What a great way to start our week. Our trading partner Chris Vermeulen has just released a new video covering precious metals, crude oil, bonds and the SP500. Do you think WTI crude oil is topping out here? Is gold bottoming? Let's see how Chris is trading this market this week.
Just click here to watch "Technical Analyis Video – Precious Metals, Crude Oil, Bonds, SP500"
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Monday, July 8, 2013
Friday, July 5, 2013
Weekly Precious Metals Market Recap with Mike Seery
The precious metals continue their downturn as higher interest rates are pressuring gold down $37 an ounce at 12.14 which is a new closing low and as I’ve been telling people through many previous blogs to keep selling the precious metals as there really is no reason to own gold since deflation is in the air not inflation.
Silver futures are down $.95 in the July contract at 18.75 looking to retest recent lows with the possibility of prices going down to the $15 level here in the next couple of weeks as the tide has turned in the commodity market.
I have been recommending a short copper position for quite some time as copper was absolutely pummeled today down 1100 points at 3.06 a pound placing a stop above the 10 day high which is 3.17 and I do believe copper prices are headed steadily lower possibly down to 2.50 in the next 4 to 6 weeks as demand has weakened tremendously in China and higher interest rates will put the kibosh on copper prices in my opinion.
All of the precious metals are trading far below their 20 and 100 day moving average and I believe that will continue for quite some time as the U.S dollar is the place to park money due to the fact that interest rates are much higher here than overseas which will continue to put pressure on the precious metals in my opinion.
Precious metals trend....lower, Chart structure.....excellent.
Here's more commodity news [including sugar, grains, orange juice, cotton, coffee] from Mike for the first week of July....Just click here.
Wednesday, July 3, 2013
Leading Sectors, Cycles and Momentum Point To Drop This Week
Chris Vermeulen's trade set up for the first week of July.....
As talked about almost two weeks ago when the SP500 trend reversed to the down side we have been waiting for a bounce in price to short the market (buy and inverse ETF). That happened last week and now we are waiting for the market to shake out the short positions and suck in as many traders to get long before the next wave of major selling takes place.
It seems traders are becoming bullish again as prices rise and they are dumping their precious metal positions and rotating into equities again from the looks of things. Also if you know the Dow Theory then you know the industrial and transportation sectors tend to lead the broad market. Well today the only two sectors trading lower are just those two.
See the charts for a visual
As talked about almost two weeks ago when the SP500 trend reversed to the down side we have been waiting for a bounce in price to short the market (buy and inverse ETF). That happened last week and now we are waiting for the market to shake out the short positions and suck in as many traders to get long before the next wave of major selling takes place.
It seems traders are becoming bullish again as prices rise and they are dumping their precious metal positions and rotating into equities again from the looks of things. Also if you know the Dow Theory then you know the industrial and transportation sectors tend to lead the broad market. Well today the only two sectors trading lower are just those two.
See the charts for a visual
Monday, July 1, 2013
They Just Rang A Bell On Gold and Gold Stocks
Our trading partner David A. Banister of Market Trend Forecast has been the go to guy on gold and precious metals. Let's check in with Banister and see if he thinks the bottom is in for gold.
As they say on Wall Street, “They don’t ring bells at the top” and for sure they usually don’t give you a phone call at the bottom either. Many heads have rolled trying to call this recent near 2 year downdraft in Gold in terms of bottom callers, me included. I thought we would never get much below 1440 or so from the 1923 highs, but alas we all know we did.
What makes me think that last week put in the final Gold low for the bear cycle? Too many things to mention, but based on the work I do enough to give me some chutzpah to make this call now. The 1180’s are very close to a classic ABC 61.8% Fibonacci retracement of the prior 34 month bull cycle. That cycle ran from October 2008 to August 2011 with a rally from $681 to $1900’s area. The most recent 21 plus month decline dropped right into the 61% pivot retracement of that entire move, and over a Fibonacci 21 month period as well! Human behavior does repeat over and over again, and as we all know in hindsight at the tops everyone is bullish and at the bottoms everyone is bearish.
I think it’s pretty much as simple as that. Investors get overly optimistic and exuberant in all kinds of asset classes and finally at the highs everyone believes the rally can only go on and on forever. At the opposite near the bottoms nearly everyone is calling for lower prices and further catastrophe ahead. Stocks in the sector are priced for near bankruptcy. Newsletter writers are universally bearish, and the small trader has a big short position. Only a few weeks ago the Bullish Percentile index measurement on the Gold Stock Index was at 0! That means nobody was bullish on the Gold stocks by the measure that is used. We quickly had an 8% rally in the index after that reading, then in the last few weeks we came all the way back down again to even lower levels!
