Crude Oil Market Commentary For Thursday Evening

Crude oil closed lower on Thursday as it extended Wednesday's decline. The high range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If May extends the rally off February's low, the 50% retracement level of the 2008-2009 decline crossing at 97.31 is the next upside target. Closes below the 20 day moving average crossing at 82.77 are needed to confirm that a short term top has been posted. First resistance is Tuesday's high crossing at 87.09. Second resistance is the 50% retracement level of the 2008-2009 decline crossing at 97.31. First support is the 10 day moving average crossing at 83.87. Second support is the 20 day moving average crossing at 82.77.

Natural gas closed lower on Thursday as it extends this week's decline. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are turning neutral signaling that sideways to lower prices are possible near term. If May renews this winter's decline, weekly support crossing at 3.502 is the next downside target. Multiple closes above Tuesday's high crossing at 4.334 are needed to confirm that a low has been posted. First resistance is Tuesday's high crossing at 4.334. Second resistance is the 25% retracement level of the October-April decline crossing at 4.405. First support is today's low crossing at 3.857. Second support is last Thursday's low crossing at 3.810.

The U.S. Dollar closed higher on Thursday as it extends the rebound off last week's low. The low range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are neutral signaling that sideways to lower prices are possible near term. Closes below last week's low crossing at 80.52 are needed to confirm that a short term top has been posted. If June renews this winter's rally, the May 2009 high on the weekly continuation chart crossing at 83.34 is the next upside target. First resistance is March's high crossing at 82.52. Second resistance is the May 2009 high on the weekly continuation chart crossing at 83.34. First support is the 20 day moving average crossing at 81.18. Second support is last Thursday's low crossing at 80.52.


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Baker Hughes: U.S. Rig Count Continues to Climb

Baker Hughes reported that the international rig count for March 2010 was 1,074, up 6 from the 1,068 counted in February 2010, and up 62 from the 1,012 counted in March 2009. The international offshore rig count for March 2010 was 295, down 6 from the 301 counted in February 2010 and up 14 from the 281 counted in March 2009.

The U.S. rig count for March 2010 was 1,419, up 69 from the 1,350 counted in February 2010 and up 314 from the 1,105 counted in March 2009. The Canadian rig count for March 2010 was 386, down 178 from the 564 counted in February 2010 and up 190 from the 196 counted in March 2009.

The worldwide rig count for March 2010 was 2,879, down 103 from the 2,982 counted in February 2010 and up 566 from the 2,313 counted in March 2009.


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Crude Oil Daily Technical Outlook For Thursday Morning

Crude oil made a temporary top at 87.09 after hitting mentioned 86.92 projection target and pull back from there is still in progress. More decline could be seen towards 4 hours 55 EMA (now at 84.40) and below. But after all, break of 78.56 support is needed to indicate that crude oil has topped. Otherwise, outlook will remain bullish. Sustained trading above 86.92 will target 90 psychological level next.

In the bigger picture, the strong break of 83.95 high confirmed that medium term rally from 33.2 has resumed. Nevertheless, there is no change in the view that it's the second wave of the whole correction that started in 2008 at 147.27. Hence, we'd continue to expect strong resistance near to 50% retracement of 147.27 to 33.2 at 90.24 to bring reversal. On the downside, below 78.56 support will be the first signal of topping and will turn focus back to 69.50 support for confirmation.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

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Technical Setups on Gold, Silver, Oil & Natural Gas ETF’s

This week has been playing out as expected with prices grinding their way higher and lots of sharp intraday sell offs and rallies which is indicative of a market getting toppy.

Seems like the masses feel as though they are getting left behind which is why we are starting to see the panic buying in the market (new money buying at these lofty overbought prices).

Each time there is a new intraday or daily high on the major indexes there is a renewed bullishness created as breakout traders and novice traders buy into the market hoping for the next surge in price. It is these volume surges of new money entering the market which the big guys (smart money) are selling into. You can see it clear as day light on the intraday charts as new money gets sucked into the market new high and then 2 minutes later larger waves of selling hit the bids. I did explain and show a chart of how this looks to members of the FuturesTradingSignals.com today.

We have some very exciting times ahead and it’s just a matter of letting the market unfold over time as we take advantage of these carefully measured low risk setups.

On to the charts....

GLD ETF Trading – Gold Exchange Trading Fund

You can see how this chart has evolved from pattern to pattern as it bottomed over time.

