Crude Oil and Natural Gas ETF Performance Lacking Spark

The poor performance of commodity exchange based funds relative to underlying crude oil and natural gas prices over recent years stems from inherent inflexibility of ETFs, suggesting investors may be better off going directly to futures markets, according to a study by CME Group directors Richard Co and John Labuszewski.

One popular ETF, the United States Oil Fund LP, underperformed spot crude prices by nearly 200% from December 2008 through April 2011, a period when the market rallied while maintaining a "contango" pattern. The United States Natural Gas Fund ETF also lagged the spot market during that period.

Such ETFs "are generally unable to replicate the performance of the benchmark spot commodity values," Co and Labuszewski wrote. That primarily reflects requirements that these ETFs can’t hold physical inventory, must maintain 100% collateralization with no leverage and must maintain a fixed rollover strategy, regardless of the shape of the forward futures curve.

"The investment and administrative policies of some of the major commodity ETFs contribute to their inability to replicate the performance of the commodities that they purport to represent," they said. "These shortcomings may be addressed by introducing a certain degree of flexibility in the management strategy (and) by relaxing restrictions on collateralization and rollover strategy."

Astute investors, they added, should consider "whether the option of direct investment in futures should be considered as an alternative to investment in an ETF."

Read the full CME Group Report


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Kase and Company....Bad news for November Crude Oil Bulls

It's Wednesday and that means it's time to check in with Kase and Company for their call on November crude oil action.....

The outlook for November crude is negative. Prices have sustained a close below $92.1 for the past two days and should test support at $89.5 tomorrow. A close below this would call for $88.8 and then key support at $87.7 to be met.

Intraday momentum indicators show that the move down is becoming exhausted, so corrections may take place. Initial resistance is $92.5, but until there is a close over $94.3, the near-term bias will remain negative.....Here's the entire post and charts.

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Musings: Energy, Unemployment And The Health of The US Economy

There is nothing more important in determining the outlook for a nation's energy demand than understanding the health of its economy. This is especially true for the United States today as it faces a presidential election focused on dramatically different economic and governing philosophies of the candidates and their views about how fast the economy may grow and, in turn, how much energy the nation will need.

Most people are aware of President Barack Obama's "all of the above" energy strategy, which provides a number of popular talking points about him being open to all forms of energy while campaigning, but in reality means only a few energy sources will be favored. Those favored energy sources seem to be only "green" ones. On the other side of the issue is the Republican standard bearer, Mitt Romney, who is advocating for increased development and use of domestic fossil fuel resources while mandating that very expensive green energy sources need to achieve commerciality on their own and without government mandates and subsidies.....Read the entire Musings article.


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Investor Gold Buying to Resume & Fed Doubling Their Balance Sheet AGAIN!

A leading precious metals consultancy, Thomson Reuters GFMS, has forecast that investors will buy record amounts of gold in the remainder of 2012. GFMS produces the benchmark supply and demand statistics for the gold market. GFMS forecasts that investors will purchase 973 tons of gold in the second half of 2012, more than during the wild gold market of the summer of 2011. This surge in demand for the yellow metal, GFMS says, will move gold above the $1850 an ounce level, not far from the record high of $1920 hit in September 2011.

GFMS may be right. This past week, gold hit its high for this year at $1790 an ounce on the back of the various global stimulus plans launched by a number of countries around the globe. Primary among the recently announced stimulus plans was the Federal Reserve’s QE3 or as some in the market have called it, QE infinity. Philip Klapwijk of GFMS said that, for the gold market, “QE3 has become talismanic”.

The Federal Reserve said it would purchase $40 billion a month in mortgage-backed securities indefinitely. In addition, the Fed will continue Operation Twist – the buying of longer dated U.S. treasury notes and bonds. When all is totaled, the market is looking at about $85 billion a month in government bond purchases for an unlimited period of time.

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The main characteristic of QE3 that drives the gold market is the fact that the open ended purchases of all of these Treasuries will be financed by money that does not yet exist! And it’s not just about a fear of future inflation being ignited by all this money creation. It’s a very logical move higher by gold based on recent history of Fed actions and gold prices.

Even ignoring Operation Twist, the Fed will add $40 billion a month, or $480 billion a year, to its balance sheet. If one looks at the Fed’s own website, you will see that it shows current assets of $2.8 trillion. Add $480 billion annually to that and in about five years the Fed’s assets (the foundation of the money supply) will have nearly doubled.

That is exactly what happened in the last five years too…the Fed’s assets doubled. And in what should not be a surprise to gold investors, the price of gold also doubled! For the past decade or so, gold has tracked the increase in Federal Reserve’s assets. Do not be shocked if that pattern continues over the next five or ten years too.

