EIA: Mexico's Energy Ministry Projects Rapid Near Term Growth of Natural Gas Imports from U.S.

 A combination of higher natural gas demand from Mexico's industrial and electric power sectors and increased U.S. natural gas production has resulted in a doubling of U.S. pipeline exports of natural gas to Mexico between 2009 and 2013. Mexico's national energy ministry, SENER, projects that U.S. pipeline exports to Mexico will reach 3.8 billion cubic feet per day (Bcf/d) in 2018. This would be more than double U.S. pipeline exports to Mexico in 2013, which averaged 1.8 Bcf/d. This projected growth is driven mainly by higher demand from Mexico's electric power sector in both the north and interior of the country.



Nearly three quarters of the projected growth in Mexico's natural gas consumption between 2012 and 2027 is projected to occur in the electric power sector (see graph). This growth is largely driven by private and independently operated power plants, whose natural gas consumption is expected to rise at a 7.9% average annual rate, from 1.6 Bcf/d in 2012 to 4.9 Bcf/d in 2027. By contrast, natural gas consumption from plants operated by national energy company CFE grows at just 0.4% per year, from 1.1 Bcf/d in 2012 to 1.2 Bcf/d in 2027. The growth comes largely from new combined cycle plants, which benefit from greater operational efficiencies and lower emission levels compared to other generation sources. Growth sharply accelerates over the near term but continues through 2027, when power sector consumption reaches 58% of total gas consumption, compared to 47% in 2012.

Mexico's projected growth in natural gas consumption occurs in each of its five market regions: Northeast, Northwest, Interior-West, Interior, and South-Southeast. According to SENER, demand growth is particularly strong in the northern and interior regions of the country.



All natural gas pipeline imports from the United States into Mexico enter the country's Northeast and Northwest regions. Some of these imports enter the country as logistical imports on pipelines owned by private entities, as well as by Pemex's natural gas subsidiary PGPB. The term logistical imports refers to imports that arrive in areas with no other form of access to natural gas. The largest growth in projected pipeline imports takes place from nonlogistical imports on PGPB owned pipelines in the Northeast. An increasing portion of this gas flows through the Northeast south to the interior regions, but much of it also serves increased consumption from the Northeast's industrial and electric generation facilities. Higher natural gas pipeline imports from the United States into the Northeast region meet both higher demand from consumers there and the increased pipeline flows from the Northeast to regions further south.

About three quarters of Mexico's natural gas production comes from associated gas that is produced at Pemex's offshore oil platforms in the South-Southeast region. Natural gas production in the South-Southeast is expected to grow by only 0.4% per year through 2019. Pemex consumes increasing amounts of this production in the near term for its exploration, production, and refining activities. With stagnant growth in the production of associated gas in the South-Southeast and limited capacity for future growth in LNG imports, pipeline imports from the United States become the primary means for Mexico to satisfy national demand growth.

SENER has previously made projections that assumed more robust investment in the development of new gas fields, and a more aggressive and diverse range of well productivity rates. SENER's high natural gas production growth projections included the undertaking of an initiative to enhance recovery rates in the South-Southeast of both gas and oil extracted from offshore fields in the Yucatan Peninsula, as well as development in the Northeast of the Sabinas Basin's La Casita shale gas play and Mexico's portion of the Eagle Ford shale play.

However, there are significant factors that could inhibit the development of shale gas and other basins in Mexico, including the geologic complexity and discontinuity of its shale gas areas, the availability of required technology and water resources, security concerns, and a focus on development of crude oil resources. Even if additional development did occur, Mexico's northern regions would likely still see high growth in pipeline imports from the United States, particularly in areas that lack pipeline connectivity to other parts of the country.

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Encore Presentation....."The Insiders Guide to Growing a Small Trading Account into a Big Account"

Thanks for all the positive feedback on John Carters webinar “The Insider’s Guide to Growing a Small Trading Account into a Big Account”. Many of you have requested an encore presentation. So we are happy to say that we’ll be hosting a "live" encore webinar on this Tuesday June 3rd

You can attend at either 1:00 pm or 8:00 pm New York time. Both webinars will be live encore presentations.

Just Click Here to Register

One of the reasons we are doing this is that it turns out that a lot of traders were shut out of last week’s webinar because we were over capacity. We apologize to all that were and hope you get a seat for this week. Make sure you log on 10 minutes early to claim your seat.

So join us for a live encore presentation on Tuesday.