Today we had a breakout and I expect to see a pullback which is normal when prices gap up and breakout of a pattern. An entry point would be considered on a pullback if the proper criteria are met.



SLV ETF Trading – Exchange Traded Fund

Silver has always been much more volatile than gold which is why the pullback early this year was so strong and why the recent rally has also covered so much ground. As you can see silver has broke out above resistance but is now looking overbought. A pullback in precious metals is expected, or a pause at least.



USO Crude Oil Fund

Oil has made a nice move higher the past week but I feel it will pullback also in the coming days for a breather. There are a couple sizable gaps to fill all the way back down to $40.50.



UNG Natural Gas Fund

This natural gas chart looks very interesting. In the chart I am comparing the 2009 low to today’s price action.

From looking at the chart, natural gas is way oversold and in dire need of a relief rally. As you can see the sharp rallies which occurred just before both the 2009 and the current possible bottom look identical. This type of price action is very common to see.

Let me explain: When an investment is this over sold, meaning it has sold lower for weeks if not months, then there is a large growing number of traders looking to pick a bottom. Once these traders see prices start to move higher they all jump in thinking its “The Bottom”. Some times it is but more times than not it’s just a suckers rally.

General rule is, if everyone can see it, then its most likely not going to happen.. this is also part of the reason the major indexes keep going up. It looks like a great short and a tone of traders are in cash waiting to take advantage of the drop. But the market will keep pushing higher until fear its not going to pullback. That’s when the new money buys back in fueling the GRIND higher.

Anyways, so after all the bottom pickers jump on the train and there are not any more buyers and the price tends to drift lower scaring these traders back out of the position. Eventually a new low is made and everyone is shaken out of the investment. The crazy part is that just as they get out, the price usually turns around and does exactly what they new was going to happen –Go Up.

Most traders have the direction correct, it’s just their timing is off. My general rule is when I see something I wait another bar, sometimes I keep saying that to my self after each new bar until I am confident in the predicted move or price I can get into the position at.



Mid-Week Trading Conclusion:

In short, the bull market continues to grind its way higher. Unfortunately we cannot do much until there is some type of correction because buying way up here after a 2 month rally is outside of my comfort zone.

I foresee a 3-5% correction starting any day now so I am keeping my gunpowder dry.

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Crude Oil Futures Extend Decline After Inventories Increase More Than Forecast

Oil declined for a second day after a government report yesterday showed a bigger than forecast inventory gain in the U.S., the world’s largest energy consumer. Oil dropped as the Energy Department said crude supplies rose 1.98 million barrels to 356.2 million last week. Stockpiles were expected to climb by 1.35 million barrels, according to a Bloomberg News analyst survey. Machinery orders in Japan, the world’s third largest oil user, unexpectedly fell in February.

“The report was bearish really any way you look at it,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “So there was a bit of heat coming out of the market but it’s OK since were trading on expectations on the economy. And the economy is going to be going in fits and starts.” Crude oil for May delivery fell as much as 39 cents, or 0.5 percent, to $85.49 a barrel and was at $85.74 in electronic trading on the New York Mercantile Exchange at 11:55 a.m. Singapore time. Yesterday, the contract declined 96 cents, or 1.1 percent, to settle at $85.88, dropping from an 18-month intraday high of $87.09 made April 6.

Orders for factory equipment and items such as power generators, an indicator of business investment in three to six months, declined 5.4 percent from January, the Cabinet Office said today in Tokyo. The median estimate of 31 economists surveyed by Bloomberg was for a 3.7 percent gain. “Oil was getting a little bit frothy and probably out of line with where the fundamentals are at the moment,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “We had a rise in crude stocks, which is not an isolated incident. It does seem that the supply overhang in the U.S. isn’t being properly addressed”.....Read the entire article.


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Where is Crude Oil Headed on Thursday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.




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Crude Oil Market Commentary For Wednesday Evening

Crude oil closed lower on Wednesday due to an increase in oil inventories and a decline in the equity markets. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If May extends the rally off February's low, the 50% retracement level of the 2008-2009 decline crossing at 97.31 is the next upside target. Closes below the 20 day moving average crossing at 82.60 are needed to confirm that a short term top has been posted. First resistance is Tuesday's high crossing at 87.09. Second resistance is the 50% retracement level of the 2008-2009 decline crossing at 97.31. First support is the 10 day moving average crossing at 83.34. Second support is the 20 day moving average crossing at 82.60.

