your account size, if you're focused on trading for income, then you need to attend one (if not both) of the webinars that John Carter is putting on Tuesday, June 11th at 8:00PM New York Time or Wednesday, June 12th at 1:00PM New York Time

You can reserve Your Seat HERE now as there is limited seating available.

Here's just a sample of what John is going to share.......

*   The difference between trading for income vs. growth

*   Why attempt to double your account "before" it goes to zero in 12 months or less

*   How to control risk while being an aggressive trader

*   What Stops to use and when

*   The mindset of an aggressive trader

Click Here to Register

I will be attending and hope to see you there!

Ray C. Parrish
The Crude Oil Trader

John Carters "Small Account Growth Secrets" Webinar

Gold, Silver & Precious Metal Miners Signals

It has been a very long couple of years for the precious metal bugs. The price of gold, silver and their related mining stocks have bucked the broad market up trend and instead have been sinking to the bottom in terms of performance.

Earlier this week I posted a detailed report on the broad stock market and how it looks as though it‘s uptrend will be coming to an end sooner than later. The good news is that precious metals have the exact flip side of that outlook. They appear to be bottoming as they churn at support zones.

While metals and miners remain in a down trend it is important to recognize and prepare for a reversal in the coming weeks or months. Let’s take a look at the charts for a visual of where price is currently trading along with my analysis overlaid.

Weekly Price of Gold Futures

Gold has been under heavy selling pressure this year and it still may not be over. The technical patterns on the chart show continued weakness down to the $1300USD per once which would cleanse the market of remaining long positions before price rockets towards $1600+ per ounce.

There is a second major support zone drawn on the chart which is a worst case scenario. But this would likely on happen if US equities start another major leg higher and rally through the summer.

Weekly Price of Silver Futures

Silver is a little different than gold in terms of where it stands from a technical analysis point of view. The recent 10% dip in price which shows on the chart as a long lower candle stick wick took place on very light volume. This to me shows the majority of weak positions have been shaken out of silver. Gold has not done this yet and it typically happens before a bottom is put in.

While I figure gold will make one more minor new low, silver I feel will drift sideways to lower during until gold works the bugs out of the chart.

Silver Mining Stock ETF – Weekly Chart

Silver miners are oversold and trading at both horizontal support and its down support trendline. Volume remains light meaning traders and investors are not that interested in them down where and it should just be a matter of time (weeks/months) before they build a basing pattern and start to rally.

Gold Mining Stock ETF – Weekly Chart

Gold mining stocks continue to be sold by investors with volume rising and price falls. Fear remains in control but that may not last much longer.

Gold Junior Mining Stock ETF – Weekly Chart

Gold junior miners are in the same boat with the big boys. Overall gold and gold miners are still being sold while silver and silver stocks are firming up.

Precious Metals Trading Conclusion

In the coming weeks we should see the broad stock market top out and for gold miners along with precious metals bottom. There are some decent gains to be had in this sector for the second half of the year but it will remain very dicey at best.

If selling in the broad market becomes intense and triggers a full blown bear market money will be pulled out of most investments as cash is king. Gold is likely to hold up the best in terms of percentage points but mining stocks will get sucked down along with all other stocks for a period of time. This scenario is not likely to be of any issue for a few months yet but it’s something to remember.

Chris Vermeulen


Get My Daily Precious Metals Report Each Morning And Profit!


The Bible for Commodity Traders....Get our free eBook now!

Watch a "small account" Become an Internet Sensation

Whether you are trading gold, oil, stocks or currencies there is no shortage online of stories about legendary trades. What there is a shortage of is proof that the trades actually took place.

If you are a regular reader here at The Crude Oil Trader then you are probably familiar with our trading partner John Carter. John has recently made quite a name for himself as he began sharing his methods of trading that could be done with any size account.

John is shaking things up again with a new video that shows a recording of John trading LIVE with his REAL accounts on a day he made over $223,000 in one day.

The trades were.....