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See you on Tuesday!
Ray @ The Crude Oil Trader


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Weekly Futures Recap With Mike Seery - Crude Oil, SP 500, Gold and Coffee

We've ask our trading partner Michael Seery to give our readers a weekly recap of the futures market. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets......

Crude oil futures in the July contract finished the week down about $1.50 closing around 102.70 a barrel after hitting 1 year highs earlier in the week. The crude oil market is trading above its 20 & 100 day moving average continuing its bullish trend in recent months as economies around the world are improving as well as the U.S stock market hitting new all time highs on a daily basis helping support crude oil prices. We have entered the strong demand season for unleaded gasoline as there will be a lot of drivers on the road increasing demand which could propel prices back up to last August highs of around 112 a barrel. If you are looking to take advantage of this recent dip in crude oil prices I would remain a buyer as long as prices stay above the 10 day low of 101 a barrel which is about $1.75 away or $900 risk per contract.

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The S&P 500 hit all time highs once again along with the transports this week as the Vix or fear index is at a 7 year low as the S&P 500 traded up another 20 points this week at 1917 as Apple Computer was also up $20 this week currently trading at 635 a share which is propelling the rest of the equity markets higher as the trend seems to be getting stronger and stronger and I’m still recommending a long position in this market .The S&P 500 is trading far above its 20 and 100 day moving average telling you that the trend is higher and with the 10 year note trading at 2.45% which is also propelling stock prices higher as companies are able to borrow large amounts of money at practically nothing while increasing dividends while also buying back their shares decreasing their float therefore increasing earnings per share. I love this market to the upside for one reason because the market has very little volatility and continues to grind higher with solid chart structure to continue to play this to the upside.
TREND: HIGHER
CHART STRUCTURE: SOLID

Gold futures in the August contract finished down for the 5th straight trading session finishing lower by 45 dollars this week at 1,245 an ounce continuing its bearish trend trading below its 20 and 100 day moving average as I remain bearish gold prices as I think there’s a high probability of a retest of 1,200 and if that level is broken look at a re test near the contract low of 1,180 as prices look very bearish in my opinion. You have to ask yourself at this time would you rather own gold or stocks as investors are choosing to sell their gold and are buying stocks and it seems like on a daily basis. The problem with gold right now is everybody’s buying the S&P 500 which hit another all time high today as there is a very little interest in purchasing gold at the current time especially with bond yields continuing to move lower as the money is going into bonds and stocks and out of gold. Gold futures are still higher by about $60 in the year 2014 but traded as high as 1,390 earlier in the year and has given back much of this year’s gains that it had and I do think the trend continues to the downside and if you took my original recommendation place your stop above the 10 day high minimizing risk in case the trend does change. Gold is famous for having large washout days meaning it will sell off $50 in one day and volatility will spike as I said in yesterday’s blog & I sense one of those days is coming as the trend seems to be getting stronger.
TREND: LOWER
CHART STRUCTURE: SOLID

Coffee futures in New York are sharply lower this Friday afternoon trading down 445 points at 177.50 a pound trading down for the week continuing its short term down trend as prices spiked to a low of 170.80 on Tuesday as I have been recommending a long position in this market between 165 – 170 so currently I’m still sitting on the sidelines waiting for the opportunity to arrive. A large coffee exporter named Ipanema Coffee is suggesting that yields could drop by as much as 40% as there are small beans in the cherries which could spike up prices if they are correct on their assessment as the numbers will be coming in the next couple of weeks as in the beginning of the season we were expecting 53 million bags then down to 43 million bags due to the severe drought and anything lower than 43 million bags would be bullish this market and I do expect volatility to rise here in the next couple of weeks. Prices have been going sideways to lower in the last couple of weeks because of the fact that we have very little fresh fundamental news on crop size but that will change quickly so continue to look to be a buyer at 165 – 170 level as you will never pick a bottom in coffee but I do not think prices are headed back down 140 as this whole rally started at 125 as there was significant damage done as I talked to many producers down in Brazil and this was no joke as this was one of the worst droughts in history. Coffee prices are trading below their 20 day moving average in the right near their 100 day moving average which has not happened in more than 4 months telling you that the trend is mixed at the current time as I’m laying in the weeds waiting for an entry.
TREND: LOWER
CHART STRUCTURE: IMPROVING

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The Colder War and the End of the Petrodollar

By Marin Katusa, Chief Energy Investment Strategist

The mainstream media are falling over themselves talking about Russia’s just-signed “Holy Grail” gas deal with China, which is expected to be worth more than $400 billion. But here’s what I think the real news is… and nobody’s talking about it—until now, that is. China’s President Xi Jinping has publicly stated that it’s time for a new model of security, not just for China, but for all of Asia. This new model of security, otherwise known as “the new UN,” will include Russia and Iran, but not the United States or the EU-28.

