Energy & Commodities

Energy & Commodities

A Big-Picture View

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Posted by Larry Edelson - Uncommon Wisdom

on Monday, 29 October 2012 09:57

Today we’re going to step back from the markets and take a look at the monthly charts rather than the short-term gyrations that are occurring in the markets.

They’ve all been largely trading sideways with a lack of interest by most investors as we come very close now to the elections, which are keeping a lot of investors and traders basically just trying to scalp the markets or stay out of the markets altogether.

But there have been, in the last week, some significant changes in the markets. And you really can only see them by way of the monthly charts. So today we’re going to take a look at those monthly charts.

Gold: Here is the monthly chart for gold. As you can see, last week gold did hit resistance at the upper level here and has now turned lower.

This is very significant. It is what I’ve been expecting all along.

Most importantly, it is pretty amazing that — given QE III to infinity and unlimited money-printing by the European Central Bank (ECB) and the Federal Reserve — gold was unable to get above this channel resistance here and is now turning lower.

I’ve said all along that this was a bearish signal that gold could not take out the earlier high this year and last year’s November high. And as you can see, gold was unable to do that despite unlimited money-printing.

Why? Because the de-leveraging that’s occurring around the world right now is overpowering even unlimited money-printing.


So we’re not there yet for the breakout in gold. The next leg up in gold will not occur until the money-printing that’s occurring leaks out into the economy.

Right now it’s basically sitting in banks and investment banks and going back to the Federal Reserve in the way of excess deposits, excess reserves put back on the Federal Reserve’s balance sheet, and it’s doing nothing for the economy.

So you’re not seeing the wave of inflation that everyone expects. It will come, but we’re not there yet. It probably won’t come until the sovereign-debt crisis fully impacts the United States and until the Federal Reserve forces banks to start lending again. And they do have several tools to do that.

They have not employed them yet so beware anybody who tells you that the Fed is out of ammo; that’s not the case. I’ve written about this extensively before.

We’re just not at that point yet where all this money-printing is causing an increase in the velocity and turnover of money and credit and causing inflation.

Silver: Let’s take a look at the monthly chart of silver. You’ll see pretty much the same thing here.

Yes indeed we did get a rally, but silver was unable to even test resistance let alone take out its previous high earlier this year and, of course, the reaction high back in 2011. This is pathetic action in silver. And silver is indeed now starting to break down.

I still believe that silver is going to plummet through $26 and head down to $22-$21. I know I have been wrong on my timing there but I am not going to be buying silver for the next run-up — the next bull phase in silver — until we see a cyclical test of support around the $20-$22 level.

That will likely happen over the next few months, so please be aware of that.

U.S. Dollar Index: I find this awfully interesting as well. The dollar is largely going sideways but with a slightly upward bias.

Given QE III, you would think that the dollar would be plummeting to record lows. It’s not. It’s the flipside of the gold argument.

The dollar is holding its own because there’s so much de-leveraging going on in Europe and movement out of the euro and other currencies around the world into cash, which by default means the dollar. So that’s causing the dollar to have a sideways to slightly higher trading band to it.

I do expect we’re going to see a torrid rally in the dollar coming very soon where we’re going to see it project higher — up to around the 92 level basis on the Dollar Index.


Dow Industrials: The Dow Industrials on a monthly basis give you a very good indication of what’s happening here.

The Dow Industrials is firm. There’s no question about that. That is a sign of its underlying long-term strength.

But here, too, QE III has done nothing to cause the Dow to explode to new highs.

We’re still under important resistance here and the Dow is starting to look like it’s going to penetrate support at the 13,200 level. Once that happens, once we solidly penetrate support at 13,200, we can get a significant pullback in the U.S. stock markets. And I still expect that to happen.


Longer-term, I expect the Dow and the S&P 500 to inflate higher along with gold and commodities. But we’re not there yet. We’re not going to get there until all the money-printing that’s being done by the Fed starts to work its way out into the economy, and that’s not happening right now. Please keep that in mind.

Have a good week. I’ll talk to you again soon.