$97,000 on Apple, ticker AAPL
$93,000 on Google, ticker GOOG
$104,000 on Priceline, ticker PCLN

John will show you exactly how he traded the above trades, what he did right, what he did wrong, and what YOU can do to trade like this. And he points out what a 'small account' really is and how the overall goal is to not only make successful trades but to make a regular income source from your trades.

Watch the video here and please feel free to leave a comment and let us know what you think of John's new simple trading system.

See you in the markets,
Ray @ The Crude Oil Trader

View "Watch a small account Become an Internet Sensation" right now!

Is an oil glut on the way in 2014? Raymond James Analyst's makes contrarian forecast

One of our favorite analyst in the oil patch is Andrew Coleman of Raymond James Equity Research. Coleman is making news this week as he is making a contrarian forecast with his call for an oil glut in 2014. Shale oil production is on the ascent, with the United States joining Saudi Arabia on the supply side, while China’s hunger for oil may be sliding and demand in developed countries remains in decline.

In this interview with The Energy Report, Coleman explains his thinking and names the producers best positioned to capitalize on the turbulence ahead.

The Energy Report: Why are you expecting an oil glut in 2014?

Andrew Coleman: Because of the evolution of North American shale oil plays, we are on track to add about 3 million barrels (3 MMbbl) of new supply over the next five years. Yet we know oil demand has been falling across the developed nations and is still weak coming out of the global financial crisis. Those developments point toward a glut.

TER: Saudi Arabia surprised you last year by cutting production when oil was more than $110 per barrel ($110/bbl). Why would Saudi or other suppliers not do that again?

AC: What hurt production outside the U.S. last year and helped keep the demand side a little more in balance was that Saudi cut 800,000 barrels a day (800 Mbbl/d) in Q4/12, sanctions in Iran reduced exports by about 800 Mbbl/d as well, conflict in Sudan took 300 Mbbl/d offline and the North Sea average was lower by about 130 Mbbl/d. These reductions kept last year's supply more balanced than we thought it would be. Going forward, Saudi's ability or willingness to cut is certainly going to be tested, because by our model the country may need to cut 1.5 million barrels a day (1.5 MMbbl/d), about double what it cut last year. It would have to do that for a longer period of time, given the amount of excess storage that could show up on the global markets.

TER: But, as you just pointed out, Saudi Arabia's cut came in the context of actions by other players. The other players are going to be as unpredictable as they were last year, aren't they?

AC: Certainly. That's a big risk to our call. The other players are very unpredictable as well. I think Saudi has two years of foreign currency reserves at its current spending level. The country doesn't have a deficit right now, so the question is, would it be willing to tolerate a deficit? Most other countries have deficits, but that doesn't mean Saudi will. It is hard to predict because we're dealing with personalities and governments, as opposed to hard numbers. We're going to keep watching, and we'll adjust our forecast if some of those scenarios play out.

TER: Was Saudi Arabia's production cut driven by a policy change?

AC: Saudi Arabia cited internal demand issues in its production cut. The cut may also reflect an adjustment to offset the start-up of Manifa, which occurred last month.

TER: If the glut does occur, which benchmark crudes will be most affected, whether by going up or going down?

AC: In the U.S., production of light oil will dramatically increase due to the shales. Without the ability to export, we are already seeing prices of West Texas Intermediate (WTI) reflecting that "stranded" lighter barrel. We see light imports being backed out of the U.S. as early as this summer as well. Finally, as infrastructure bottlenecks are removed onshore, we see risk to Gulf Coast prices (e.g., Light Louisiana Sweet). With much of the U.S. refinery infrastructure having been geared to process heavier barrels, the large growth in light barrels has already driven WTI prices to a discount with Brent. Risks to Brent could come down the road if European and Chinese demand remains tepid.

TER: Will Venezuela's production decline continue?

AC: With Nicolas Maduro running things down there now, we see Venezuelan production remaining flat for the next couple of years. Volumes declined each of the past four years.