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This monumental gas deal with China does so much more for Russia than the Western media are reporting. First off, it opens up Russian oil and gas supplies to all of Asia. It’s no coincidence that Russian President Putin announced the gas deal with China at a time when the tensions with the West over Ukraine were growing. Putin has U.S. President Obama exactly where he wants him, and it’s only going to get worse for Europe and America. But before I explain why that is, let’s put this deal in terms we can understand. The specific details have not been announced, but my sources tell me that the contract will bring in over U.S. $10 billion a year of revenue to start with.

The 30 year deal states that every year, the Russians will deliver 1.3 trillion cubic feet (TCF) of gas to China. The total capital expenditure to build the pipeline and all other infrastructure for the project will be more than $22 billion—this will be one of the largest projects in the world. You can bet the Russians won’t take payment in US dollars for their gas. This is the beginning of the end for the petrodollar.

The Chinese and Russians are working together against the Americans, and there are many countries that would be happy to join them in dethroning the U.S. dollar as the world’s reserve currency. This historic gas deal between Russia and China is very bad news for the petrodollar. Through this one deal, the Russians will provide about 25% of China’s current natural gas demand. In a word, this is huge. It’s also not a coincidence that Putin sealed the deal with China before the Australian, US, and Canadian liquefied natural gas (LNG) terminals are completed. If you read our recent Casey Energy Report issue on LNG, you know to be wary of the hype about LNG’s “bright future.” Take note: this deal is a serious negative for the global LNG projects.

I also stated in our April 2012 newsletter:

Putin has positioned Russia to play an increasingly dominant role in the global gas scene with two general strategies: first, by building new pipelines to avoid transiting troublesome countries and to develop Russia’s ability to sell gas to Asia, and second, by jumping into the liquefied natural gas (LNG) scene with new facilities in the Far East.

Pretty bang on for a comment that was made over two years ago in print, don’t you think?

So, what’s next? Lots. Putin will continue to outsmart Obama. (Note to all Americans: the Russians make fun of you—not just for your poor choice of presidents, but also for your failed foreign policy that has led to most of the world hating America. But I digress.) You will see Russia announce a major nuclear deal with Iran, where the Russians will build, finance, and supply the uranium for many nuclear reactors. The Russians will do the same for China, and then Syria. With China signing the natural gas deal with Russia and the president of China publicly stating that it’s time to create a new security model for the Asian nations that includes Russia and Iran, it’s clear China has chosen Russia over the U.S.

We are now in the early stages of the Colder War.

The European Union will be the first victim. The EU is completely dependent on Russia for its oil and natural gas imports—over one-third of the EU-28’s supply of oil and natural gas comes from Russia. I’ve been writing for years about this, and I’m watching it come true right now: the only way out for the EU countries is to use modern North American technology to revitalize their old proven oil and gas deposits.

I call it the European Energy Renaissance, and there’s a fortune to be made from it. Our Casey Energy Report portfolio has already been doing quite well from investing in the European Energy Renaissance, but this is only the beginning. If Europe is to survive the Colder War, it has no choice but to develop its own natural resources. There are naysayers who claim that Europe cannot and will not do that, for many reasons. I say rubbish.

Of course, to make money from this European dilemma, it’s imperative to only invest in the best management teams, operating in those countries with the political will to do what it takes to survive… but if you do, you could make a fortune. Doug Casey and I plan on doing so, and so should you.

For example, two weeks ago in this missive, I discussed “The Most Anticipated Oil Well of 2014,” where if you invested, in just two weeks you could be up over 40%. Not only did I write in great detail about the company, I even interviewed the CEO because of the serious potential this high-risk junior holds. I said in that Dispatch that the quality of the recorded interview wasn’t first class, but the quality of information was. The company just put together a very high-quality, professional video showing its potential, and I include it here for all to watch.

Since my write-up, the company has announced incredible news. It’s only months away now from knowing whether or not it has made a world-class discovery. Subscribers to the Casey Energy Report are already sitting on some good, short-term profits with this story, but it keeps getting better.