Natural gas closed lower due to profit taking on Wednesday as it consolidated some of Monday's rally. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Multiple closes above Tuesday's high crossing at 4.334 are needed to confirm that a low has been posted. If May renews this winter's decline, weekly support crossing at 3.502 is the next downside target. First resistance is Tuesday's high crossing at 4.334. Second resistance is the 25% retracement level of the October-April decline crossing at 4.405. First support is today's low crossing at 4.010. Second support is last Thursday's low crossing at 3.810.

The U.S. Dollar closed higher due to short covering on Wednesday as it consolidated some of last week's decline but remains below the 10 day moving average crossing at 81.59. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. Closes below last week's low crossing at 80.52 are needed to confirm that a short term top has been posted. If June renews this winter's rally, the May 2009 high on the weekly continuation chart crossing at 83.34 is the next upside target. First resistance is March's high crossing at 82.52. Second resistance is the May 2009 high on the weekly continuation chart crossing at 83.34. First support is the 20 day moving average crossing at 81.12. Second support is last Thursday's low crossing at 80.52.


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Crude Oil Extends Decline After Inventories Increase More Than Predicted

Crude oil fell for the first time in seven days after a government report showed a bigger than forecast increase in U.S. inventories as imports surged. Supplies rose 1.98 million barrels to 356.2 million last week, the Energy Department said today. Stockpiles were forecast to climb by 1.35 million barrels, according to a Bloomberg News survey of analysts. Imports gained 5.5 percent to 9.56 million barrels a day, the most since September. Refineries operated at the highest rate since October.

“The fundamentals don’t support prices at these levels,” said Michael Fitzpatrick, vice president of energy at MF Global in New York. “Oil supplies increased even as refineries boosted operating rates, which shows there is no problem with supply.” Crude oil for May delivery fell 22 cents, or 0.3 percent, to $86.62 a barrel at 1:43 p.m. on the New York Mercantile Exchange. Prices reached $87.09 yesterday, the highest level since Oct. 9, 2008. Futures are up 9.1 percent this year.

Imports of crude oil increased by an average 501,000 barrels a day last week, the report showed. Fuel imports climbed 7.5 percent to 2.76 million barrels, the highest level since the week ended Feb. 5. “Imports were very strong at over 9.5 million barrels a day,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “That tells me that refiners are stocking up now because they are concerned that prices will rise further in the months ahead”....Read the entire article.

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Dan Dicker: How To Buy $86 Oil

Dan Dicker, senior TSC contributor, and Chris Jarvis, president and founder of Caprock Risk Management, reveal how oil could head to $90 and what stocks to buy.



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Crude Oil Daily Technical Outlook Wednesday Morning

Crude oil continues to struggle around mentioned target of 61.8% projection of 69.50 to 83.16 from 78.56 at 86.92 and has possibly formed a temporary top with 4 hours MACD staying below 4 hours MACD. Some consolidations would likely be seen for the moment with risk of pull back to 4 hours 55 EMA (now at 84.11). But break of 78.56 support is needed to indicate that crude oil has topped. Otherwise, outlook will remain bullish. Sustained trading above 86.92 will target 90 psychological level next.

In the bigger picture, the strong break of 83.95 high confirmed that medium term rally from 33.2 has resumed. Nevertheless, there is no change in the view that it's the second wave of the whole correction that started in 2008 at 147.27. Hence, we'd continue to expect strong resistance near to 50% retracement of 147.27 to 33.2 at 90.24 to bring reversal. On the downside, below 78.56 support will be the first signal of topping and will turn focus back to 69.50 support for confirmation.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

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Where is Crude Oil Headed on Wednesday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.





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Crude Oil Market Commentary For Tuesday Evening

Crude oil closed higher on Tuesday as it extends Monday's breakout above the 38% retracement level of the 2008-2009 decline crossing at 86.16. The high range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are overbought but remain bullish signaling that sideways to higher prices are possible near term. If May extends the rally off February's low, the 50% retracement level of the 2008-2009 decline crossing at 97.31 is the next upside target. Closes below the 20 day moving average crossing at 82.41 are needed to confirm that a short term top has been posted. First resistance is today's high crossing at 87.09. Second resistance is the 50% retracement level of the 2008-2009 decline crossing at 97.31. First support is the 10 day moving average crossing at 82.96. Second support is the 20 day moving average crossing at 82.41.