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Reportclick here.
For more information on Power Portfolioclick here.


Energy & Commodities

Rare Earths: After a Vicious Decline Are Rare Earth Metal Prices Set To Rise?

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Posted by Peter Sainsbury via Materials Risk

on Thursday, 25 October 2012 16:58

Rare-Earths.jpg.492x0 q85 crop-smart

Rare earth metal prices have fallen sharply since mid-2011, some declining by as much as 80% as expectations of rising supplies coincided with declining demand. More recently, prices have shown signs of stabilising. Chinese restrictions on mine output and plans to stockpile materials, coupled with the increased likelihood of problems at mines outside China may mean rare earth metal prices are about to rise.

China reduced its export quota for rare earth metal’s by 27% year on year to 10.5kt for first half 2012 in an effort to stabilise prices and preserve stock. Then, in August, under scrutiny from the World Trade Organisation (WTO) China announced a 2.7% increase in the annual export quota, the first rise in 5 years and the highest quota for 3 years. Although the Chinese export quota for the whole of 2012 is just over 30k tonnes, exports are likely to only amount to around half that amount.

Related Article: Oil Continues Slide Ahead of OPEC Report

In July, the Chinese government announced that it would start to stockpile RMB 6 billion worth of rare earth metal by end October. In addition, there are reports from some Chinese provinces that local governments will look to stockpile rare earth metal in an effort to stabilise prices and support local businesses that got into difficulty following the collapse in prices.

Meanwhile efforts by the Chinese government to restrict illegal mining and the most polluting operators may also help support prices. In August, the government proposed new rules saying that mixed production rare earth metal mines must have a minimum annual output of 20k tonnes with smelters producing no less than 2k tonnes per annum.

Outside of China, new production from US’s Molycorp and Australia’s Lynas Corp was expected to increase the supply of the ‘light’ rare earth metals. Molycorp has reopened the Mountain Pass mine in California with output expected to rise from 3.5k tonnes in 2011 to 19k tonnes by the fourth quarter of 2012. Meanwhile, Lynas was due to start production at its Malaysian mine in October with output forecast at 11k tonnes in the first year eventually rising to 22k tonnes.

Related Article: Invest in Uranium Stocks and Watch Prices Soar: An Interview with Jeb Handwerger

However, mines outside China are not without their challenges. There is concern that Molycorp may have based its business plan on rare earth metal prices significantly higher than current prices and taken on too much debt. Molycorp invested $900 million in revamping the Mountain Pass mine (compared with 2011 revenues of $400 million) while also taking on significant debts to acquire a business in Canada. Molycorp is particularly vulnerable to declining revenues if rare earth metal prices do not rebound, potentially affecting the company’s ability to produce rare earth metal from the mine.

Meanwhile Lynas’ mine in Malaysia has been forced to delay production following a court ruling on environmental grounds. The company is facing stiff opposition from residents nearby after an earlier rare earth metal refinery was shutdown in 1992 after the local population complained of health problems and birth defects. Delays or production difficulties at either of these mines will reduce available supplies of ‘light’ rare earth metals, potentially leading to higher prices.

Companies used to order as much as 6–12 months of rare earth metals at a time. Now, they take a wait-and-see attitude ordering on a month-to-month basis to avoid downside price risk. With signs that rare earth metal prices may be stabilising on Chinese output restrictions and concerns over mine output outside China now may be a good time to revise that attitude and secure longer term.

By. Peter Sainsbury


Peter Sainsbury founded Materials Risk which provides commodity market insights across your supply chain. We provide news and analysis on commodity markets, highlighting the implications for business.




Energy & Commodities

Keystone Pipeline: Investor Rethinking Brings Global Crude Oil Back to Life

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Posted by Commodity Online

on Wednesday, 24 October 2012 09:22

US oil inventories could advance for a third week after output climbed to the highest level in more than 17 years.

Crude oil prices have snapped a three-day declining trend as reports came in suggesting that the Keystone pipeline connecting Alberta and Illinois may take another month to operate in a full fledged way.