The more the tension is building in Ukraine (and it’s going to get worse), the more money we’re going to make from the Colder War. There’s nothing you can do about the current geopolitical situation, but you can position yourself and your family to benefit financially from the European Energy Renaissance.

Now You Can Take the Lead… We Make It Simple

We expect great things from this company and other companies that are exposed to the European Energy Renaissance. You can read our ongoing guidance on this and our other top energy stocks every month in the Casey Energy Report. In the current issue, for example, you’ll find an in-depth report on the coal sector, uranium, and updates on all of our portfolio companies that are poised to benefit most from the European Energy Renaissance.

There’s no risk in trying it: If you don’t like the Casey Energy Report or don’t make any money within your first three months, just cancel within that time for a full, prompt refund. Even if you miss the cutoff, you can cancel anytime for a prorated refund on the unused part of your subscription.

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The article The Colder War and the End of the Petrodollar was originally published at Casey Research

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You Can’t Shoot Fish in a Barrel Without Ammunition

By Dan Steinhart, Managing Editor, The Casey Report

"FOMO"


I heard this acronym on a podcast last week. Having no clue what it meant, I consulted Google. Turns out it stands for “Fear of Missing Out.” Kids use it to describe their anxiety about missing a social event that all of their friends are attending. It struck me that investors experience FOMO too. And it usually leads to bad decisions.

From Prudent to FOMO

 

In the comfort of your home office, investing rationally is pretty easy. You think a bull market might be emerging, so you invest in the S&P 500.

But you’re not stupid. No one really knows where the stock market is headed, so you keep a healthy allocation of cash on the side to deploy the next time stocks trade at bargain prices. A prudent, rational plan.
But leave the house and things start to change. You notice that others seem to be making more money than you. First it’s the “smart money” raking in the dough—those who had the foresight and fortitude to buy during the last panic, when everyone else was retreating. You’re OK with that. Investing is their full-time job.

You can’t expect to compete with them.

But as the bull market charges higher, the caliber of people making more money than you sinks lower. The mailman starts giving you stock tips. And your gardener’s brand new Mustang, parked in your driveway just behind your sensible, 2011 Toyota Corolla, starts to irritate you.

Your brother-in-law is the last straw. He thinks he’s so smart, but he’s really just lucky to somehow always be in the right place at the right time. I mean, just last month you had to pick him up from a NASCAR tailgate after security kicked him out for lewd behavior—and now he’s taking the family to Europe with his stock market winnings?

If that guy can make $30,000 in the market in six months, you should be a millionaire. Now you feel like a sucker for holding so much cash. Why earn a pitiful 0.5% interest when you could be making… hang on, how much did the S&P 500 gain last year? 29.6%? Some quick extrapolation shows that if you invest all of your cash right now, you can retire by 2023. Factor in a couple family trips to Europe, and we’ll call it 2024 to be safe.

Cash Is Trash… Until It’s King

 

Such is the (slightly exaggerated) psychology of a bull market. FOMO is a powerful motivator and causes smart investors to do stupid things, like go all-in at the worst possible moment. Which is no small concern, since it undermines one of the most powerful investment strategies: keeping liquid cash in reserve to invest during market panics.

Take the roaring ‘20s as a long ago but pertinent example. The surging stock market of that era caused a whole lot of FOMO. Seeing their friends get rich, people who had never invested before piled into stocks.
Of course, we know how that ended. But there’s a fascinating angle that you may not have given much thought. I hadn’t until yesterday, when I finished reading The Great Depression: A Diary [click here to purchase on Amazon.com]. It’s a firsthand, anecdotal account written by attorney Benjamin Roth.

Roth emphasized that during the Great Depression, everyone knew financial assets were great bargains. The problem was hardly anyone had cash to take advantage of them.

Here are a few quotes from the book:

August 1931: I see now how very important it is for the professional man to build up a surplus in normal times. A surplus capital of $2,500 wisely invested during the depression might have meant financial security for the rest of his life. Without it he is at the mercy of the economic winds.

December 1931: It is generally believed that good stocks and bonds can now be bought at very attractive prices. The difficulty is that nobody has the cash to buy.

September 1932: I believe it can be truly said that the man who has money during this depression to invest in the highest grade investment stocks and can hold on for 2 or 3 years will be the rich man of 1935.

June 1933: I am afraid the opportunity to buy a fortune in stocks at about 10¢ on the dollar is past and so far I have been unable to take advantage of it.