Natural gas closed lower due to profit taking on Tuesday as it consolidated some of Monday's rally. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Multiple closes above the 20 day moving average crossing at 4.224 are needed to confirm that a low has been posted. If May renews this winter's decline, weekly support crossing at 3.502 is the next downside target. First resistance is today's high crossing at 4.334. Second resistance is the 25% retracement level of the October-April decline crossing at 4.405. First support is the 10 day moving average crossing at 4.063. Second support is last Thursday's low crossing at 3.810.

The U.S. Dollar closed higher due to short covering on Tuesday as it consolidated some of last week's decline but remains below the 10 day moving average crossing at 81.64. The mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near term. Closes below the 20 day moving average crossing at 80.86 would confirm that a short term top has been posted. If June renews this winter's rally, the May 2009 high on the weekly continuation chart crossing at 83.34 is the next upside target. First resistance is March's high crossing at 82.52. Second resistance is the May 2009 high on the weekly continuation chart crossing at 83.34. First support is the 20 day moving average crossing at 81.07. Second support is last Thursday's low crossing at 80.52.

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Crude Oil Trades Little Changed Near 17 Month High Before U.S. Inventory Report

Crude oil traded little changed near a 17 month high in New York before a report forecast to show that supplies of U.S. crude increased while gasoline fell. U.S. gasoline stockpiles probably dropped 1.9 million barrels last week, while inventories of crude oil climbed 1 million barrels, according to a Bloomberg survey before tomorrow’s Energy Department report. Oil rose 2.1 percent yesterday to $86.62 a barrel, the highest close since Oct. 8, 2008, as growth in U.S. service industries signaled the economy is recovering from the worst recession since the 1930s.

“The market’s pausing for breath after such a big move up,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “With the recovery still at a fragile stage, and U.S. inventories ample, we’re unlikely to see prices surging to $100.” Crude oil for May delivery was 4 cents lower at $86.58 a barrel in electronic trading on the New York Mercantile Exchange at 1:24 p.m. London time. Brent crude for May settlement was down 2 cents at $85.86 on London’s ICE Futures Europe exchange.

U.S. service industries expanded in March at the fastest pace since May 2006, indicating the country’s recovery may be spreading beyond manufacturing and starting to create jobs. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 55.4 from 53 in the prior month. This exceeded the median forecast of 54 in a Bloomberg News survey of economists.

‘Encouraging Data’

“We’ve seen some encouraging economic data the last few days,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “It’s keeping the global recovery story in place. Overall, we are expecting global oil demand growth to be positive this year.” The Energy Department will release its Weekly Petroleum Status Report tomorrow at 10:30 a.m. in Washington. It’s also due to put out its monthly Short-Term Energy Outlook today.

U.S. gasoline stockpiles probably dropped 1.9 million barrels from 224.9 million the prior week, according to the median estimate from seven analysts polled by Bloomberg News. Distillate fuel supplies, including heating oil and diesel, fell 1.5 million barrels from 144.6 million. Commercially held crude oil inventories are expected to have climbed 1 million barrels, increasing for a 10th week, the longest stretch of gains since late 2004, the survey showed. Stockpiles previously reached 354.2 million barrels, 6.5 percent above the five year average.


Reporter Grant Smith can be reached at gsmith52@bloomberg.net



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Just Announced Special Trial Member Webinar, Adam Hewison Answers Trial Members Questions LIVE

A few days ago we told you about the special MarketClub Trial that's running, and today we called my inside contact and told him to give MORE to my members who
are on the MarketClub Trial...here's his response:

" I've gotten your voice mails and emails and I was able to talk Adam into doing a TRIAL MEMBERS ONLY webinar where he'll answer questions, and show them exactly how
he uses MarketClub to find and tradeprofitable moves!


P.S. We're closing down the 2 week trial on the 9th as we've gotten a lot more people then expected." If you haven't started your trial yet, please do so ASAP, as I know the webinar software they use can only support 1k people at a time...so don't miss it!

The date of the special webinar hasn't been released to the public yet, as it's just for trial members but we know it's got to be pretty soon and we don't want you to miss the chance to talk directly with Adam!

