The Precious Metals MAJOR Breakout Part II

It has been a year since the price of gold bullion topped out and even longer for silver. Many traders and investors have been patiently waiting for this long term consolidation pattern to breakout and trigger the rally for precious metals and miner stocks. Most of gold bullion is used for investment purposes. As a result, it rises when there is economic weakness and investors lose confidence in the fiat currency of a country.

With continuing economic weakness in the United States it will almost certainly lead the Federal Reserve to act in way that is more powerful than Operation Twist which is the selling of short term securities to buy those with a longer term. Based on the most recent data, economic growth in the United States is falling as the unemployment rate rises. A recent statement by the Federal Reserve was unusually clear in calling for greater action in the future.  

Gold, Silver and Dollar Weekly Price Chart:

Take a look at the weekly charts below which compare gold and silver to the US Dollar index. You will notice how major resistance for metals lines up with major support for the dollar. As this time metals are still in consolidation mode (down trend) and the dollar is in an uptrend.

Gold Miners ETF Weekly Chart:

Gold miners have been under pressure for a long time and while they make
money they have refused to boost dividends. That being said I feel the time
is coming where gold miner companies breakout and rally then start to raise
dividends in shortly after to really get share prices higher.

On August 13th I talked about the characteristic’s and how to trade the next
precious metals breakout and where your money should be for the first half
of the rally and where it should rotate into for the second half. Doing this could
double you’re returns. Click here to read part one "Gold Mining Stocks 

Continue to Disappoint but not for Long"

Overall I feel a rally is nearing in metals that will lead to major gains. It may
start this week or it still could be a couple months down the road. But when
it happens there should be some solid profits to be had. I continue to keep
my eye on this sector for when they technically breakout and start an uptrend.

 If you would like to get my weekly analysis on precious metals and the 
board market be sure to join my free newsletter at The Gold & Oil Guy.com 

Chris Vermeulen

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EIA: Projected Natural Gas Prices Depend on Shale Gas Resource Economics

Considerable uncertainty exists regarding the size of the economically recoverable U.S. shale gas resource base and the cost of producing those resources. Across four shale gas resource scenarios from the Annual Energy Outlook 2012 (AEO2012), natural gas prices vary by about $4 per million British thermal units (MMBtu) in 2035, demonstrating the significant impact that shale gas resource uncertainty has in determining future natural gas prices. This uncertainty exists primarily because shale gas wells exhibit a wide variation in their initial production rate, rate of decline, and estimated ultimate recovery per well (or EUR, which is the expected cumulative production over the life of a well).

 If a resource assessment of a shale formation relies on "sweet spot" production rates, where wells produce at rates higher than expected elsewhere in the formation, then the productive and economic potential of the entire formation could be exaggerated. On the other hand, future technological improvements that reduce production costs and/or enhance well productivity, along with closer well spacing, would increase the economic potential and resource recovery of the U.S. shale gas formations.




AEO2012 includes an analysis of varying future shale gas well production estimates and the associated EUR, along with a change in shale gas well spacing, to test the influence of shale gas resource uncertainty on future natural gas prices.

In addition to the reference case, the three AEO2012 shale gas resource scenarios are.....

* Low well productivity case (green line in chart). The EUR per shale gas well is assumed to be 50% lower than in the Reference case, nearly doubling the per-unit cost of developing the resource. Unproved shale gas resources are reduced to 241 trillion cubic feet (as of January 1, 2010), as compared with 482 trillion cubic feet of unproved shale gas resources in the Reference case.

* High well productivity case (light blue line). The EUR per shale gas well is assumed to be 50% higher than in the Reference case, nearly halving the per-unit cost of developing the resource. Unproved shale gas resources are increased to 723 trillion cubic feet.

*  High resources case (orange line). The well spacing for all shale gas plays is assumed to be 8 wells per square mile, which increases the well density in about half the shale gas plays, and the EUR per shale gas well is also assumed to be 50% higher than in the Reference case. Unproved shale gas resources are increased to 1,091 trillion cubic feet, more than twice the unproved shale gas resources in the Reference case.

These cases do not represent a confidence interval for the shale gas resource base, but rather illustrate how different assumptions can affect projections of domestic production, prices, and consumption.

U.S. natural gas prices are determined by supply and demand conditions in the North American natural gas market, in which the United States constitutes the largest regional submarket. Future natural gas prices reflect the cost of developing incremental production capacity. Because shale gas production is projected to be a large proportion of U.S. and North American gas production, changes in the cost and productivity of U.S. shale gas wells have a significant effect on projected natural gas prices. In the Reference case, for example, shale gas production accounts for 49% of total U.S. natural gas production in 2035.