TER: What role will other players in the oil space have in either creating or preventing the glut?

AC: Prior to about 2009, we were in a world where there was one marginal producer of oil (Saudi), and one marginal buyer of oil (China). Now we're in a world that has two marginal suppliers of oil, those being the U.S. and Saudi. We have not added any new marginal buyers of oil. The question remains, is that marginal buyer of oilChinaas hungry for oil as it has been in the past? We also know that as economies develop, they become less energy intensive. And, factoring in the potential growth of natural gas consumption, that drives our caution.

TER: Denbury Resources Inc. (DNR:NYSE) depends heavily on CO2 flood for its production. Will that be economically feasible if a glut occurs?

AC: Yes. Denbury is profitable in the $50 per barrel ($50/bbl) range. Most of its current production comes from older oilfields that it owns on the Gulf Coast. The company's CO2 is also on the Gulf Coastin fact, the company has the only naturally occurring CO2 source outside the Rocky Mountains. And it has the advantage of a pipeline that ties those CO2 assets to its producing fields on the coast. Because the oil is produced next to the infrastructure used to refine it, Denbury doesn't have to spend a lot of money on transportation, which helps the economics.

"The evolution of North American shale oil plays has us on track to add 3 MMbbl of new supply over the next five years."

I'm not worried about Denbury being able to economically produce oil because it is cycling CO2, an injection process by which the company puts CO2 in the ground, displacing (and producing) oil as it goes. The company doesn't have to drill hundreds of wells every year to increase production. All it has to do is get the facilities working and then maintain them, versus continually deploying a lot of new capital in the ground each year.

TER: CO2 flooding is not necessarily more expensive than drilling brand new wells, is that correct?

AC: Correct. The two processes present different sets of challenges. If you are going to drill new wells, you need to come up with the drilling rig, well tubulars, hydraulic fracturing fluids and frack sand, and you must build roads and pipelines to connect those wells. If you are going to do a CO2 project, you've got to get the CO2, which costs a little bit of money, and you need injection pumps. Much of the initial infrastructure (roads, wells, etc.) is already in place.

It is a slightly different business model but is still based on extracting additional barrels from historically large accumulations. Finding risk is very low, leaving the bulk of the costs as development in nature only. It's a business model that you don't see a lot in the exploration and production (EP) space. Most players with CO2 assets the ExxonMobils (XOM:NYSE), the Chevrons (CVX:NYSE), the ConocoPhillips (COP:NYSE) of the world have those assets embedded in much larger organizations, as part of their core businesses. Most of the EPs that we focus on, because of their growth nature, are drilling wells on a continual basis to replenish and add to production.

TER: With rare exceptions, Denbury has been stalled below $20/share for more than four years. You bumped your target price from $23 to $24 based on your pricing model. If the model says Denbury can reach that level, why hasn't it done so before?

AC: A few years ago, the company was bringing on one of its biggest fields, Tinsley. It was the largest project the company had undertaken up to that point and some operational hiccups caused it to miss some production targets. As a result, management initiated a stock buyback program, and added to the technical team by bringing in Craig McPherson from ConocoPhillips.

"With much of the U.S. refinery infrastructure geared to process heavier barrels, the large growth in light barrels has already driven WTI prices to a discount with Brent."

Over the last couple of years the company has put more process in place and structured its operations and technical teams to manage its multiple large-scale CO2 floods (aptly titled "Operations Excellence"). Over the last 18 months, management has slowly inched up its tertiary production outlook and now is saying it's going to come in at the high end of guidance. The guidance has slowly trended up as the company has been able to get more control on the operational side. That is why the stock has risen from where it was a couple of years ago, from $1112/share to where it is now ($18). To get into the twenties, it would be helpful to have a little bit of oil price support. It would also be helpful to see production growth expectations pick up as the company brings on more of its large-scale fields.

