ONG: Crude Oil, Natural Gas and Gold Weekly Technical Outlook For Sunday Sept. 9th

Well it's that time again. It's Sunday and it's time to check in with the staff at Oil N Gold.com to get their call on crude oil, natural gas and gold.....

Crude oil's consolidation from 98.29 continued last week and outlook remains unchanged. With 92.94 support intact, further rally is still expected. Above 98.29 will extend the rise from 77.28 to 100 psychological level and above. However, as noted before, such rise could be the fourth leg inside the triangle pattern from 114.83. Hence, we'll be cautious on topping between 100 and 110. Meanwhile, break of 92.94 will be the first signal of reversal and turn focus to 86.92 support for confirmation.

In the bigger picture, price actions from 114.83 are viewed either a three wave consolidation pattern that's completed at 77.28, or a five wave triangle pattern that's still unfolding. In any case, break of 110.55 resistance will strongly suggest that whole rebound from 33.29 has resumed for above 114.83. While another fall could be seen before an eventual upside breakout, downside should be contained above 77.28 support.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Natural gas' recovery was limited by near term falling channel and retreated. Near term outlook remains bearish so far and fall from 3.277 is still expected to continue. Below 2.575 will target 2.168 support and below. However, break of 2.888 resistance will now confirm that fall from 3.277 has completed. More importantly, the corrective structure will raise the odd that rise fro 1.902 is resuming and will turn focus back to 3.277 resistance instead.

In the bigger picture, the failure to sustain above 3.255 support turned resistance didn't confirm medium term trend reversal. That is, whole decline from 6.108 could still extend and a break below 2.168 will pave the way to a new low below 1.902. Nonetheless, again, sustained break of 3.255 will confirm trend reversal and a test on 4.983 key resistance level should at least be seen.

In the longer term picture, as long as 3.255 resistance holds, whole down trend from 13.694 (2008 high) is still in progress, so is that from 15.78 (2005 high). Another fall could be seen to 1999 low of 1.62 on resumption. But decisive break of 3.255 will now be an important sign of long term bottoming,

Nymex Natural Gas Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

Gold jumped further to as high as 1745.4 with a strong close at 1737.6. Initial bias remains on the upside and current rally should now extend to 1792.7/1804.4 resistance zone next. On the downside, below 1689.3 minor support will turn bias neutral and bring consolidations. But break of 1647.1 is needed to indicate near term reversal. Otherwise, we'll stay bullish in gold.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7 resistance is needed to be the first signal of up trend resumption. Otherwise, the consolidation would extend further.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run

Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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Natural Gas Demand at Power Plants Was High in Summer 2012

Natural gas use for power generation rose this summer because of hot weather driven electricity demand for air conditioning coupled with low natural gas prices. According to Bentek Energy, estimated daily natural gas use to produce electric power (also called power burn) averaged 26.3 billion cubic feet per day (Bcf/d) so far in 2012 (Jan.1st - Aug. 15th), up 24% compared to the same period for 2011.

Bentek Energy, which has been estimating power burn since January 2005, said that 17 of the 25 highest days of power burn since 2005 occurred this summer between June 28 and August 9.

The two main drivers of the increased use of natural gas at power plants this year are weather and a structural shift toward generating more electricity from natural gas fired power plants. 



The National Oceanic and Atmospheric Administration reported the warmest first half of the year since 1895 in 28 states, and that heat continued in July and August. U.S. population weighted cooling degree days (CDDs), a measure of cooling requirements, averaged 26% higher than the 30 year average from January 1 through August 15, and has been consistently above average for most of the year.

Regionally, CDDs in the Midwest, where hot, dry weather was particularly severe, were 59% above their 30 year average, with the Northeast, South, and West at 43%, 18%, and 14%, respectively, above their corresponding averages. In April 2012, EIA reported that monthly shares of coal and natural gas fired generation were equal for the first time. This is a result of several factors, including:

*   Lower natural gas prices, the result of new drilling technologies, growing production, a large increase in proved reserves, and robust natural gas infrastructure additions over the last several years.

*  Power plant efficiencies, with newer natural gas units more efficient than older coal units and rising capacity factors of natural gas fired units.

*  Coal unit retirements, expecting almost 9,000 MW of coal fired capacity to be retired in 2012, with additional retirements in subsequent years.