In 2031, natural gas prices dip in the low EUR case as model results reflect completion of an Alaska gas pipeline, which would transport about 1.6 trillion cubic feet per year of gas from the North Slope to the lower 48 states. Because an Alaska gas pipeline would make up for some of the reduction in lower 48 states' shale gas production, the difference between projected prices in the Reference and Low EUR case is reduced after the pipeline is completed.

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SeaDrill [SDRL] Releases 2nd Quarter 2012 Earnings Report

COT fund favorite SeaDrill released their 2nd quarter 2012 earnings report. Sending it higher pre market Monday morning......



Highlights

* Seadrill generates second quarter 2012 EBITDA*) of US$634 million.

* Seadrill reports second quarter 2012 net income of US$554 million and earnings per share of US$1.12.

* Seadrill increases the ordinary quarterly cash dividend by US$0.02 to US$0.84.

* Seadrill commences operations with the ultra deepwater newbuilds West Capricorn and West Leo in the Gulf of Mexico and Ghana respectively.

* North Atlantic Drilling Ltd (NADL) secures a two year extension for the semi-submersible rig West Alpha, with a total revenue potential of US$410 million.

Subsequent events

* Seadrill secures a commitment for 19 rig years for the ultra deepwater newbuilds West Auriga and West Vela, and an ultra-deepwater unit to be announced, with a total revenue potential of US$4 billion.

*Seadrill secures a commitment for a five-year contract for the ultra-deepwater drillship West Polaris with a total revenue potential of US$1.1 billion.

* Seadrill secures an aggregated seven-year commitment for the ultra-deepwater drillships West Gemini and West Capella with a total revenue potential of US$1.6 billion. The contracts are subject to formal approvals to be received no later than end of October.

* Seadrill refinances a credit facility of US$585 million related to the majority of our tender rig fleet increasing the nominal amount to US$900 million and also including one additional newbuild unit. The new facility increases liquidity by US$588 million.

* Seadrill Partners LLC (the MLP) submits its first draft to the SEC for review. * Seadrill reduces its ownership in SapuraKencana to 6.4%, releasing proceeds of approximately US$200 million.

*) EBITDA is defined as earnings before interest, depreciation and amortization equal to operating profit plus depreciation and amortization.

Condensed consolidated income statements, second quarter and six months 2012 results

Consolidated revenues for the second quarter of 2012 amounted to US$1,122 million compared to US$1,050 million in the first quarter 2012.

Operating profit for the quarter was US$483 million compared to US$456 million in the preceding quarter.
Net financial items for the quarter showed a gain of US$114 million compared to a gain of US$24 million in the previous quarter, as we in the second quarter recorded an accounting gain of US$169 million largely related to the merger of SapuraCrest Petroleum Bhd (SapuraCrest) and Kencana Petroleum Bhd (Kencana). In addition we recorded a gain on sales of 300 million shares in SapuraKencana of US$84 million.

Income taxes for the second quarter were US$43 million, up from US$41 million in the previous quarter.
Net income for the quarter was US$554 million or basic earnings per share of US$1.12.

Chief Executive Officer in Seadrill Management AS Alf C Thorkildsen says in a comment, "We are pleased to deliver another strong quarter, reflecting our solid operational performance. Since our last reporting we have secured new contracts with an estimated revenue potential of US$7.6 billion, reflecting both our clients satisfaction with our operations and the strong demand for high-specification quality equipment. In reflection of our strong operational performance, record high orderbacklog and the strong market outlook we are pleased to announce a quarterly cash dividend of US$0.84."

Click here to get the entire 2nd quarter earnings report

Look for 3rd quarter results November 30th 2012

Analyst contact
Rune Magnus Lundetræ
Chief Financial Officer
Seadrill Management AS      +47 51 30 99 19

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Good Dividend Payer BreitBurn Energy Partners Brightens Its Future With New Oil Asset Purchases

The newest addition to the COT Fund, BreitBurn Energy Partners, is getting some well deserved attention. With some new acquisitions complete and blow out EPS numbers BBEP is sure to keep gathering new investors.

From guest blogger David White......