Management has also been discussing ways of accelerating cash flows from the build-out of its tertiary oil business. The creation of a master limited partnership (MLP) is one way, though management hasn't decided yet. If you look at how some EP MLPs are structured, you could make a case in which Denbury would trade from the mid twenties to the low thirties. My price target reflects continued execution as well as the potential of a little more color on how an MLP might work for the company.

TER: Do you think converting to an MLP would increase the value of the stock?

AC: Potentially. Assets with low maintenance capital do well in an MLP. Maintenance capital is the money needed to keep production flat. If you think about the CO2 floods, they might fit nicely because drilling capex is low. Once you get those facilities up and running, then incremental costs involve getting more CO2, as opposed to getting rigs and steel and frack sand, etc.

While Denbury may not, at this point, grow 4050% like some of the premier shale players, growing in the 1015% or maybe 1520% range could be attractive for an EP MLP. Investors would have long-term visibility on production growth and the company would be relatively stable, so it could then project the cash flow stream that could be dividended out to investors.

TER: Energy XXI (EXXI:NASDAQ) has posted disappointing results recently and management has announced a $250 million ($250M) buyback program. What does management hope to accomplish?

AC: Management is trying to draw attention to the fact that it expects to have free cash from the asset that it produces from, which is not something we've seen a lot of companies focus on historically in the EP business. Most EP companies are growth companies, with historically high levels of reinvestment of cash flows to fund future growth.

With Energy XXI recently taking production guidance down to 10% for the next 12 months, it's going to have a little more capital available to buy back shares. By my model, assuming the oil price is around $95/bbl net, the value of the company's proved reserves alone is somewhere in the $30/share range. If the company buys back shares for $25/share, that is 1520% cheaper than what the assets are worth. That gives the company no credit for any future drilling potential, too. Gulf Coast players tend to trade at some of the most conservative multiples in the EP peer group, but that doesn't reflect the fact that they generate a lot of cash flow.

TER: What's behind the disappointing results?

AC: The company had some exploration wells that didn't pan out. That happens when you drill wells with chances of success that are 30% or lower. The offset is when a high potential well of that magnitude works; it covers the cost of the past unsuccessful tries and then some! If you look at Energy XXI's capital budget, it has roughly $500600M of base capital for its base assets. It is going to spend $100200M on higher-risk, higher potential exploration stuff. So 15% of its annual program is directed at these high-risk/high-potential wells.

"Most EP companies are growth companies, with historically high levels of reinvestment of cash flows to fund future growth."

Over the last two or three years, management spent a lot of money on the Ultra-Deep Shelf (UDS),and it has recently started to balance that by adding exploration drilling around its existing fields. It signed joint ventures with Apache Corp. (APA:NYSE) and ExxonMobil and will test some play concepts that were generated in house, as well as working with its partners, McMoRan (MMR:NYSE) and Plains Exploration Production (PXP:NYSE) on the UDS. Freeport McMoRan Copper and Gold Inc. (FCX:NYSE) recently completed its acquisitions of McMoRan Exploration and Plains Exploration.

The reason Energy XXI missed production numbers was also partly due to lingering weather impacts from last fall's storm season.

TER: Energy XXI's initial strategy was to grow through acquisition, and it did have five large acquisitions, the last one completed in 2010. How well has it performed with the acquired assets?

AC: The acquired assets are probably 6070% of the inventory the company can drill now. Getting assets from Exxon, and a couple of years before that from Mit Energy Upstream, Energy XXI was able to high-grade and increase its inventory. Hopefully the company is done integrating the assets, but it's a continuous process to high-grade a portfolio, drill your best projects and optimize those projects as you go. I look to see that continue. In fact, Energy XXI recently brought its reserve engineering in house.

Over the last few years, partly because the company was smaller, it let third party engineers handle 100% of its reserves for year-end reporting. Most larger companies do that in house, and then use reserve engineers to audit the process for consistency. By bringing the engineering in house, Energy XXI is trying to show the market that it has a bigger organization that it has the bigger skill set and it wants to be more in tune with taking prospect sizes and prospect targets that match its capital program with expectations.