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Can it be true...is it even possible? Gold Standard To Be Reinstated Through The Back Door

With political season upon there is plenty of talk about the U.S. going back to the gold standard. Most people think it's just a play by the right to appease Ron Paul and his supporters. But really, is it even possible at this point to go back to the gold standard. One of my business partners Chris Vermeulen just sent over a great article he just wrote.......

For the first time in over 30 years, talk of a return to the gold standard has become part of mainstream politics in the United States. Part of the official Republican policy adopted it at the recent Republican Convention and called for the commission to look at reestablishing the link between gold and the U.S. dollar. No doubt that plank was added to soothe supporters of Texas Congressman Ron Paul.

However, gold bugs holding gold bullion or even those holding gold ETFs such as the SPDR Gold Shares (NYSE: GLD) shouldn’t hold their breath in anticipation of the gold standard returning. There was a similar commission – the Gold Commission – set up in 1981 by President Ronald Reagan. After a lot of ‘commissioning’, the decision was made to go with the status quo of using fiat Federal Reserve dollars.

Any commission set up under the current president would likely come to the same conclusion. There are simply too many practical obstacles to return to a full fledged gold standard. Even pro-gold advocates including the World Gold Council and the Gold Anti-Trust Action Committee (GATA) don’t see a gold standard returning.

The key problem would be at what price of gold would the United States peg its currency. Great Britain returned to the gold standard in 1925, after going off it in 1914, at the 1914 peg price. This was a mistake made by Winston Churchill (he called it the biggest he ever made) since it basically ignored the vast inflation in the British pound in those intervening years. The result was a vast overvaluation of the pound and deflation and high unemployment soon followed.

What price would a new Gold Commission set as the “correct” price of the U.S. dollar versus gold? $1,000? $2,000? $5,000? The answer is that there is no “correct” price. Whatever price is set will eventually be tested by the financial markets and fail much as the pegged currencies system failed. So there will be no return to the gold standard.

But that does not mean there will not be a ‘back-door’ gold standard. The move to such as a system is already underway as central banks all over the world are rebuilding their stockpiles of gold. After two decades of heavy selling, central banks became net buyers of gold in 2010 and the momentum has built since. Gold will likely end up being used as ‘good’ collateral by global central banks, as opposed to the shaky collateral sovereign bonds are turning into.

Central bank purchases, led by the emerging markets, are on track this year to hit a record high according to the World Gold Council. China alone in 2011 bought around 490 tons of gold. Other countries including Russia, Turkey and South Korea have added gold to their official holdings in recent months. This buying showed up as central bank purchases in the second quarter of 2012 were more than double the level reported a year earlier at 157.5 metric tons. If the buying continues at current levels, central banks gold purchases would total around 500 tons this year, easily surpassing last year’s 458 tons.

The bottom line for investors from the global central banks’ buying of gold? The gold standard is working its way back into the international monetary system through the back door. This should, in the long term, put a floor under gold and help maintain it on its steady upward path.

 Just last week we started to see gold bullion, silver bullion and gold miner share prices start to breakout to the upside of a 12 month consolidation pattern. This could be the start of the next major rally in precious metals as future uncertainty fears continue to rise. The large bullish technical pattern we see on the gold chart points to much higher prices over the coming 24 months. But keep in mind this is a monthly chart and it could still take months to truly breakout to new highs and start another rally.

Gold Bullion Trading

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and the board market......

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Chris Vermeulen



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Strait of Hormuz is Chokepoint for 20% of World’s Crude Oil

International crude oil and liquefied fuels movements depend on reliable transport through key chokepoints. In 2011, total world crude oil and liquefied fuels consumption amounted to approximately 88 million barrels per day (bbl/d), and more than one half was moved by tankers on fixed maritime routes. Chokepoints are narrow channels along widely used global sea routes, some so narrow that restrictions are placed on the size of the vessel that can navigate through them. The map shows chokepoints that are critical areas for global energy security because of the high volume of oil that moves through waterways.

The Strait of Hormuz, located between Oman and Iran, is the world's most important oil chokepoint due to its daily oil flow of about 17 million bbl/d in 2011, roughly 35% of all seaborne traded oil and almost 20% of oil traded worldwide. More than 85% of these crude oil exports went to Asian markets, with Japan, India, South Korea, and China representing the largest destinations. The blockage of the Strait of Hormuz, even temporarily, could lead to substantial increases in total energy costs.

