Energy & Commodities

Disaster Hits Canada’s Oil Sands

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Posted by Nick Cunningham - Oilrice.com

on Tuesday, 10 April 2018 06:55

transmountainPoliticians terrified of environmentalists and in favor of anti-business politicial philosophies consider that the $47 billion in government revenue that would have come from the Kinder Morgan pipeline just isn't that important. Tell that to the people that were going to do the 800,000 man hours of work on the project - R. Zurrer for Money Talks

Kinder Morgan said it would halt nearly all work on a pipeline project that is crucial to the entire Canadian oil sands industry, representing a huge blow to Alberta’s efforts to move oil to market.

Kinder Morgan’s Trans Mountain Expansion is the largest, and one of the very few, pipeline projects that has a chance of reaching completion. Alberta’s oil sands producers have been desperate for new outlets to take their oil out of the country, and the decade-plus Keystone XL saga is the perfect illustration of the industry’s woes.

Keystone XL is still facing an uncertain future, and with several other major oil pipeline projects already shelved, there has been extra emphasis on the successful outcome of the Trans Mountain Expansion. That is exactly why Canada’s federal government, including Prime Minister Justin Trudeau, has gone to bat for the project.

But, despite federal approval, Trans Mountain still faces a variety of obstacles that have bedeviled the project for some time. It appears that opposition from First Nations, environmental groups, local communities affected by the route, and the provincial government in British Columbia have forced Kinder Morgan to throw in the towel, at least for now.

Kinder Morgan said on Sunday that it suspended most work on the $5.8 billion Trans Mountain Expansion.

Environmental groups hailed the announcement. “The writing is on the wall, and even Kinder Morgan can read it. Investors should note that the opposition to this project is strong, deep and gets bigger by the day,” said Mike Hudema, climate campaigner with Greenpeace Canada, according to Reuters. Related: Russia Wants To Drop Dollar For Oil Payments

Kinder Morgan’s CEO Steve Kean said the project would be scrapped unless the legal challenges could be resolved by May 31. The announcement sparked a sense of panic among various Canadian politicians. “We are determined to find a solution. With all our partners, we continue to consider all available options. As our Prime Minister has said, this pipeline will be built,” Canada’s Federal Natural Resources Minister Jim Carr said in a statement.

Alberta’s Premier Rachel Notley, not surprisingly, sounded more alarmed. She took to Twitter to not only lash out at British Columbia, but also vow that her province would push the pipeline, even if it meant taking a public stake in the project.

However, Kinder Morgan actually didn’t sound all that optimistic, despite heavy support from Ottawa and Alberta.

“We will be judicious in our use of shareholder funds. In keeping with that commitment, we have determined that in the current environment, we will not put KML shareholders at risk on the remaining project spend,” Kean said in a statement. Kinder Morgan Canada said the project faces “unquantifiable risk,” noting the threats made by the BC government to kill the project. The company had already spent over C$1 billion preparing the project but hadn’t yet commenced construction. The beginning of construction would mean spending would jump to $200 to $300 million per month, a level of spending that the company says is too risky given the uncertainty.

“The fact remains that a substantial portion of the Project must be constructed through British Columbia, and since the change in government in June 2017, that government has been clear and public in its intention to use 'every tool in the toolbox' to stop the Project,” Kinder Morgan Canada’s Keane said in a statement. “The uncertainty created by BC has not been resolved but instead has escalated into an inter-governmental dispute.”

Kinder Morgan Canada saw its share price fall by 10 percent on the news during midday trading on Monday. Related: Continuously Rising Energy Costs Will Cripple The Economy

“This is not good. I think the key point is it shows a lack of confidence in our political and regulatory system,” said Tim Pickering, president of Auspice Capital in Calgary, told Reuters.

Western Canada Select (WCS) has traded at a steep discount relative to WTI, at times widening to as much as $30 per barrel. With WCS prices wallowing in the mid-$30s per barrel, heavy oil producers are missing out on some C$30 to C$40 million per day in revenues, according to Reuters.

The pipeline is critical for Canada’s oil sands. The IEA has forecasted that Canadian oil production already began to exceed takeaway capacity last year, and the pipeline shortage could last for several more years even if Trans Mountain Expansion moves forward. But, if Trans Mountain is killed off, that would be nearly 600,000 bpd of capacity that won’t come online. That raises questions about when and if the bottleneck will ever be addressed. That threatens to prevent new capacity from coming online in the years ahead.

“If we cannot reach agreement by May 31st, it is difficult to conceive of any scenario in which we would proceed with the Project,” Kinder Morgan Canada said in a statement.