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This Weeks Crude Oil, Natural Gas and Gold Weekly Technical Outlook

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Time for our weekly call from the great staff at Oil N'Gold.Com. Do they think the bulls are still in charge?.......

100 psychological level proved to be a difficult level for crude oil to break through. Last week's sharp decline and break of 94.08 support indicates that rebound from 77.28 has finished at 100.42 already. Deeper decline should be seen in near term back to 61.8% retracement of 77.28 to 100.42 at 86.12 and possibly below. Though, we'd expect strong support ahead of 77.28 to contain downside. Another rally is anticipated for 110.55 after completing the current consolidation.

In the bigger picture, current development suggests that price actions from 114.83 are a triangle consolidation pattern. Fall from 100.42 is likely the fifth and the last leg of such consolidation. Having said that, downside should be contained above 77.28 and bring an upside breakout eventually. Break of 110.55 will strongly suggest that whole rebound from 33.29 has resumed for above 114.83.

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 retreated last week but managed to hold well above 2.575 support and recovered. Overall development suggests firstly that price actions from 3.277 are corrective in nature. Secondly, there is no clear sign of breakout yet and more sideway trading could be seen in near term inside 2.575/3.277 range. Though, an upside break would be mildly in favor.

In the bigger picture, firstly, natural gas is still being supported by 50% retracement of 1.902 to 3.277 at 2.590. Secondly, price actions from 3.277 are corrective looking. The development indicates that rebound from 1.902 isn't over yet. Another rally will likely have 3.255 support turned resistance taken out decisively. And in that case, medium term decline from 6.108 should be confirmed to have completed. And, stronger rally would be seen back to 4.983 resistance and possibly above. This is now the preferred scenario as long as 2.575 support holds.

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 edged higher to 1790 last week but lost much momentum ahead of 1792.7/1804.4 resistance zone. Nonetheless, as long as 1720 minor support holds, current rise is still expected to continue. Decisive break of 1792.7/1804.4 resistance zone will have larger bullish implication and would pave the way to 1923.7 historical high. Though, break of 1720 will indicate near term reversal and will turn outlook bearish for 1674/1 support first.

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 1792.7/1804.4 resistance zone will argue that the long term uptrend is possibly resuming for a new high above 1923.7.

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

SeaDrill is at it again....files for a new IPO, SDLP

COT fund favorite SeaDrill [ticker SDRL] is at it again as today the file with the SEC for a new IPO. SDLP, a new limited liability corporation.

Seadrill Partners, who owns and operates offshore drilling rigs, files for an IPO under the ticker SDLP with a proposed maximum offering price of $225 million. SDLP operating revenues moved to $497 million in FY11 from $478 million in FY10. For H1 2012 revenues improved 11% to $275 million.

Seadrill Partners said it is an “emerging growth company” that currently has long term contracts with oil majors Chevron Corp. (NYSE: CVX), Total SA (NYSE: TOT), BP plc (NYSE: BP), and Exxon Mobil Corp. (NYSE: XOM). Seadrill is majority owned by the Fredriksen Group, which also owns majority interests in Golar LNG Ltd. (NASDAQ: GLNG), Golar LNG Partners LP (NASDAQ: GMLP), and Frontline Ltd. (NYSE: FRO).

Seadrill Ltd. will own 70% of the common units of Seadrill Partners following the IPO. The new company also plans “to make accretive acquisitions of drilling rigs from Seadrill and third parties” under an agreement that will give Seadrill Partners a first right to purchase additional interests in a jointly owned operating company and “a right to purchase any drilling rigs acquired or placed under contracts of five or more years after the closing date of this offering.”

According to the filing, Seadrill Partners will use the proceeds from the filing “as consideration for the acquisition of our interest in [the jointly owned operating company] from Seadrill.”

This was just announced today so we still don't have it sorted out but anything SeaDrill is sure to get investors attention.

Here is the complete SEC filing.

Update/Edit for Monday Sept. 24th....

Hamilton, Bermuda, September 21, 2012 - Seadrill Partners LLC ("Seadrill Partners") announced today that it has filed a registration statement with the U.S. Securities and Exchange Commission (the "SEC") for an initial public offering of Seadrill Partners' common units. Seadrill Partners has applied to list its common units on The New York Stock Exchange under the symbol "SDLP".

Seadrill Partners was formed by Seadrill Limited to own, operate and acquire offshore drilling rigs under long-term contracts. Seadrill Partners' initial fleet will consist of two semi-submersible rigs (West Capricorn and West Aquarius), one drillship (West Capella) and one tender rig (West Vencedor).

Citigroup will act as the lead book running manager of the offering.