TER: What is the company's strategy now? Is it still planning acquisitions or it is going in new directions?

AC: The strategy continues essentially unchanged. First, it wants to invest in as many high IRR capital projects as it can. The CEO has said that for every dollar invested in the current year, he expects to get $1.502.00 in cash flow out of the ground. From that standpoint, the company can continue to spend money to get more returns, but it must balance that with trying to find the next company makers those bigger projects that support multiple well developments and new platforms.

For the organic portfolio, the company also has to manage whether it can buy assets that would consolidate parts of its fields in the Gulf of Mexico and do that at an attractive price. Energy XXI is always looking at acquisitions. It's always looking at optimizing the drilling program. With the share buyback, the company has tried to put a little more emphasis on the fact that it recognizes the value of cash flow to investors beyond the growth side of the EP business.

TER: Bonanza Creek Energy Inc. (BCEI:NYSE) has been a strong performer for you, but its recent earnings report was a miss right across the board. You've cut its target price from $41 to $40. What caused that miss?

AC: Coming out of last year and into Q1/13, Bonanza Creek had a slowdown in activity due to its rig schedule and winter weather. The company is in the right play in the Niobrara oil shale formation, where it is a small-cap player surrounded by Noble Energy Inc. (NBL:NYSE) and Anadarko Petroleum Corp. (APC:NYSE). It was getting its program ramped up in earnest, but the slowdown caused it to come in below expectations for the quarter. In all fairness, at Bonanza's analyst meeting in April, management discussed the slower start to the year.

"If the price spread between oil and natural gas remains wide, we'll see continued evolution toward natural gas use across our economy."

Fundamentally, Bonanza stock still is under leveraged. Its debt is less than current cash flow; it's going to grow north of 60% this year; it continues to have access to inventory; and it is testing multiple zones to increase its inventory potential. From that standpoint, the stock still looks compelling and still has lots of growth in front of it. That is why I only took the target down by a dollar.

TER: You make it sound like growth is simply built into the company's current direction. Does Bonanza not need to improve something in operations to get results?

AC: Not really. Bonanza Creek's going to drill 70+ wells this year in the Niobrara. It is testing 5-acre downspacing in the Cotton Valley, it is testing long laterals in the Niobrara B bench and it is testing the Codell zone for the Niobrara as well as the C bench in the Niobrara.

It doesn't need to do anything more than continue drilling and hit its targets in terms of ramping the rig count. With four operated rigs presently, the company is doing everything that management said it would do and that allows Bonanza, based on my bottom-up activity model, to hit my $40/share target.

Additionally, across the play you've got the LaSalle Plant, which DCP Midstream Partners, L.P. (DPM:NYSE) is building. The plant should come on line at the end of the summer. That provides additional capacity to enhance volume growth for players in the basin. The Niobrara is a play that works. You've got sufficiently large companies in the play to keep capital and facilities growing. Bonanza Creek is falling right in line there, and keeping up with its peers.

TER: What other companies are you excited about right now?

AC: My favorite stock is Anadarko. The biggest story for Anadarko will be the resolution of the Tronox Inc. bankruptcy case. After that, the company has numerous operational catalysts on the horizon, including 1) an ongoing process to partially monetize some of its Mozambique gas assets; 2) its Yucatan exploration well (operated by Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE) in the deepwater Gulf of Mexico; 3) the sale of its Brazilian assets; and 4) ongoing drilling/testing of its extensive onshore shale inventory (e.g. Niobrara, Eagle Ford, Marcellus and Utica).

The company has established itself as a premier explorer, and with the Tronox case resolved, Anadarko is also an attractive takeout candidate. In our net asset value (NAV) model, I see its shares as worth up to $130 each, but have assigned a $105 price target given visibility on near-term cash flows.

TER: Do you have any parting thoughts on the oil and/or gas markets that you'd like to share?