The investor community also felt that the current dips in market prices of crude oil could be a bit overdone; it has been a dramatic decline according to many.

Screen Shot 2012-10-24 at 4.19.37 AM

Meanwhile the Keystone pipeline after being closed for treating anomalies have begun operations yesterday. The pipeline has a capacity of pumping 590,000 barrel-a-day of crude oil.

Additionally, Bloomberg reports have suggested that US oil inventories could advance for a third week after output climbed to the highest level in more than 17 years.

Canada's Dreams of Energy Independence Limited by Lack of Pipelines

You are not alone if you think it's odd that Canada--the world's ninth largest exporter of crude oil and petroleum products and the main supplier of oil imports to the United States--is itself a longtime oil importer, importing more than 40 percent of its oil needs this year.

The situation results from historical pipeline development which has left Canada without a major east-west pipeline to bring the huge surplus of oil produced in the western provinces--now primarily from tar sands--to the eastern part of the country. The country's provinces from Ontario eastward currently import a little more than 60 percent of their oil needs from overseas. That may be set to change.

Winston Churchill once said, "You can always count on Americans to do the right thing--after they've tried everything else." It seems he could have been talking about the Canadians and their oil predicament. Earlier this year TransCanada, a major pipeline company, proposed expanding the current pipeline system known as Keystoneto carry more western Canadian crude to America's Gulf Coast. But, the pipeline giant was rebuffed by the Obama Administration in an election-year gambit to satisfy environmentalists concerned about the impact of tar sands development on climate change and water quality. Enbridge, another Canadian pipeline company, has proposed the so-called Northern Gateway pipeline route from the tar sands to the British Columbia coast. From there the oil would be exported to satisfy growing Asian demand. But practically everyone along the Northern Gateway route has lined up against it including the British Columbian premier.

Now, yet another route is being considered, one that would allow TransCanada to live up to its name. The company's latest proposal would take an east-west natural gas pipeline which is now being underused and convert it into an oil pipeline to bring western Canadian crude to currently import-dependent eastern Canada. The plan, which will require regulatory approval, may not face the stiff opposition that the other two projects faced since this pipeline is largely complete. It would require only some additional work to convert it and link it to refineries and storage depots.

Related Article: The Alamo II: Texans Up in Arms over TransCanada Land Grab

The result would be a flow of up to 1 million barrels per day of oil to eastern Canada, more than enough to displace all of Canada's current imports and possibly allow for exports of crude oil from the eastern seaboard. Canadians would still be subject to world oil prices since oil would remain a global commodity that can be shipped to the highest bidder. But, the country would no longer be vulnerable to supply disruptions from abroad and would be in a position to prevent exports if a national emergency warranted it.

With this change Canada would move closer to true energy independence. It currently exports electricity to the United States and imports only a tiny amount of U.S. electricity due to historical infrastructure or regional rate differentials. Canada is the world's second largest producer of uranium, providing 17 percent of global supply in 2011. Therefore, the country does not need to import any for use in its own nuclear power plants. In 2011 Canada was the world's 14th largest producer of coal and exported about 30 percent of its production. Some imports were recorded. The long border with the United States, a major coal producer, sometimes makes U.S. imports more economical depending on the type of coal and the shipping distances. When it comes to natural gas, however, Canada's National Energy Board reports that while the country produces 70 percent more than it needs, it still imports the equivalent of 31 percent of its consumption--even as it exports the equivalent of 100 percent of Canadian consumption to the United States. As with oil, historical pipeline infrastructure dictates this unusual arrangement. But that is a story for a future piece.

The oil industry has been working on a way to get growing volumes of oil out of western Canada cheaply for some time. And, the cheapest way is via pipeline. Producers have been suffering steep discounts to world prices with Western Canadian Select crude oil futures trading in New York at a discount of about $20 per barrel compared to American Light Sweet Crude which itself has been trading at approximately a $20 discount to Brent Crude in Europe. So, the total discount to prevailing world prices for western Canadian crude is currently around $40. It's easy to see why the industry is anxious for a pipeline that will allow it take advantage of higher world prices.