If you watched the action last Thursday as Gold was melting down below $1200 a curious thing happened. The gold miners were ignoring the move and going green! On Friday, as Gold reversed to 1234 they went ballistic with one of my favorite miners going up 16% on Friday alone on the highest volume in 5 years! Those are the signals I’ve been waiting for to call the capitulation lows. My guess is some money managers are front running the coming 3rd quarter rotation they see in Gold and Gold Miners, Copper, Coal, and other commodity stocks.
So below is my basic GLD ETF multiyear chart using very simple monthly views to see the big picture. You can see a classic ABC pattern of bear market correction and now a near 61.8% perfect Fibonacci retracement of the prior leg up. I’d say enough is enough, pick your spots and start buying.
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The Bible for Commodity Traders....Get our free eBook now!
As they say on Wall Street, “They don’t ring bells at the top” and for sure they usually don’t give you a phone call at the bottom either. Many heads have rolled trying to call this recent near 2 year downdraft in Gold in terms of bottom callers, me included. I thought we would never get much below 1440 or so from the 1923 highs, but alas we all know we did.
What makes me think that last week put in the final Gold low for the bear cycle? Too many things to mention, but based on the work I do enough to give me some chutzpah to make this call now. The 1180’s are very close to a classic ABC 61.8% Fibonacci retracement of the prior 34 month bull cycle. That cycle ran from October 2008 to August 2011 with a rally from $681 to $1900’s area. The most recent 21 plus month decline dropped right into the 61% pivot retracement of that entire move, and over a Fibonacci 21 month period as well! Human behavior does repeat over and over again, and as we all know in hindsight at the tops everyone is bullish and at the bottoms everyone is bearish.
I think it’s pretty much as simple as that. Investors get overly optimistic and exuberant in all kinds of asset classes and finally at the highs everyone believes the rally can only go on and on forever. At the opposite near the bottoms nearly everyone is calling for lower prices and further catastrophe ahead. Stocks in the sector are priced for near bankruptcy. Newsletter writers are universally bearish, and the small trader has a big short position. Only a few weeks ago the Bullish Percentile index measurement on the Gold Stock Index was at 0! That means nobody was bullish on the Gold stocks by the measure that is used. We quickly had an 8% rally in the index after that reading, then in the last few weeks we came all the way back down again to even lower levels!
If you watched the action last Thursday as Gold was melting down below $1200 a curious thing happened. The gold miners were ignoring the move and going green! On Friday, as Gold reversed to 1234 they went ballistic with one of my favorite miners going up 16% on Friday alone on the highest volume in 5 years! Those are the signals I’ve been waiting for to call the capitulation lows. My guess is some money managers are front running the coming 3rd quarter rotation they see in Gold and Gold Miners, Copper, Coal, and other commodity stocks.
So below is my basic GLD ETF multiyear chart using very simple monthly views to see the big picture. You can see a classic ABC pattern of bear market correction and now a near 61.8% perfect Fibonacci retracement of the prior leg up. I’d say enough is enough, pick your spots and start buying.
Don't miss a single call from David Banister....sign up here today!
The Bible for Commodity Traders....Get our free eBook now!
Sunday, June 30, 2013
Precious Metals Futures Weekly Update
Silver futures finished up $.95 today at 19.49 in the July contract and as I stated in previous blogs I thought silver could hit the $18 level and it did trade as low as 18.18 in the early session today, however I still believe prices are headed lower and I would not be bullish the precious metals at this time.
Copper futures which I’ve been recommending short positions across the board finished at 3.0560 a pound unchanged for the trading day but I do believe prices are headed substantially lower from these levels as higher interest rates are keeping a lid on precious metals prices so look for copper prices to possibly hit 2.50 in the next month or so.
The trends have really been strong in recent weeks and if you been listening to any of my recommendations you have been doing extremely well and I do believe that commodity prices are still headed lower so take advantage of it by selling the futures contract or by buying bear put spreads limiting your risk to what the spread premium costs.
Trend: Lower – Chart structure: Terrible
Posted courtesy of our trading partner Mike Seery
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Weekly Coffee Futures Update
The chart structure in coffee is starting to improve and I still am recommending short positions thinking prices could drop all the way down to the 100 level in the coming months as the commodity markets in general look very pessimistic in my opinion as higher interest rates and a rising U.S dollar are keeping a lid on prices at this point in time.