AC: Yes. From our macro view, we're cautious about the oil outlook. We've got a lot of production, and we're unclear about the strength of demand on the oil side in the next 618 months, going through 2014. On the gas side, after bottoming last year, gas looks like it is poised to be higher down the road, which makes us more constructive there. We have to see more evolution on the demand side, be it in the short term with power plant construction or in the longer term with the quest for use of compressed natural gas as a transportation fuel.

If the price spread between oil and natural gas remains wide, we'll see continued evolution toward natural gas use across our economy. That will be good for everybody. It should help unlock value for the manufacturing space. It should also unlock value for consumers, who won't have to spend quite so much to heat their homes and fuel their cars. It would ultimately kick-start the next big wave of economic expansion on the back of affordable natural gas in the U.S.

TER: Andrew, thank you for your time.

AC: My pleasure.

Andrew Coleman joined Raymond James Equity Research in July 2011 and co-heads the exploration and production team. Since 2004, he has covered the EP sector for Madison Williams, UBS and FBR Capital Markets. Coleman has also worked for BP Exploration and Unocal in a variety of global roles in petroleum and reservoir engineering, operations, business development and strategy. Coleman holds a bachelor's degree in petroleum engineering from Texas AM University and a master's degree in business administration (finance and accounting) with a specialization in energy finance from the University of Texas at Austin. He is a director for the National Association of Petroleum Investment Analysts and a member of the Texas AM Petroleum Engineering Industry Board, the Independent Petroleum Association of America's (IPAA) Capital Markets committee and the Society of Petroleum Engineers (SPE).

Posted courtesy of The Energy Report and our trading partners at INO.com


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U.S. Stock Market Foreshadows Another Rally – True Story!

Today our trading partner Chris Vermeulen paints a clear picture of this market with price, volume, momentum, cycles and sentiment. Will he start shorting the bounces? Let's find out......

Over the past couple week’s investors and traders have been growing increasingly bearish for the US stock market. While I too also feel this rally is getting long in the teeth there is no reason to exit long positions and start shorting.

My followers know I do not pick tops and I do not pick bottoms. This I explained in great detail in my previous report. There are more cons to that tactic and on several different levels (timing, volatility, emotions, lack of experience, addiction) than there are pro’s.

Keeping things simple, short and to the point here is my thinking for today and this week on the broad market. Remember my analysis is 100% technical based using price, volume, cycles, volatility, momentum and sentiment. I try not to let any emotions, gut feel, or bias flow into my projections. I say “TRY” because I am only human and at times when the market and emotions are flying high they still take control of me but that is few and far between.

So let’s get to the charts shall we!

SP500 Index Trading Daily Chart – SPY Exchange Traded Fund

The SP500 index continues to hold up within its rising trend channel and the recent pullback is bullish. Remember the trend is your friend and it can continue for very long periods of times ranging from days, weeks, and even months…

The US Stock Market MUSCLE Indexes

The charts below show and explain my thinking… But in short we need these two indexes to be strong if we want to see another major leg higher in the SPY, or to at least test the recent highs.

Today the market opened slightly higher and push up in the first 30 minutes with strong volume. Overall the market looks as though it needs a day pause/pullback before taking another run higher.

Small cap stocks are the ULTIMATE Risk On play and generate ridiculous gains in very short periods of time. I focus on these with my trading partner exclusively at ActiveTradingPartners.com where we have been making a killing on trades like NUGT up 21% in 1 day and IOC up 11% in 2 day.

Bullish Index Price, Volume & Candles

The SP500 has been very predictable the past couple weeks for both intraday trading during key reversal times in the market when price has pullback to a support zone, and also for swing trading. Last week we myself and followers bought SSO ETF when the market pulled back and we exited the next day for a 3.5% profit.

Yesterday was a perfect intraday example with the SP500 bottoming out at my 11:30am morning reversal time zone with price trading at support. Price then rallied into the close posting a 12 point gain on the SP500 futures for a simple momentum play pocketing $600.