July 1933: Again and again during this depression it is driven home to me that opportunity is a stern goddess who passes up those who are unprepared with liquid capital.

May 1937: The greatest chance in a lifetime to build a fortune has gone and will probably not come again soon. Very few people had any surplus to invest—it was a matter of earning enough to buy the necessaries of life.

In short, by succumbing to FOMO and investing all your cash, you might be giving up the opportunity to make a literal fortune. You can’t shoot fish in a barrel without ammunition.

Of course, the parallels from the Great Depression to present day crises aren’t exact. The U.S. was on the gold standard back then, meaning the Fed couldn’t conjure money out of thin air to reflate stock prices. Such a nationwide shortage of cash is unthinkable today, as Yellen & Friends would create however many dollars necessary to prevent stocks from plummeting 90%, as they did during the Great Depression.

That’s exactly what happened during the 2008 financial crisis, as you can see below. The Fed injected liquidity, and stocks rebounded rapidly. Compared to the Great Depression, the stock market crash of 2008 was short and sweet:

What does that mean for modern investors?

When the next crisis comes—and it will—there will be bargains. But because of the Fed’s quick trigger, investors will have to act decisively to get a piece of them.

What’s more, now that the US government has demonstrated beyond the shadow of a doubt that it will prop up the economy, bargains should dissipate even quicker next time around. After all, the hardest part of buying stocks in a crisis is overcoming fear. But that fear isn’t much of a detriment when Uncle Sam is standing by with his hand on the lever of the money-printing machine, ready to rescue the market.

Crises can creep up on you faster than you think. You may never know what hit you--unless you knew what to look for ahead of time. Watch Meltdown America, the eye opening 30-minute documentary on how to recognize (and survive) an economic crisis—with top experts including Sovereign Society Director Jeff Opdyke, investing legend Doug Casey, and Canadian National Security Council member Dr. Andre Gerolymatos.

Be prepared… it can (and will) happen here. Click here to watch Meltdown America now.

The article You Can’t Shoot Fish in a Barrel Without Ammunition was originally published at Casey Research.

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Free trading webinar: The Insiders Guide to Growing a Small Account into a Big Account

Growing your account is not as hard as you think. And it won't take you decades to grow it if you do it the RIGHT (and safe) way. Let John Carter show you how he does it and how you can do it too.

Just click here to grab a seat to this Tuesdays [June 3rd] FREE webinar

He's pulling back the cloak on how he personally grows his accounts with super low risk, and max gains and control. He'll show you........

   *   His favorite low risk strategy to grow his account

   *  What stops to use and WHEN

   *  How to control risk without being timid

   *  How to secure your financial future.

   *  And a lot more...plus he'll be taking question

Seats are limited for this 'Insider Meeting', so get your name on the list TODAY:

Just Click Here to Reserve Your Seat to John's Meeting 

See you Tuesday!
Ray @ The Crude Oil Trader

Weekly futures recap with Mike Seery for week ending May 23rd

We've asked our trading partner Mike Seery to give our readers a weekly recap of the commodity futures market. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets......

Crude oil futures in the July contract rallied another $.70 this Friday afternoon trading at 104.45 a barrel hitting new 1 year highs as the trend continues to move to the upside at least here in the short term. The true breakout was when prices broke above 103 in Wednesday’s trade as I would place my stop loss at the 10 day low which is around 98 risking $5 or $5,000 per contract as the chart structure will improve over the next several days as there is strong demand going into the Memorial Day weekend for energy products. Crude oil futures rose almost $3 this week as prices look to head up to the next resistance level of 106 and if that level is broken I think we can retest the 110 level which was hit last August when we had the Syrian conflict and then prices dropped very quickly however this market is quite different as prices are rising due to demand and improving economies around the world as the U.S stock market hit all time highs once again today and with extremely low interest rates looking to stay for many years to come that recipe is very bullish crude oil and all other commodity and equity assets. If you look at this market on a seasonality basis prices generally tend to rise in the months of June, July and August as drivers are hitting the road and it looks like that same trend is already beginning so continue to play this market to the upside and if you currently have missed the recent rally look for a dip to enter.
TREND: HIGHER
CHART STRUCTURE: IMPROVING