 

Among the major oil exporters that ship oil through the Persian Gulf, only Iraq, Saudi Arabia, and the United Arab Emirates (UAE) presently have pipelines to bypass Hormuz, and only the latter two countries currently have unutilized pipeline capacity on these pipelines. At the start of 2012, the total unused pipeline capacity from Saudi Arabia and the UAE combined was approximately 1 million bbl/d. The amount available could potentially increase to 4.3 million bbl/d by the end of this year, as both countries have recently completed steps to increase their capacity to bypass the Strait (see table).

 

Notes: All estimates are as of August 17, 2012 and expressed in million barrels per day (bbl/d).
¹ Although the Kirkuk-Ceyhan Pipeline has a nominal nameplate capacity of 1.6 million bbl/d, its effective capacity is 0.4 million bbl/d because it cannot transport additional volumes of oil until the Strategic Pipeline to which it links can be repaired to bring in additional volumes of oil from the south of Iraq.
² "Unused Capacity" is defined as pipeline capacity that is not currently utilized and can be readily available.
³ All estimates for 2012 are rates around the mid-year point; not the forecast average for 2012.
⁴ Throughput rates for 2012 are assumed to be the same as average throughput rates in 2011.

*   Iraq cannot send additional volumes through its Kirkuk-Ceyhan (Iraq-Turkey) Pipeline to bypass the Strait of Hormuz unless it receives more oil from southern Iraq via the Strategic Pipeline linking northern and southern Iraq, but portions of the Strategic Pipeline are currently inoperable.

*    Saudi Arabia recently increased its additional unused pipeline capacity to 2.8 million bbl/d when it converted one of the two pipelines connected to the Petroline system back to transporting crude oil.

*   The UAE recently opened a 1.5 million bbl/d Abu Dhabi Crude Oil Pipeline, which runs from Habshan, a collection point for Abu Dhabi's onshore oil fields, to the port of Fujairah on the Gulf of Oman, allowing crude oil shipments to circumvent Hormuz.

*   EIA's World Oil Transit Chokepoints analysis brief contains additional information on Hormuz and the other chokepoints, and the Middle East & North Africa overview contains additional information about countries in the region.

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My buddy Doc is really ticking Some people off today

Doc Severson, is making some really big waves...

He just came out with a video presentation that's probably going to tick off a lot of people (especially if you're still struggling to make money trading and investing).

But I've got to say, he makes a REALLY good point...Click here to check out the video that's raising all the fuss.

Seriously, you've got to check out this video, it's a real shocker!

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Ignoring Liquidity is a Recipe for Option Trading Losses

One of the traps for budding options traders is to attempt to apply various strategies to any underlying that exhibits a familiar technical pattern. This is a mistake. Option trading strategies must only be applied to underlying assets that have very liquid options.

To attempt to trade thin options puts the trader at serious risk of the situation the Eagles described in their signature song. You may be able to negotiate reasonable prices to enter the trade, but your exit will not reliably be so easy to exit due to low volume levels and generally wide bid / ask spreads.

So what are the bench marks that allow the new trader to recognize what are liquid options and what are not? Perhaps the easiest fundamental characteristic of an option that is liquid is to glance at the bid / ask spread of the front series option at-the-money strike. These strikes will almost always be the most active series and have the tightest bid / ask spread.

In the modern world, that spread should be 6¢ or less for “normal” priced stocks such as XOM, CAT, or GS. For “super size” stocks such as AAPL, GOOG, or AMZN spreads are a bit wider but typically around 25-30¢ or less.

In stocks with lower price points that have very liquid option series such as XOM and INTC, it is not uncommon to see markets quoted a penny wide during periods of relatively calm markets. However, and this is an important point, in times of market turmoil, the spreads typically widen much beyond their normal size. In severe market turmoil the spreads may reach a point even in liquid underlying assets that precludes any semblance of reasonable ability to execute trades.

The higher-priced underlying assets such as GOOG, because of their characteristically wider spreads, are more easily executed at negotiated prices in which the bid ask spread is reduced. This is particularly the case on multi legged positions; the spreads usually give the counter party, in this case our beloved option market makers, a straightforward way to hedge their risk. For this the trader will often be given a discount.