BreitBurn Energy Partners LP (BBEP) is an oil and gas E & P company. It seemed to right the boat in the last earnings report with adjusted EPS of $1.29 versus an estimate of $0.21, a beat of $1.08. Net production increased 18% year over year, and adjusted EBITDA increased 28%. Logically good results should continue next quarter as natural gas prices, NGLs prices, and oil prices have rebounded from their Q2 lows recently. There is no reason to believe production will shrink. Rather BreitBurn's recent purchases ensure that production will increase.

On June 28, 2012, BreitBurn completed the acquisition of oil properties in Park County in the Big Horn Basin of Wyoming from NiMin energy Corp. for approximately $93 million. On July 2, 2012 BreitBurn completed the acquisitions of two largely oil properties in the Permian Basin in Texas from Element Petroleum LP and CrownRock LP for approximately $150 million and $70 million respectively. Production from all of the above will be accretive to BreitBurn's Q3 production and earnings.

Further BreitBurn at its Q2 earnings announced that it was increasing its 2012 capital program by $50 million. This expands the total 2012 capital program to $137 million, and it will be allocated mostly to oil development activities on the newly acquired assets and the legacy partnership assets. This is good news for the future because natural gas prices have fallen much further than oil prices in the past few years (even in the last year).

BreitBurn does have good hedges on both natural gas and oil, and these have largely saved the company with the recent fall in natural gas prices. These charts specifically delineates the hedging..... Here's the charts and the entire article.

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Crude Oil, Natural Gas and Gold all Head South into Fridays Close

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October crude oil closed lower on Friday due to profit taking as it continues to set back from the 62% retracement level of this year's decline crossing at 98.22. The low range close sets the stage for a steady to lower opening when Monday's night session begins. Stochastics and the RSI are overbought but are turning bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 93.47 would confirm that a short term top has been posted. If October extends the rally off June's low, the 75% retracement level of this year's decline crossing at 102.50 is the next upside target. First resistance is Thursday's high crossing at 98.29. Second resistance is the 75% retracement level of this year's decline crossing at 102.50. First support is the 10 day moving average crossing at 95.59. Second support is the 20 day moving average crossing at 93.47.

September Henry natural gas closed lower on Friday as it extends the trading range of the past two weeks. The low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are turning neutral to bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 2.877 are needed to confirm that a low has been posted. If September renews the decline off July's high, the 62% retracement level of the April-July rally crossing at 2.626 is the next downside target. First resistance is the 20 day moving average crossing at 2.877. Second resistance is the reaction high crossing at 3.120. First support is Thursday's low crossing at 2.682. Second support is the 62% retracement level of the April-July rally crossing at 2.626.

October gold closed slightly lower on Friday as it consolidates below the 2011-2012 downtrend line crossing near 1674.00. The high range close sets the stage for a steady to higher opening when Monday's night session begins trading. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If October extends this month's rally, the 38% retracement level of the 2011-2012 decline crossing at 1683.10 is the next upside target. Closes below the 20 day moving average crossing at 1620.10 would confirm that a short term top has been posted. First resistance is Thursday's high crossing at 1675.10. Second resistance is the 38% retracement level of the 2011-2012 decline crossing at 1683.10. First support is the 10 day moving average crossing at 1629.00. Second support is the 20 day moving average crossing at 1620.10.

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CME Group Energy Market Recap for Friday August 24th

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October crude oil prices trended higher during the early US trading session but ended lower by the close. October crude oil prices rallied during the US morning hours, helped by a rebound in outside market sentiment, hopes for more bond buying by the ECB and near term supply disruption concerns from Tropical Storm Isaac. The market came under pressure during the initial morning hours following a weaker than expected read on core capital goods in July.

However, sentiment turned positive following headlines that the ECB was considering yield band targets to ease the region's debt crisis. It is also possible that limited progress at an IAEA meeting in Vienna over Iran's nuclear weapons supported late morning gains. An IEA report released around mid-session seemed to support the notion of releasing strategic petroleum reserves, and that served to pressure the market lower.

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Mitt Romney Speaks About Energy Proposals

Republican presidential candidate Mitt Romney speaks at a campaign event in Hobbs, New Mexico, about the U.S. economy and his proposals for achieving energy independence. Romney would seek to give states control over energy production on federal lands within their borders and allow drilling off the East Coast.

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Crude Oil Prices Peaked Early in 2012

Crude oil prices rose during the first quarter of 2012 as concerns about possible international supply disruptions pushed up petroleum prices. Prices then fell during the second quarter before turning sharply upward at the start of the third quarter.