Related Article: President Obama Says That We Have Enough Pipelines - I Disagree!

With opposition running strong against the two alternatives, the oil industry may be forced to consider the TransCanada pipeline conversion proposal to ship oil to eastern Canada, a proposal that happens to coincide with Canada's national interest. But don't expect to hear industry executives whistling "O Canada" at their desks just yet. It's not clear how much support the project will find among those executives.

That support will be critical because the current Canadian government, which must approve the project, has shown itself congenitally incapable of distinguishing between the national interest and the interests of international oil companies. Therefore, the government isn't likely to force the project on the industry even if the pipeline would be a good idea for Canada as a whole. However, if the oil industry ends up embracing the project, the Canadian government will almost certainly rubber-stamp it. And thus, the government and the industry may inadvertently end up doing what has for a very long time been within Canada's grasp and in its best interest, namely, to free the country from imported oil.

By. Kurt Cobb

Company: Resource Insights



Energy & Commodities

Commodity Review: Copper Setting Up For A Move - Oil

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Posted by Ilya Spivak - Daily FX

on Tuesday, 23 October 2012 09:40

Commodity prices continue to look toward US event risk for direction cues as traders weigh the ability of a cautious pickup in North America to offset sluggish performance in Europe and Asia. On the economic data front, the focus is on the Richmond Fed manufacturing activity gauge. Expectations call for an improvement in October, hinting the positive cues seen in September’s releases are carrying forward. Turning to the earnings docket, cycle-sensitive names with a global footprint including United Parcel Service, E.I. du Pont de Nemours and Ryder System are in focus as markets continue to fine-tune their global growth outlook.

On balance, a risk-supportive mix of releases stands to boost gold and silver, where pricescontinue to track broad-based sentiment trends (reflected in a significant correlation with the S&P 500). Copper prices are likewise positioned to take advantage of such a scenario as correlation studies suggest the influence of risk appetite is reasserting itself. Needless to say, disappointing results on the data and/or earnings sides of the equation stand to produce the opposite results.

Crude oil continues to stand aside from the broader risk-on/risk-off dynamic guiding many benchmark assets across the financial markets. With that in mind, the weekly set of inventory figures from API may prove more significant. The monthly trend has pointed to a steady build in crude stockpiles since mid-August. A reinforcement of this dynamic may apply pressure to the WTI contract as prices approach technical support (see below) and may force a breakout. Alternatively, a meaningful drop may offer a lifeline after two days of aggressive selling.

Comex E-Mini Copper (NY Close): $3.622 // -0.016 // -0.44%

Prices broke support at 3.695, the 23.6% Fibonacci retracement, exposing the 38.2% level at 3.608. A Spinning Top candle warns of indecision and hints a bounce may be ahead. The 3.695 level has been recast as resistance, with a push back above that exposing a falling trend line set from the September 14 high (now at 3.755). Alternatively, a break below support targets the 50% level at 3.537.


WTI Crude Oil (NY Close): $88.65 // -1.79 // -1.98%

Prices continue to consolidate above support at 87.66, the 38.2% Fibonacci expansion. Resistance is at 92.25, marked by a falling trend line established from late September, with a break above that targeting a larger downward-sloping barrier set from the February top, now at 97.90. Alternatively, a drop through support exposes the 50% level at 83.76.


.....Gold & Silver on page 2 HERE


Energy & Commodities

Something Big Is Happening in Texas

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Posted by Frank Curzio, editor, Small Stock Specialist

on Friday, 19 October 2012 05:49

This place used to be a ghost town," my friend Cactus told me…  

We were in his mud-covered Chevrolet Silverado, driving by the new Wal-Mart in Karnes City, Texas.

About five years ago, the town's population was less than 3,500. "Main Street" consisted of a gas station, a post office, and a small place to eat. The average household income was about $25,000. And an acre of land cost about $350 in Karnes County.  

That's no longer the case…  

Today, Karnes City is booming with activity.