Just click here to get your trial going now, for no cost, and be sure and attend the webinar...I will!


Just Announced Special Trial Member Webinar, Adam Hewison Answers Trial Members Questions LIVE


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Crude Oil Daily Technical Outlook For Tuesday Morning

At this point, crude oil is consolidating below mentioned target of 61.8% projection of 69.50 to 83.16 from 78.56 at 86.92. Intraday bias remains on the upside for the moment and strong rally should be seen to 90 psychological level after taking out 86.92. On the downside, below 85.06 minor support will turn bias neutral and bring consolidations first before staging another rally.

In the bigger picture, the strong break of 83.95 high confirmed that medium term rally from 33.2 has resumed. Nevertheless, there is no change in the view that it's the second wave of the whole correction that started in 2008 at 147.27. Hence, we'd continue to expect strong resistance near to 50% retracement of 147.27 to 33.2 at 90.24 to bring reversal. On the downside, below 78.56 support will be the first signal of topping and will turn focus back to 69.50 support for confirmation.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

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Crude Oil Rallies to 17 Month High as US Job Data Shines

Crude oil jumped on the first day of trading after the Easter holiday as boosted by strong US economic data, particularly the employment report, and robust market sentiment. The benchmark contract of WTI crude oil rallied +2.06% and settled at 86.62. The contract reached an intraday high of 86.90, the highest level since October, 2008.

US non-farm payrolls increased +162K (consensus: +190K) in March while February's reading was revised -14K form -36K. Private payrolls surged +123K, the strongest gain since May 2007. Unemployment stayed at 9.7% but household employment increased for the 4rd consecutive month. Investors were excited as there are signs of improvement in the US job market.

Added to it were upbeat ISM indices. Manufacturing index improved to 59.6 in March from 56.5 a month ago, while services index also added +2.4 points to 55.4, the highest since May 2006. Oil exporters start raising prices as they see demands are set to improve further. Saudi Aramco, the world's largest state-owned oil company, increased official selling prices for its Extra Light crude oil to customers in the US and Asia for May. Price will be 40 cents higher than April's.

Going back to hard facts - oil inventory, US crude oil inventory has risen for 9 weeks and current level is +6.5% above 5-year average. Although stockpiles for oil products, such as gasoline and distillate, have dropped, they are still holding at very high levels.

Gold strengthened despite firmness in USD. The benchmark contract gained +0.68% to 1133.8. Encouraging US data inevitably raised inflation fear and this helped gold. Others in the precious metal complex also soared. Silver rose +1.27% to 18.12 while platinum and palladium advanced +2.04% and +3.39%, respectively.....Here's the charts!


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Where is Crude Oil Headed on Tuesday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.




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Crude Oil Market Commentary For Monday Evening

Crude oil closed up $1.87 at $86.74 a barrel today. Prices closed near the session high today and hit a fresh 1.5 year high today. Fresh speculative and commodity fund buying were seen today as prices have now pushed above the pivotal $85.00 level. A weaker U.S. dollar index and higher U.S. stock indexes today supported buying interest in crude oil. Crude oil bulls have the solid overall near term technical advantage and gained more upside momentum today.

Natural gas closed up 19.2 cents at $4.278 today. Prices closed near the session high today on short covering. Prices today showed good good follow through buying from solid gains Thursday and a bullish "key reversal" up on the daily bar chart has been confirmed. That is one early technical clue that a market bottom is in place. However, the bulls have more work to do in the near term to suggest an uptrend can be started.

The June U.S. dollar index closed down 14 points at 81.29 today. Prices closed near mid-range today in quieter trading. No serious chart damage has occurred recently. The bulls still have the overall near term technical advantage. Also, the Euro currency closed down as well, 11 points at 1.3475 today. Prices closed nearer the session low today in quieter trading. Euro bears have the overall near term technical advantage. Prices are still in a four month old downtrend on the daily bar chart.


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Bulls Take Charge as Oil Surges Past $86

U.S. crude oil futures surged above $86 as fresh technical buying on a wave of economic optimism helped to lift the energy commodity's price to new heights Monday.
Spurred by encouraging economic data on the domestic front, the price of light, sweet crude oil for May delivery rose for a fifth consecutive session on the NYMEX, settling to $86.62 a barrel, the highest level in 18 months.