The rule of thumb for calculating this discount is to reduce the aggregate bid / ask spread by one third. A corollary of this is not to waste your time trying to negotiate out the total 2 – 4¢ spread that may exist in the most liquid series. Ultimately these strategies will not work – the market maker’s kids need to eat too.
Let us look at a practical example of what might be an appropriate starting point. Consider GOOG, one of our super sized stocks that recently trades on average a bit over $33 million of options per day.

GOOG Call Option Chain

GOOG has recently climbed to multi year highs in a parabolic move with a very aggressive angle of attack and currently trades a bit over $678 / share. It may be ready for a pull back or at least a period of price consolidation before resuming its course.

For those who agree with this hypothesis and may be considering an actionable idea, consider the September 680/685 call credit spread, a bearish play. This spread is constructed by selling the September 680 call and buying the September 685 call. As is readily apparent from the option chain, the bid ask / spread for each of these is 30¢.

To introduce another term useful for options traders, consider the “natural” price of this spread. You would sell the 680 strike at the quoted bid, $14.10 and buy the 685 strike at the quoted price of $12.10 for a “natural” price of $2.00 credit. The aggregate bid / ask spread for this is 60¢ – the sum of the spread for each of the two legs.

Using our rule of thumb to expect a 33% discount on such spreads, we should be able to execute the spread for a net credit of $2.20 ($2 plus one-third of the 60¢ spread). This obviously increases our net credit and potential profitability by 10% and would result in significant improvement of trading results over a series of similar trades.

Just so you have seen an example of an options board in which the Hotel California syndrome could be expected to occur, consider the pricing in this option chain for symbol STRA:

Options Trading Strategies

As you can see, the spreads for the 65 strike, the current at-the-money strike, are in excess of $1. Stay away from these sorts of traps; the only one who can make money with any reasonable probability is the market maker.

The point of today’s missive is that you should choose carefully the field on which you wish to play. Careless selection of the underlying to trade can put you at a significant disadvantage regardless of the attractive chart pattern of the underlying stock in question.
Happy Trading!

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J.W. Jones

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Crude Oil Falls as U.S. and European Manufacturing Pulls Back

Crude oil fell as U.S. and euro-area manufacturing contracted in August, raising concern that slower economic growth will reduce demand. Prices dropped 1.2 percent after the Institute for Supply Management’s U.S. factory index declined more than analysts forecast. Manufacturing slipped more than initially estimated in the euro area, London based Markit Economics reported yesterday.

“We are seeing downward prices because of the poor economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The ISM number compounds the earlier manufacturing number from Europe, and overall, the economic data is weak.” Oil for October delivery decreased $1.17 to settle at $95.30 a barrel on the New York Mercantile Exchange. Prices are down 3.6 percent this year.

Brent oil for October settlement fell $1.60, or 1.4 percent, to end the session at $114.18 a barrel on the London based ICE Futures Europe exchange. The U.S. manufacturing index decreased to 49.6 in August from 49.8 a month earlier, the Tempe, Arizona based ISM said today.

Economists in a Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction.....Read the entire Bloomberg article.

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ONG: Crude Oil Weekly Technical Outlook for Saturday Sept. 2nd

It's time for our weekly call from the staff at Oil N Gold.....

Crude oil continued to consolidate below 98.29 short term top last week and overall outlook remains unchanged. Further rally is still expected with 92.94 support intact. Above 98.29 will extend the rise from 77.28 to 100 psychological level and above. However, as noted because, such rise could be the fourth leg inside the triangle patter from 114.83. Hence, we'll be cautious on topping between 100 and 110. Meanwhile, break of 92.94 will be the first signal of reversal and turn focus to 86.92 support for confirmation.

In the bigger picture, price actions from 114.83 are viewed either a three wave consolidation pattern that's completed at 77.28, or a five wave triangle pattern that's still unfolding. In any case, break of 110.55 resistance will strongly suggest that whole rebound from 33.29 has resumed for above 114.83. While another fall could be seen before an eventual upside breakout, downside should be contained above 77.28 support.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts  

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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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Gold Price and Indian Demand Shifting Trends

From Chris Vermeulen at The Gold & Oil Guy.com.......

One of the top stories in the financial markets in 2012 has to be the stagnation in the price of gold at around $1600 an ounce, which is down approximately 17% from its peak at $1920.30. Those bullish on the yellow metal have been disappointed in gold’s performance while those bearish on the shiny metal have reveled in its stagnation, saying that gold’s status as a safe haven is over.