The offering of the common units will be made only by means of a prospectus. A written prospectus meeting the requirements of Section 10 of the Securities Act of 1933, when available, may be obtained from the offices of Citigroup Global Markets, Inc., Attention: Prospectus Department, Brooklyn Army Terminal, 140 58th Street, 8th Floor, Brooklyn, NY 11220, Email: BATProspectusdept@citi.com, Telephone: 800-831-9146.

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EIA Natural Gas Weekly Report For Thursday Sept. 20th

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Let's take a look at the EIA's overview for natural gas for the Week Ending Wednesday, September 19, 2012.....

* Natural gas prices declined at most trading locations this week, erasing gains from last week. The spot price at the Henry Hub fell from $2.96 per million British thermal units (MMBtu) last Wednesday, September 12, to $2.70 per MMBtu yesterday, September 19.

* Natural gas futures prices declined along with spot prices. The New York Mercantile Exchange (NYMEX) near month contract (October 2012) fell from $3.063 per MMBtu last Wednesday to $2.762 per MMBtu yesterday.

* Working natural gas in storage rose last week to 3,496 Bcf as of Friday, September 14, according to EIA’s Weekly Natural Gas Storage Report (WNGSR). An implied storage build of 67 Bcf for the week positioned storage volumes 320 Bcf above year ago levels.

* The natural gas rotary rig count, as reported by Baker Hughes Incorporated on September 14, fell by 4 to 448 active units.

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Bearish Inventory Report Sends Crude oil Prices Lower

The downside correction to oil prices moved into a third day with a bearish weekly oil inventory snapshot adding a bit more selling momentum. In fact oil prices are now at the lowest level they have been at in about six weeks. Certainly the post QE3 euphoria has been pushing oil prices lower but today's huge crude oil build was a catalyst for a strong round of not only profit taking selling but I suspect some new shorts coming into the market.

It does not happen very often in the oil complex but the current fundamentals have trumped all of other short term price catalysts today sending prices into a bit of a tailspin. It certainly changes the short term dynamics for me and as such we may see the downside move last a bit longer than I was originally expecting. The buy the dip mentality that I thought might come as early as this week may now be postponed until next week at the earliest.

In addition to the surprisingly large crude oil build the Saudi oil ministers comments from last week are still hanging over the market. He said global supply, demand and inventories do not justify the current price (around $100/bbl last week). The Saudis have been working with Kuwait the UAE and other members of the Gulf Cooperation Council to keep production at high levels to discourage higher prices. Saudi production is over 10 million barrels per day and at the highest level in years.

It is also serving to offset the 1 million barrels per day or so of lost Iranian crude oil production due to the sanctions.....Read Dominick Chirichellas entire article.

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Exxon [XOM] Applies for a Natural Gas Export License

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The natural gas revolution has yielded many benefits to America in terms of its economy, environment, and energy security....

* Job creation
* Lower home heating bills
* Lower feedstock costs for the petrochemical and refining businesses
* Reduction in the number of active coal plants
* Increased U.S. energy security

Low domestic natural gas prices have given the U.S. a clear competitive advantage in the world economy. Consider the price differential in this chart, taken from the Wall Street Journal's recent article Should the U.S. Export Natural Gas?, which compares U.S. nat gas prices to those of Japan and Korea.

The current price of natural gas is unsustainable. Companies will either shut-in production until it becomes more profitable, or significant new demand will be created. Exxon Mobil (XOM), struggling to reap the rewards of its massive XTO takeover and the subsequent drop in nat gas prices, has recently applied for a natural gas export license. The question the U.S. Department of Energy faces (or at least should face...) becomes.... is exporting natural gas smart, strategic energy policy?

Exporting natural gas would be good in a number of ways including....Read the Michael Fitzsimmons entire article.

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Kazakhstan as an oil producer....a bigger player then you probably think

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Kazakhstan, an oil producer since 1911, has the second largest oil reserves as well as the second largest oil production among the former Soviet republics after Russia....

With total liquids production estimated at 1.6 million barrels per day (bbl/d) in 2012, Kazakhstan is a major producer; however, key to its continued growth in liquids production will be the development of its giant Tengiz, Karachaganak, and Kashagan fields. Furthermore, development of additional export capacity will be necessary for production growth.

Rising natural gas production over the last decade has transformed Kazakhstan from a net gas importer to a country that as of 2011 was self sufficient. Natural gas development has lagged oil due to the lack of domestic gas pipeline infrastructure linking the western producing region with the eastern industrial region, as well as the lack of export pipelines.

Kazakhstan is land locked and lies a great distance from international oil markets. The lack of access to a seaport makes the country dependent mainly on pipelines to transport its hydrocarbons to world markets. It is also a transit state for pipeline exports from Turkmenistan and Uzbekistan. Neighbors China and Russia are key economic partners, providing sources of export demand and government project financing.....Read the entire EIA article.

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