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Gold futures in the June contract basically traded unchanged for the trading week with very little volatility as this market has gone sideways over the last 7 weeks and is looking to breakout soon in my opinion. If you look at the daily chart we are starting to form a tight wedge and I do think if prices break the critical level of 1,265 the bear market will continue however if prices break out above 1,310 a bottom might be in place and time will only tell so at this point I’m sitting on the sidelines as there is no trend in this market, however this is starting to become an interesting chart, so keep a close eye on those 2 price levels as the longer we consolidate the more powerful the breakout becomes. Gold futures are trading just an eyelash below their 20 and 100 day moving average as volatility is extremely low at the current time so if you’re bullish this market I would look at bull call option spreads because the premiums are relatively cheap and if you’re bearish this market I would look at bear put spreads limiting your risk to what the premium costs as gold certainly will become extremely volatile once again it’s just a matter of time.
TREND: SIDEWAYS
CHART STRUCTURE: EXCELLENT

Coffee futures in the July contract are up 55 points this afternoon in New York currently trading at 182 a pound still trading below its 20 day but above its 100 day moving average settling last Friday at 185 as prices are still near 5 week lows. I’m recommending buying the coffee market if you’re lucky enough to get in at the 170 – 175 level as I do think crop estimates which should be coming out in the next couple weeks will show a worse production than anticipated sending prices higher and volatility higher as coffee can have tremendous price swings. The drought in central Brazil was very severe and I don’t think prices can head back down to the 140 level so if your trading a large enough account keep a very close eye on this market because the risk reward is always in your favor if you use a proper money management technique so look to be a buyer if prices should tumble into the low 170s.
TREND: SIDEWAYS
CHART STRUCTURE: IMPROVING

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How to Grow a Small Trading Account into a BIG One

He's back! Our friend and trading partner John Carter of Simpler Options is back to answer the number one question he gets at the Simpler Options phone bank...."how can I trade using a small trading account"?

As you have probably already learned [like all of us] trading fees quickly erode our trading accounts even when we have some success when using a small account. Today John shows us how to put that all behind us.

Growth is on our minds, and I'm sure it's on yours.....so watch this free video from the industries leading educator and start growing and protecting your account today.

How to Grow a Small Account into a BIG One

Here's what you'll learn from John......

   *   The difference between trading for income vs. growth and what no one else will tell you about this

   *   The # 1 job of every trader has to accomplish or look for a new job

   *   Why you don’t want to focus on being right in trading and yes this is counter intuitive

   *   Examples of my favorite trades for growing a small account

   *   Position sizing appropriately for a small account and the types of stocks and ETFs to trade

John shows us all of his trades in his real 5K account that he'll be growing right before our eyes. And John explains in detail every method he uses to make it all happen.

Watch the video here...and thank me later

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

P.S.  please feel free to leave a comment after watching the video, we want to hear your take on what John is doing.

The Birth of a New Bull Market

By Jeff Clark, Senior Precious Metals Analyst

If I asked you why you think I’m bullish on platinum and palladium, you’d probably point to the strikes in South Africa, the world’s largest producer of platinum. Or maybe the geopolitical conflicts with Russia, the largest supplier of palladium. Maybe you’d even mention that some technical analysts say the palladium price has “broken out” of its trading range.

These are all valid points—but they’re reasons why a trader might be bullish. When the strikes end, or Russia ends its aggression, or short-term price momentum eases, they’ll sell.
And that will be a mistake.

Because underneath the headlines lies an irreparable situation with the PGM (Platinum Group Metals) market, one that will last at least several years and probably more like a decade. This market is teetering on the edge of a supply crunch, one more perilous than many investors realize. As the issues outlined below play out, prices will be forced higher—which signals that we should diversify into the “other” precious metals now.
The basic problem is that platinum and palladium supply is in a structural deficit. It won’t be resolved when the strikes end or Russia simmers down. Here are six reasons why…...

#1. Producers Won’t Meet the Cost of Production

The central issue of the striking workers in South Africa is wages. In spite of company executives offering to double wages over the next five years, workers remain on the picket line.

Regardless of the final pay package, wages will clearly be higher. And worker pay is one of the biggest costs of production. And the two largest South African producers (Anglo American and Impala), which supply 69% of the world’s platinum, are already operating at a loss.

Once the strike settles, costs will rise further. Throw in ongoing problems with electric power supply, high regulations, and past labor agreements, and there is virtually no chance costs will come down. This dilemma means that platinum prices would need to move higher for production to be maintained anywhere near “normal” levels. Morgan Stanley predicts it will take at least four years for that to occur. And if the price of the metal doesn’t rise? Companies will have no choice but to curtail production, making the supply crunch worse.