The weather in Brazil is outstanding with a record crop which should put more pressure on prices as the frost premium is simply coming out of the market as traders are looking for a possible bottom in the near future.
Posted courtesy of our trading partner Mike Seery
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Friday, June 28, 2013
Less then 24 hours to enroll for our “Spread Trading Strategies for Growing a Small Account” class this Saturday
Less then 24 hours to get enrolled for Saturdays class with John carter, "Spread Trading Strategies for Growing a Small Account”. Get your seat now for this class that will be held this Saturday June 29th from 1:00 – 5:00 p.m. Can you get the same training hedge fund managers get for their traders? Now you can. Whether you are trading stocks, crude oil, commodities or currencies John Carter of "Simpler Options" has put together an easy to understand course that will show you how you can use the same trading methods he teaches fund managers and it can be done in any size account. No matter how big or small.
In this comprehensive class John will teach us.....
* How to use spreads to create low-risk high-probability trades
* Basic to advanced spread trading strategies
* How to make money, even when you’re wrong
* How to steadily & consistently grow your small account through spreads
* How to trade spreads “end of day” so you don’t go bug eyed looking at charts all day
And much more...
This course is being recorded, and you will receive a link to view it and download it the same day, and a DVD of the course within 3-4 weeks.
Just Click Here to Enroll Today!
Thursday, June 27, 2013
OTS Profits Through the Market Correction
During the recent carnage our friends at Options Trading Signals managed to lock in 16.80%, 32.20%, & 41.49% returns. Let's see how J.W. Jones and the staff at OTS can help us do the same......
As we move into Quarter end, many investors and traders suffered a sizable drawdown in mid to late June. However, members of Options Trading Signals closed 3 trades during the selling carnage for huge overall gains.
As a professional trader, a focus on implied volatility, probability of success, and a typically contrarian market view have served members well since the inception of the service back in December of 2010. A summarized description of recent action in the OTS Portfolio is described below.
On June 13th the OTS Portfolio took a Put Debit Spread on VXX. The reasoning behind the trade was the expectation that volatility would decline going into triple witching on Friday’s expiration. As expected, volatility contracted and on June 19th the VXX position was closed for a gross gain per spread of $21. The maximum risk per spread was $125 so the trade produced a gross gain of around 16.80%.
Entire article > "During Recent Market Carnage, OTS Locked in 16.80%, 32.20%, & 41.49% Returns"
Enroll now for our “Spread Trading Strategies for Growing a Small Account” class this Saturday, June 29th from 1:00 – 5:00 p.m.
As we move into Quarter end, many investors and traders suffered a sizable drawdown in mid to late June. However, members of Options Trading Signals closed 3 trades during the selling carnage for huge overall gains.
As a professional trader, a focus on implied volatility, probability of success, and a typically contrarian market view have served members well since the inception of the service back in December of 2010. A summarized description of recent action in the OTS Portfolio is described below.
On June 13th the OTS Portfolio took a Put Debit Spread on VXX. The reasoning behind the trade was the expectation that volatility would decline going into triple witching on Friday’s expiration. As expected, volatility contracted and on June 19th the VXX position was closed for a gross gain per spread of $21. The maximum risk per spread was $125 so the trade produced a gross gain of around 16.80%.
Entire article > "During Recent Market Carnage, OTS Locked in 16.80%, 32.20%, & 41.49% Returns"
Enroll now for our “Spread Trading Strategies for Growing a Small Account” class this Saturday, June 29th from 1:00 – 5:00 p.m.
Wednesday, June 26, 2013
Precious Metals Life Cycle Nears an End – Final Stage of Denial
The life cycle of most things not matter what it is (living, product, service, ideas etc…) go through four stages and the stock market is no different. Those who recently gave in and bought gold, silver, mining stocks, coins will be enter this stage of the market in complete denial. They still think this is a pullback and a recover should be just around the corner.
Well the good news is a recovery bounce should be nearing, but if technical analysis, market sentiment and the stages theory are correct then a bounce is all it will be followed by years of lower prices and dormancy.
I really do hate to be a mega bear or mega bull on anything long term but the charts have painted a clear picture this year for precious metals and I want to share what I see. Take a look at the chart below which shows a typical investment life cycle using the four stage theory.
Read my entire article here > "The Four Stages Theory....Precious Metals Life Cycle Nears an End – Final Stage of Denial"
Enroll now for our “Spread Trading Strategies for Growing a Small Account” class this Saturday 1:00 – 5:00 p.m.