What is behind gold’s sluggish performance in 2012? There are several reasons, but one of the key fundamental reasons has been the lack of demand from traditionally the largest buyer of gold on the planet – India (although China will surpass it this year). India bought only 181.3 tons in the second quarter of 2012, a 2-year low, according to the London-based World Gold Council.

There are several factors at play as to why Indian demand for gold has fallen. One reason is the sharp drop in the value of its currency, the rupee, which is down by 25% versus the U.S. dollar this year. This decline has kept gold prices high in relative terms while the actual dollar value of gold was falling. Perhaps even more important has been the ‘war’ declared on gold by its central bank which has blamed all of the country’s economic ills on Indian citizens’ traditional buying of gold. In an attempt to slow down gold and silver imports, the Indian government has imposed new taxes on the purchase of these precious metals.

But even though demand for the precious metal is way down in India, the situation still offers hope for gold bulls. Why? Because we’ve been here before – in 2009 to be exact. In early 2009, the Indian economy and rupee tanked. Gold demand almost completely dried up. According to precious metals consultancy GFMS, Indian demand for gold in the first quarter of 2009 collapsed by 77%. For the full year GFMS said Indian consumption dropped by 19%.

Now with the Indian economy slowing to its weakest growth rate in nearly a decade and the rupee falling, we are seeing a replay of 2009. The monsoon season has been poor, hitting farmers – among the biggest buyers of gold – hard. Gold prices have hit a record high in rupee terms, and India is expected to purchase, as forecast by the World Gold Council, only 750 tons of gold, down 25% from 2011 levels. Meanwhile, the WGC forecasts that China will buy 850 tons of gold this year.

Investors should pay heed to the clues that recent history is giving us. The drop in Indian demand is simply a cyclical phenomenon due to the lousy state of the Indian economy. It will recover eventually. And when it does, look out for the fireworks from renewed Indian demand for gold added to the Chinese demand. In 2010, as pent-up demand for gold was unleashed, Indian gold consumption soared 74% to a record high of 1,006 tons according to GFMS.

Gold bulls surely hope we see something similar in 2013 and that is exactly what I talked about last week based around gold miner stocks and also what Dave Banister’s recent gold forecast was about at TheMarketTrendForecast.com sees in 2013.

Gold Chart Showing 2009 Collapse and Outcome and Current Gold Price Analysis:

Gold Forecast - India Gold demand

Gold Trading & Investing Conclusion:
In short, gold and gold stocks have a lot of work to do before they truly breakout into the next major leg higher. I feel we are nearing that point and they may have bottomed already. Starting a small long position to scale in I think is a safe play. But I would only add more once the trend actually turns up and shows strength in terms of price and volume action.

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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Natural Gas, Renewables Dominate Electric Capacity Additions in First Half of 2012

During the first half of 2012, 165 new electric power generators were added in 33 states, for a total of 8,098 megawatts (MW) of new capacity. Of the ten states with the highest levels of capacity additions, most of the new capacity uses natural gas or renewable energy sources. Capacity additions in these ten states total 6,500 MW, or 80% of the new capacity added nationally in the first six months of 2012.

Most of the new generators built over the past 15 years are powered by natural gas or wind. In 2012, the addition of natural gas and renewable generators comes at a time when natural gas and renewable generation are contributing increasing amounts to total generation across much of the United States.

In particular, efficient combined-cycle natural gas generators are competitive with coal generators over a large swath of the country. And, in the first half of 2012, these combined-cycle generators were added in states that traditionally burn mostly coal (with the exception of Idaho, which has significant hydroelectric resources).


Source: U.S. Energy Information Administration, Form EIA-860M "Monthly Update to the Annual Electric Generator Report."
Note: Data are preliminary and include all generators at plants >1MW in capacity, from the electric power, commercial, and industrial sectors. "Other renewables" includes hydroelectric, geothermal, landfill gas, and biomass generators.  

Only one coal fired generator was brought online in the first half of 2012, an 800-MW unit at the Prairie State Energy Campus in Illinois. In its 2011 annual survey of power plant operators, the U.S. Energy Information Administration (EIA) received no new reports of planned coal fired generators. Of the planned coal generators in EIA databases, 14 are reported in the construction phrase, with an additional 5 reporting a planned status but not yet under construction.

However, only one of the 14 advanced from a pre-construction to an under-construction status between the 2010 and 2011 surveys.....Read the entire EIA article.


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