#2. Inventories Are Near the Bottom of the Barrel 

 

One reason platinum price moves have been muted during the work stoppage is because there have been adequate stockpiles. But those are getting low. Impala, the world’s second-largest platinum producer, said the company is now supplying customers from its inventories. In March, Switzerland’s platinum imports from strike-hit South Africa plummeted to their lowest level in five and a half years, according to the Swiss customs bureau.

Since producers can’t currently meet demand, some customers are now obtaining metal from other sources, including buying it in the open market. As inventories decline, supply from producing companies will need to make up the shortfall—and they’ll have little ability to do that.

#3. The Strikes Will Make Recovery Difficult and Prolonged

Companies are already strategizing how to deal with the fallout from the worst work stoppage since the end of apartheid in 1994…

• Amplats said it might sell its struggling Rustenburg operations. Even if it finds a buyer, the new operator will inherit the same problems.

• Impala said that even if the strike ends soon, its operations will remain closed until at least the second half of the year.

• Some companies have announced they may shut down individual shafts. This causes a future problem because some of these mines are a couple of miles deep and would require a lot of money to bring back online—which they may balk at doing with costs already so high.

• It’s not being advertised, but a worker settlement will almost certainly result in layoffs since some form of restructuring will be required. This could trigger renewed strikes and set in motion a vicious cycle that further degrades production and makes labor issues insurmountable.

#4. Russian Palladium Is Already in a Supply Crunch

When it comes to palladium, Russia matters more than South Africa, since it provides 42% of global supply. Remember: palladium demand is expected to rise more than platinum, due to new auto emissions control regulations in Asia.

But Russia’s mines are also in trouble…

• Ore grades at Russia’s major mines, including the Norilsk mines, are reported to be in decline.

• New mines will take as long as 10 years to come online. It could take a decade for Russian production to rebound—if Russia even has the resources to do it. This stands in stark contrast to global demand for palladium, which has grown 35.8% since 2004.

• Russia’s aboveground stockpile of palladium appears to have dwindled to near extinction. The precise amount of the country’s reserves is a state secret, but analysts estimate stockpiles were 27-30 million ounces in 1990.

Take a look at reserve sales today:

Many analysts believe that since palladium reserve sales have shrunk, Russia has sold almost all its inventory. As unofficial confirmation, the government announced last week that it is now purchasing palladium from local producers. This paints a sobering picture for the world’s largest supplier of palladium—and is very bullish for the metal’s price.

#5. Demand for Auto Catalysts Cannot Be Met

The greatest use of PGMs is in auto catalysts, which help reduce pollution. Platinum has long been the primary metal used for this purpose and has no widely used substitute—except palladium.

But that market is already upside down.

Palladium is cheaper than platinum, but replacing platinum with palladium requires some retooling and, on a large scale, would worsen the supply deficit. As for platinum (which does work better than palladium in higher-temperature diesel engines), auto parts manufacturers are expected to use more of it than is mined this year, for the third straight year. Some investors may shy away from PGMs because they believe demand will decline if the economy enters a recession. That could happen, but tighter emissions controls and increasing car sales in Asia could negate the effects of declining sales in weakening Western economies.

For example, China is now the world’s top auto-producing country. According to IHS Global, auto sales in China are projected to grow 5% annually over the next three years. PricewaterhouseCoopers forecasts that sales of automobiles and light trucks in China will double by 2019. That will take a lot of catalytic converters. This trend largely applies to other Asian countries as well. It’s important to think globally when considering demand.

The key, however, is that supply is likely to fall much further than demand.

#6. Investment Demand Has Erupted

Investment demand for platinum rose 9.1% last year. The increase comes largely from the new South African ETF, NewPlat. At the end of April, all platinum ETFs held nearly 89,000 ounces—a huge amount when you consider it was zero as recently as 2007.

Palladium investment fell 84% last year—but demand is up sharply year-to-date due to the launch of two South African palladium ETFs, pushing global palladium holdings to record levels. And like platinum, there was no investment demand for palladium seven years ago.

Growing investment demand adds to the deficit of these metals.