Enroll now for our “Spread Trading Strategies for Growing a Small Account” class this Saturday
In this comprehensive class John will teach us.....
* How to use spreads to create low-risk high-probability trades
* Basic to advanced spread trading strategies
* How to make money, even when you’re wrong
* How to steadily & consistently grow your small account through spreads
* How to trade spreads “end of day” so you don’t go bug eyed looking at charts all day
And much more...
This course is being recorded, and you will receive a link to view it and download it the same day, and a DVD of the course within 3-4 weeks.
Just Click Here to Enroll Today!
Monday, June 24, 2013
Next webinar "Using Spreads with Maximum Success" featuring John Carter
So John has scheduled a special webinar for this Tuesday, June 25th at 8 p.m. est, that will do just that. Hope you can make it to this special event where John is not only going to teach us how to use spreads but how it can be done in any size trading account. No matter how big or small your account is.
Just click here for details and to get your seat reservation
John's years of experience and success make all of his events 'can't miss'. Remember, there's no cost to attend, but make sure you take notes so you can apply what he teaches to your trading Wednesday morning, the very next trading day.
See you there,
Ray @ The Crude Oil Trader
Watch "Using Spreads with Maximum Success"
Sunday, June 23, 2013
Could TPLM Be The Most Undervalued Bakken Producer
Earlier this month, I did a deep dive analysis on Triangle Petroleum (click here to get your free trend analysis for Triangle Petroleum). I argued based on recent acquisitions, this Bakken energy producer was tremendously undervalued compared to its acreage and production. I postulated that the stock could double over the next 18-24 months. The stock sold at $5.40 a share at the time of the article. TPLM has moved up more than 25% since then and I continue to see further upside ahead of this fast growing producer.
Today, I want to talk about quite possibly the most undervalued producer in the Bakken that I have in my own portfolio, Emerald Oil (EOX). I would have led with Emerald, except the company has been a serial disappointment to investors over the last couple of years. However, its production and acreage is significantly undervalued by the market. The company also appears to be picking up some positive catalysts and finally looks poised to enable a sustained rise in its equity price.
The company is a small ($160mm market capitalization) independent E&P concern. The company’s main production comes from the 54,000 net acres (23,500 operated acres/30,500 non-operated acres) it has in the Bakken shale region (Williston). It has tens of thousands of other net acres in other shale regions outside the Bakken. Emerald’s main production comes from its core Williston acreage and it has been in the process of selling off its other properties to raise capital to concentrate on developing its operated acreage in the Bakken
Read the Full Story Here
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The Bible for Commodity Traders....Get our free eBook now!
Thursday, June 20, 2013
New video.....How to Profit From Momentum by Trading Market Phases
Today Michelle "Mish" Schneider and the great staff at MarketGauge put their years of experience commodity trading and managing hedge funds to use for us. Showing us how when you define the market phases you put
yourself at an advantage on how to approach your trading, because market phases help you determine which
direction the market is headed next.
Come learn how professional traders apply
specific ‘trade rules’
depending on what phase the market is in to produce greater gains.
Follow the link below to watch a quick
video from my friends at MarketGauge that highlights how you can ‘Trade With The Wind At Your
Back’.
It’s easier than you think to use market phases to gain momentum, and pack BIG
gains in your portfolio.
In the video you’ll discover how to:
· Define the market phases to put
yourself in a position of power when
trading each day.
· Apply specific ‘trend trade rules’
to current conditions that develop
positive momentum for your trading.
·
Identify when the phases will
change, leading to massive profit opportunities.
·
Pinpoint the most profitable time
to trade for immediate gains.
· Enter a trend trade before
the big move starts, leading to greater gains.
· Safely trade retracements with HUGE profit potential.
And More…
And More…
Don’t just ride the
ebbs and flows of the market, get in front of them for larger gain
opportunities. Discover how to ‘trade with the wind at your back’
by watching this powerful video.
After the video, be sure to register for special
training event from MarketGauge where you will see the ‘Anatomy Of A Perfect
Swing Trade’ and learn strategies used by a successful hedge fund manager to read
the market, anticipate market swings and ride them with limited risk, and for
maximum profit.
Wednesday, June 19, 2013
Marin Katusa: The Global Race for Shale Development Is On
By Marin Katusa, Chief Energy Investment Strategist
Guess who the U.S. Energy Information Agency (EIA) says has 430% more proven gas reserves than the US?Guess who has twice as much as the U.S. in shale gas technically recoverable?