US Stock Market Mid-Week Conclusion:

In short, I still like stocks as the place to be and will not get bearish until proven wrong. Once price reverses and the technical clearly paint a bearish picture with price, volume, momentum, cycles and sentiment will I start shorting the bounces.

This week is a pivotal one for the stock market so expect increased volatility and possibly lower lows still until the counter trend flushes the weak position out before moving higher.

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Chris Vermeulen


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What's Behind the "Big Trade"

In today's free trading video John Carter will show you how you can grow any size account using options.

Here's just a few topics John will be covering.....

*    The difference between trading for income vs. growth

*   Our recent $223,234.00 trading day

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*     How to trade momentum stocks

*    The one indicator we can’t trade without

                         And much more.....

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Seven Keys in Timing Stock Market Tops – Part II

Timing stock market tops and bottoms is risky business and we all know the more the more risk we take the more potential gain would could also made. Correctly timing a top or bottom for any investment is flat out exciting not to mention financially rewarding. But this high risk trading tactic does come with some major issues which you must FULLY understand so that you can protect your capital and self confidence.

On May 13th I wrote a special report on how to spot market tops just before they happen and how to do it with a very high probability of success. I also explain the major pit falls to be aware of so you stay on the right side of the market.

I recommend you read this special report right now.... "How to Spot and Time Stock Market Tops"

That special report truly showed you what was going to happen a few weeks before it did. Much like how this report shows you what is likely to happen in June.

Looking at the market with my YOU ARE HERE type of using cycles, volume, price patterns and momentum to forecast what is likely to unfold in the coming weeks. Depending on the time frame used for my analysis I can figure out with a high probability where price will be in a few minutes, hours or days also. Mall Market Directory – You Are Here

Stock market tops are tough to trade and time. That is because there are so many things happening in the media and emotions running wild that it’s tough to get a grasp on what you should really be focusing on to keep a level head trade around it.

Market tops are typically not an event but rather a progression that takes much longer than most individuals expect. I still find myself jumping the gun at times and I know this and have been through this process hundreds of times in various investments. The human brain is a powerful tool but emotions can force you to override your rules/strategy still.

Stop Fighting! – Bulls & Bears are BOTH Correct at this Stage

It does not matter where you go to get your stock market news and reports… Everyone is arguing their bullish or bearish case more than EVERY. There is a reason for this and it’s because the SP500, DJIA, RUT and NASDAQ appear to be entering a cycle top. What does this mean? It means the uptrend is almost over from a technical analyst point of view, and those who are have been bearish for a long time feel the market topping out more now than ever in their gut that this is the top.

Keeping it simple removing news, economic data, emotions and biases we are left with one thing which is technical analysis. This is based on price alone and that is important to remember because the only thing that pays you money for an investment is when price moves in your favor. Believe it or not price only has blips on the charts here and there which is based off news, economic data etc… In the big picture stock prices tend to lead economic data by several months and in some cases years.

So the big question is this… If price action is the only thing that pays you when trading why bother worrying about all the other opinions, news out there. That stuff only adds to the confusion and in most cases gets you on the wrong side of the market.

Timing the Market Top Conclusion:

In short, from a technical point of view the SP500 remains in an uptrend. But according to technical analysis the upside momentum is starting to slow. If we get a few more down days then the trend will flip and be down but it has not yet happened.

When the trend does reverse down you must remember that 80% of the time price will bounce back up to test near the recent highs before truly rolling over and collapsing. Think of it like a zombie movie. Just when you think you killed one it comes back to life for one last scare before its dead.

Just to touch on stock market bottoms so you do not get confused. Stock market bottoms are little different than tops so they are traded differently. I will cover them when the time comes.

Trading the market is not easy during this type of condition, which is why members and myself got long SSO on the 23rd and two days later sold out for a 3.5% gain. I am now looking to reload this week for another bounce/rally play but only time will tell if we get another setup.

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