The Birth of a 10 Year Bull Market

 

Add it all up and the message is clear: by any reasonable measure, the supply problems for the PGM market cannot be fixed in the foreseeable future. We have a rare opportunity to invest in metals that are at the beginning of a potential 10-year bull run. Platinum and palladium prices may drop when the strikes end, but if so, that will be a buying opportunity. This market is so tenuous, however, that an announcement of employees returning to work may be too little, too late. We thus wouldn’t wait to start building a position in PGMs.

GFMS, a reputable independent precious metals consultancy, predicts the palladium price will hit $930 by year-end and that platinum will go as high as $1,700. But that will just be the beginning; the forces outlined above could easily push prices to double over the next few years.

At that point, stranded supplies might start coming back online—but not until after major, sustained price increases make it possible.

The RIGHT Way to Invest

In my newsletter, BIG GOLD, we cover the best ways to invest in the metals themselves (funds and bullion), but for the added leverage of investing in a profitable platinum/palladium producer, I have to hand the baton over to Louis James, editor of Casey International Speculator.

You see, most PGM stocks are not worth holding, so you have to be very diligent in making the right picks. Remember, the dire problems of the PGM miners are one reason we’re so bullish on these metals. However, Louis has found one company in a very strong position to benefit from rising prices—and its assets are not located in either South Africa or Russia.

It’s the only platinum mining stock we recommend, and you can get its name, our full analysis, and our specific buy guidance with a risk free trial subscription to Casey International Speculator today.
If you give it a try today, you’ll get three investments for the price of one: Your Casey International Speculator subscription comes with a free subscription to BIG GOLD, where you’ll find two additional ideas on how to invest in the PGMs.

If you’re not 100% satisfied with our newsletters, simply cancel during the 3 month trial period for a full refund—but whatever you do, make sure you don’t miss out on the next 10 year bull market.  

Click here to get started right now.

The article The Birth of a New Bull Market was originally published at Casey Research

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The Most Anticipated Oil Well of 2014

By Marin Katusa, Chief Energy Investment Strategist

Large international oil companies (IOCs) and the largest national oil companies (NOCs) are all anxiously watching an oil well that’s being drilled by a North American company in a little, out of the way country in Europe. In fact, this country—Albania—has recently garnered so much attention from Big Oil due to the results of the elephant potential of this oil deposit that the Albanian Energy Ministry just decided to establish an open tender system for the next round of sales of blocks with major oil and gas potential. If you’re not familiar with it, “open tender” is an auction process where the highest bidder gets the land blocks.

The Energy Ministry wouldn’t do this unless the demand were significant, and when Doug Casey and I visited the region recently, we were very impressed with its world-class potential. We’re both excited to see the oil well results that are slated to come out within the next few months—so are the IOCs and NOCs, and so should you. To share our excitement, Doug and I thought it would be a great idea to literally bring you into the room to see and hear what we see and hear—and thanks to modern technology, I present to you today the Casey Energy Report (CER) Crossfire.

One of the few times I filmed a CER Crossfire was with Keith Hill from Africa Oil. It’s not something I do regularly—only when I’m really excited about a company. The company we have on CER Crossfire today, Petromanas Energy (PMI.V), is chasing world class, elephant oil deposits, but rather than deepwater Africa (like Keith did with Africa Oil), it’s drilling deep onshore in Europe.

As you will hear me discuss in the video, the last time I’ve seen a company chasing deep world class oil deposits with this kind of massive upside was Africa Oil. Shell, one of the largest IOCs, is paying almost all of the US$70 million this oil well costs to drill to earn its 75% share of the project, and it will do the same with the next well. We haven’t seen such a high reward-to-risk ratio in a long time. So, rather than reading a long missive, I invite you to watch this edition of the Casey Energy Report Crossfire with Glenn McNamara, the CEO of Petromanas. I think it will definitely be worth your time.

Now You Can Take the Lead… We Make It Simple

We expect great things from this company. You can read our ongoing guidance on Petromanas and our other top energy stocks every month in the Casey Energy Report. In the current issue, for example, you’ll find an in depth field report on the Europe trip Doug and I took, what we learned at our site visits, and which companies are poised to benefit most from the budding European Energy Renaissance. There’s no risk in trying it: If you don’t like the Casey Energy Report or don’t make any money within your first three months, just cancel within that time for a full, prompt refund.

Even if you miss the cutoff, you can cancel anytime for a prorated refund on the unused part of your subscription. You don’t have to travel 300+ days a year to discover the best energy investments in the world—we do it for you. Click here to get started.

The article The Most Anticipated Oil Well of 2014 was originally published at Casey Research.com.

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