Additionally, NYMEX gasoline futures gained on the session to $2.35 a gallon, while natural gas spot prices at the Henry Hub also burned brighter on the commodity exchange at $4.28 Mcf. Today, crude rose alongside equities on positive economic data spotlighting an increase in pending home sales. Both markets also bounced on news that the U.S. services sector grew at its fastest pace in nearly four years during the month of March, an ISM report showed.

Oil Price at Full Throttle
Oil prices have gained by more than 8% during the span of a five day rally. "The market's starting to trend pretty nicely for oil," noted Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut. However, given the ample supplies still underlying the crude oil market, this year's record price above $86 is arguably a bit on the high side, according to McGillian. "We really haven't seen any kind of significant increase in fuel demand levels," he underscored.

The analyst continued, "The price keeps pushing up for the same fundamental reasons, and everyone's waiting and watching to see how high it will go before the price has to turn back to a more realistic level." "But right now," McGillian added, "it looks as if the bulls are in charge and not fighting much resistance yet."


Reporter Nancy Agin writes for Rigzone.Com


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SandRidge Targets Shift to Oil From Gas in Acquisition of Arena Resources

Arena Resources Inc.’s oil reserves were the main target of SandRidge Energy Inc.’s $1.55 billion acquisition of the company as the buyer turns its focus to crude from natural gas production. “Our oil reserves were the real attraction to SandRidge,” Arena Resources Chairman Tim Rochford said in an interview. Reserves stood at 69 million barrels of oil equivalent as of Dec. 31, he said. Oklahoma City-based SandRidge will pay $2.50 in cash and 4.78 SandRidge shares for each Arena Resource share, a 17 percent premium to Arena’s April 1 close of $34.26, the companies said yesterday.

The purchase is SandRidge’s second in West Texas since November, when it bought properties from Forest Oil Corp. for about $800 million. By buying Arena Resources, SandRidge becomes one of the largest producers of West Texas conventional oil and gas. SandRidge said it will primarily drill shallow, low-risk reservoirs in the so called central basis platform, a part of the Permian Basin in West Texas. SandRidge is shifting its focus to oil as crude rises and gas futures fall. The company explores for both, though SandRidge Chief Executive Officer Tom Ward said last month at the Howard Weil Energy Conference that drillers can make “10 times more money” producing oil rather than gas.

Transformation to Oil

“We’ve been transforming from strictly a gas company to an oil company over the last couple of years,” Ward said in an April 4 telephone interview. SandRidge fell 38 cents, or 4.8 percent, to $7.47 at 10:42 a.m. in New York Stock Exchange composite trading. The stock has dropped 21 percent this year. Tulsa, Oklahoma-based Arena Resources rose $2.70, or 7.9 percent, to $36.96. About 85 percent of SandRidge’s revenue at the end of 2008 came from natural gas, Ward said. The company’s current production is split at about 28 percent oil and 72 percent gas, while oil makes up about 54 percent of revenue, based on 10-year futures prices, he said.

SandRidge will be about 35 percent oil in terms of production, including the Forest and Arena transactions, Ward said today on a conference call with analysts and investors. The combined company will hold about 200,000 acres in the Permian Basin and 5,700 in other areas. The purchase will add to SandRidge’s cash flow in 2011, Ward said.

Gas Slump

“There have been a couple of hard years for gas,” because of the drop in demand that occurred in the recession, Ward said. “We’ve been looking for oil assets.” The agreement reflects SandRidge’s “contrarian style” of buying assets for terms that are below perceived value, said Scott Hanold, an energy analyst at RBC Capital Markets in New York. RBC values Arena Resources shares between $45 and $50, said Hanold, indicating that SandRidge is acquiring the company at a 10 to 20 percent discount.
Natural gas futures on the New York Mercantile Exchange have tumbled 27 percent this year. Crude oil is up 8 percent in the same period and 68 percent over the past year.

“Gas has been under pressure,” said Andy Lipow, president of consulting firm Lipow Oil Associates LLC in Houston. The Arena Resources acquisition, subject to the approval of shareholders of each company, is expected to close in June or July, Ward said. Deutsche Bank AG and Covington & Burling LLP are advising SandRidge, and SunTrust Banks Inc., Tudor Pickering Holt & Co., and Johnson & Jones PC are counseling Arena Resources.

Reporter Mark Shenk can be contacted at mshenk1@bloomberg.net.


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