Restaurants are now packed at lunchtime as workers go on break. Many of them make six-figure salaries. Most of the land now fetches $10,000-$15,000 an acre. That's 3,650% higher in just five years! 

Karnes City sits on top of one of the largest shale formations in the world… The Eagle Ford shale is 50 miles wide and spans 400 miles through the entire state of Texas.  

Most of the towns lying on top of it were small and sparsely populated. But in recent years, they've transformed into "boomtowns" as some of the largest energy companies in the world have moved into the area to take advantage of the region's rich oil and natural gas resources…



The Eagle Ford is the largest oil find in the U.S. since Prudhoe Bay, Alaska, in 1968. I'm sure you've heard plenty about it already. It's mentioned repeatedly in oil and gas publications and on Bloomberg and CNBC.

Despite all the research that's been published, the Eagle Ford is still in its infancy in terms of oil production and exploration…

You see, this shale region is what we call an "unconventional" oil and gas play… meaning it isn't a traditional reservoir, where we can drill a well that acts like a straw and sucks up the oil and gas. Instead, the Eagle Ford is a series of thin rock layers. The oil and gas are trapped between these layers, which makes traditional oil drilling useless.

But thanks to new drilling technologies like "fracking," major oil producers can rejuvenate wells long thought to be dry. Cactus says only 5% of natural gas is recovered – on average – through new drilling methods. For unconventional oil, it's more like 10%.

Cactus Schroeder knows what he's talking about. He's one of the smartest men you'll find in the oil business. He has been drilling for oil in Texas for more than 30 years… with personal interests in over 1,000 drilling projects. And if he's right, five to 10 years from now, recovery rates in the Eagle Ford could double…

Right now, wells in the Eagle Ford are producing 300 to 600 barrels of oil per day. That's more than the Bakken shale that runs through Montana and North Dakota. Total oil production in the Eagle Ford is currently 300,000 barrels per day. Global energy research provider Platts estimates total production in 2016 could reach 1.6 million barrels per day in the Eagle Ford.

According to the Railroad Commission of Texas, there were only 72 oil-producing leases in the Eagle Ford in 2011. In 2011it jumped to 368. This year, the number could easily top 500. And it's just the beginning…

Most energy companies in the Eagle Ford have been exploring areas southwest of Gonzales and DeWitt counties. (You can see this in the map above.) But some of the largest oil companies in the world are just starting to drill in the counties northeast of Lavaca.

Cactus and I drove through most of these counties during our three-day, 400-mile haul through the region. Every few miles, we'd see 100-foot drilling rigs with steel pipe casings stacked up alongside them. The rigs towered next to large water pits. From the passenger seat, I observed 40-man crews preparing to "frack" for oil and gas 5,000-plus feet below the surface.

Within the next decade, oil companies will find ways to recover much more oil from unconventional wells. That's great news for the premier energy companies – like EOG Resources, Pioneer Natural Resources, and Range Resources – that operate in the region. They have huge growth potential. They also have hedging strategies in place to help reduce their exposure to volatile oil prices.

Right now, these three stocks are trading near their 52-week highs. Things could get bumpy over the next few months through earnings season and the presidential election. I suggest using any weakness as a buying opportunity.

Good investing, 

Frank Curzio

P.S. In my latest issue of Small Stock Specialist, I take subscribers into a small area of Texas that Cactus is calling, "The Next Eagle Ford." It's mostly undeveloped… And if Cactus is right, the small company we're buying could double inside 24 months as this oil-rich region becomes the next boomtown. Find out how to access the complete details on this unique opportunity here.

Further Reading:

Porter Stansberry agrees: "We are in the midst of a massive, global discovery phase for oil and gas." He believes buying shares of producers like EOG Resources and Range Resources will create enormous wealth for shareholders. Read more here:How to Own Your Share of the Next Wave of American Oil Wealth.

Dan Ferris shared an unusual way to get in on the energy boom in the Eagle Ford and Marcellus shales. Get the full story here: A Safe Way to Profit from America's New "Millionaire Factories."


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