Both Brent and U.S. West Texas Intermediate (WTI) crude oil started 2012 above $100 per barrel and reached a peak in early March of just over $125 per barrel for Brent and almost $110 per barrel for WTI as positive economic news that could lead to stronger oil demand and worries about supply disruptions linked to Iran's nuclear program contributed to higher prices.

Crude oil prices fell during the second quarter due, in part, to concerns about lower oil demand with a slowdown of the global economy. By the end of June, oil prices were down almost 30% from their peak to just under $78 per barrel for WTI and $91 per barrel for Brent.



Some of the major factors that influenced crude oil prices during the first half of 2012 were:

* Changes in global economic growth expectations. Strong job growth data in the U.S., lower interest rates for several European countries and increased manufacturing data in China all contributed to increased expectations for economic growth and higher crude oil prices during the first quarter of this year. A reversal of these factors in the second quarter helped push crude oil prices to their 2012 lows.

* Oil supply disruptions. Production disruptions such as those in Syria, Sudan, and Yemen took about 1 million barrels of oil per day off the world market, raising oil prices.

* Iran sanctions. Ongoing U.S. and European sanctions on imports of Iranian oil intended to pressure Iran to give up its nuclear program (1) played a part in reducing Iran's oil exports, and (2) raised fears that Iran would retaliate by disrupting oil shipments through the Strait of Hormuz. Both caused oil prices to rise.

* Rising oil production. U.S. oil production topped 6 million barrels per day in early 2012, the highest level since 1998, and contributed to building U.S. crude oil inventories that put downward pressure on oil prices.

The rise and fall of crude oil prices were reflected at the pump as gasoline and diesel prices followed the movements of oil costs, which accounted for almost two thirds of the price for motor fuels. For every $1 per barrel change in oil prices, consumers are expected eventually to see a 2.4 cent per gallon change in retail gasoline and diesel prices, if everything else remains the same.

Gasoline prices increased for the first 14 weeks of 2012 (except for one week) to a peak of $3.94 per gallon in early April and then fell for 13 weeks in a row to $3.36 per gallon at the beginning of July, the lowest pump price so far in 2012 since $3.30 per gallon during the first week of January. (See chart below)

Diesel fuel prices followed a similar path, increasing for 15 weeks (except for three weeks) to a peak of $4.15 per gallon, followed by 12 straight weeks of falling prices to a low of $3.65 per gallon. The higher price for diesel versus gasoline reflected stronger domestic diesel demand compared to gasoline consumption and record U.S. diesel exports to help satisfy rising international demand for diesel.



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Addison Armstrong Tells us what he thinks it will take to push crude oil higher

Crude oil is continuing its rise today, with Addison Armstrong, Tradition Energy; and the Fast Money traders discuss a few ways to get short in Australia, and sinking iron ore prices. Get our Free Trading Videos, Lessons and eBook today!

Wednesday Morning Market Analysis Video

Yesterday was a great session with stocks putting in a top and distribution selling stepped in right on queue. A lot of investments looked as though they were about to reverse. Bonds were set to rally, stocks were set to fall, dollar index was ready to bottom and volatility was primed for a pop. Members of my trading alert service The Gold & Oil Guy were asking me why I only went long VXX and not all of them?

My answer to that is because they are all the same trade almost. If any of those fail to reverse it means the others will likely not reverse either. Thus we would have 4 losing trades at the same time. Instead I measure the potential profits and risk for each investment then pick the one which I feel has the best potential which happened to be the VXX trade I took yesterday. We pocketed 4.25% – 5% in one day and still hold a runner for much larger gains. This sure beats the performance of all the other investments we were looking at yesterday.

This morning’s video analysis covers a lot of interesting and educational points on the market so be sure to watch it right now and stay ahead of the market.

Pre-Market Analysis Points:

- Dollar index looks to be bottoming as we expected on Monday.

- Crude oil is going to be choppy up at resistance for some time. No trade for weeks there likely.

- Natural gas is trying to break out of a mini basing pattern and I may get long UNG today.

 - Gold, silver and gold miners are starting to have signs of a trend reversal to the upside but still not there yet.

- Bonds look to have bottomed yesterday bouncing 1%. I feel there is another 1% bounce left before it runs into resistance.

- SP500 is showing signs of distribution selling and has broken its first support trend line. With any luck we see another 4-5% drop is price.

 - VIX moved higher with the SP500 yesterday as it broke to new highs. This is the opposite of what it should have done and one of the reasons why I jumped into VXX yesterday. Rising stocks prices and rising fear means the big money players are buying insurance for a drop near term because they are not confident about the new highs.

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