Guess who has over twice as much proven oil reserves as the U.S.?
The EIA recently published a 730 page report which assesses the shale formations of 41 countries. The global race for shale development has started. Countries that are not now known for their oil and gas production are showing much shale oil and gas promise.
Would you be surprised to know that China has more proven oil reserves than the U.S.?
If you want to know the answers to the three questions we have at the beginning of this missive, then I believe you will be interested in the Casey Energy Report's plans on profiting from the global shale race. If you thought the U.S. was the king of shale, we are sorry to burst your bubble..… it no longer wears the crown.
A picture is worth a thousand words:
Now, do you know how to make money from the global shale race? Countries like China, Argentina, and Russia are starting to exploit their unconventional energy sources. The global race for shale development and exploitation is on, and fortunes will made. Make sure you are well informed before you place your bets on this global race, as fortune will favor the bold – but the informed will fare much better.
Casey Research was the first in the business to publish a report on the potential of the European shales, years before the EIA came out with this report. Our subscribers made over 600% gains on Cuadrilla Resources, which just recently completed a deal with Centrica that valued the company in the hundreds of millions. Been there, done that.
What's next? We are so sure that you will be absolutely satisfied with our Casey Energy Report that we have no hesitations in giving you a 100% money back guarantee.
Sign up Today for a Free Trial.
Tuesday, June 18, 2013
Welcome aboard Michelle "Mish" Schnieder
And we are lucky enough to have her on board to bring her daily calls to our readers. Make sure you click here to sign up for her "Mish's Market Minute". She will include trade alerts, watch lists, tools, training videos and so much more. Mish's Daily is a concise daily email which gives you insight into what to expect for upcoming short and long term trading opportunities in ETFs that cover the major markets and industry trends.
She is also making her new eBook on swing trading methods available to us.....free of charge.
Just some of the topics she covers in this great eBook are.....
* Identify (And Trade) Current Market Phases
* Pinpoint The Most Profitable Time to Trade a Trend
* Overcome Big Losses And Create Consistent Returns
* Define Enter And Exit Rules For Maximum Profit
* Avoid The Common Trader Mistakes That Kill Profits
* Identify "Super Trends" That Lead to Home Run Trade
And Much More!
So click here and download your copy and welcome Mish aboard!
See you in the markets,
Ray @ The Crude oil Trader
Saturday, June 15, 2013
Weekly Energy Futures Recap with Mike Seery
The energy futures were higher across the board but off of session highs as the stock market is near session lows pushing several of the commodity markets lower for the trading session while crude oil finished up $1.10 at 97.85 a barrel still trading right near recent highs of the trading range but I’m becoming more bearish this sector because the longer prices stay up at these levels without moving higher improves the odd that a top might be in place.
The chart structure in crude oil is excellent at this point in time while it generally follows the S&P 500 due to the fact that the higher the stock market goes the higher the demand for gasoline in theory, however higher interest rates might be here to stay as the Federal Reserve might be running out of bullets to continue to prop up the economy. Heating oil futures for the July contract are breaking out of a 10 week consolidation moving above major resistance at 2.95 a gallon settling at 2.96 a gallon and I’m still somewhat pessimistic about heating oil as we enter the summer months demand should start to slow.
Unleaded gasoline futures which I’ve written about in many blogs and I stated that I was bullish during with the demand season which improving chart structure with prices still around 2.8950 a gallon hitting a 3 month high, however I am generally a trend follower but I still believe that crude oil is getting very toppy up at these levels and there could be a steep decline in the next couple weeks with many of the other commodity sectors across the board including the stock market which has been in a bullish run for 4 years.
The reason commodity prices are headed lower isn’t because the dollar is headed lower which generally is a bullish fundamental factor but the fact that interest rates continue to climb on a daily basis spooking investors thinking that the free money is finally ending which is a pessimistic indicator towards many commodities including the oil sector which has not been affected at this point but in my opinion could be very soon.
Trend: Higher
Chart Structure: Excellant
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Thursday, June 13, 2013
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
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
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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Wednesday, June 12, 2013
OPEC Becoming a "Non Player" as North America Brings Energy Profits Home
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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Saturday, June 8, 2013
John Carters "Small Account Growth Secrets" Webinar
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
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I will be attending and hope to see you there!
Ray C. Parrish
The Crude Oil Trader
John Carters "Small Account Growth Secrets" Webinar
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