By Nick Cunningham of Oilprice.com

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Energy & Commodities

MARKET MELTDOWN CONTINUES: Gold & Silver Prices Begin To Disconnect

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Posted by Steve St. Angelo - SRSRocco Report

on Tuesday, 03 April 2018 06:22

While everything else has been getting smashed down, Gold and Silver were two of the few assets that were up within the overall carnage. This analyst makes the case that this is the result as investors begin to switch from building wealth to protecting wealth - R. Zurrer for Money Talks

MARKET MELTDOWN CONTINUES: Gold & Silver Prices Begin To Disconnect

As the BLOOD continues to run on Wall Street, gold and silver were the few assets trading in the green today.  As I have mentioned in past articles and interviews, investors need to get used to this sort of trading activity.  Even though the Dow Jones Index ended off its lows of the day, it shed another 458 points while the Nasdaq declined 190 points and the S&P fell 60.

As the broader markets sold off, the gold price increased $15 while silver jumped by $0.25.  However, if we look at these markets during their peak of trading, the contrast is even more remarkable:


At the lows of the day, the Dow Jones Index fell 730 points or 3%, while the S&P 500 fell 3.2% and the Nasdaq declined by 3.8%.  Also, as I expected, the oil price fell along with the broader markets by dropping 2.7%.  If individuals believe the oil price will continue towards $100, due to supply and demand fundamentals put forth by some energy analysts, you may want to consider one of the largest Commercial Net Short positions in history.  Currently, the Commercial Net Short position is 738,000 contacts.  When the oil price was trading at a low of $30 at the beginning of 2016, the Commercial Net Short position was only 180,000 contracts.

Furthermore, if we agree that supply and demand forces are impacting the oil price to a certain degree, does anyone truly believe oil demand won’t fall when the stock market drops by 50+%???  I forecast that as market meltdown continues, the oil price will decline as oil demand falls faster than supply.

Now, when the markets were at their lows today, gold at its peak was up $20 while silver increased by $0.44.  Of course, this type of trading activity won’t happen all the time, and we could see a selloff in all assets some days.  But, once the Dow Jones Index falls below 19,000, investors will likely start to move into gold and silver in a much bigger way.

If we look at the following stocks and indexes from the peaks set in 2018, clearly, there’s a long way to go before the bottom is in:



Energy & Commodities

Crude Oil - Sharp PullBack In Progress

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Posted by Nadia Simmons & Przemyslaw Radomski

on Wednesday, 28 March 2018 06:56

Crude Oil is currently scratching at recent highs, but this analysis makes a strong case we will see an immediate drop back $5 to $6 in the next 5-10 days. Click on all chart for larger versions - R. Zurrer for Money Talks

Crude Oil – Hello Elliott, My Old Friend…

The test of the resistance line, the triangle apex reversal, the a-b-c waves in the zigzag pattern… What connects them? Give us 28 paragraphs and 974 words and you will see that these seemingly mismatched concepts will form a meaningful and promising scenario

Technical Analysis of Crude Oil

Let's start with the well-known daily chart (charts courtesy of http://stockcharts.com).


In our Monday’s Oil Trading Alert, we wrote that oil bulls took control shortly after the opening of the Friday session (…) and climbed to the major resistance zone, which stopped light crude’s rally at the end of January, triggering declines in the following weeks.

Will history repeat itself once again and we see similar price action in the coming days?

As you see on the daily chart, the red resistance zone created by the previous 2018 peaks is currently reinforced by the upper border of the green rising trend channel, which suggests that reversal may be just around the corner – especially when we factor in the fact that the daily indicators increased to their overbought areas, which could translate into sell signals in the very near future.

From today’s point of view, we see that the situation developed in tune with our assumptions and crude oil reversed and pulled back after the test of the upper border of the green rising trend channel, which suggests further deterioration in the coming days.

But will we really see the next downward move in near future? After all, oil bears disappointed us many times during the last month, so why should it be different now and why we should trust them?

The Reasons

First, the bears have on their side the above-mentioned strong resistance zone, which successfully stopped their opponents two times earlier this year.

Second, the Stochastic Oscillator generated the sell signal.

Third, Elliott wave theory

What do we mean by that? Let’s examine the chart below.



Energy & Commodities

Game theory perfectly explains why OPEC members are going to cheat

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Posted by Businessinsider.com

on Wednesday, 28 March 2018 06:28


Game theory postulates that rising oil prices increases the payoff for OPEC members to cheat on their deal. Game Theory is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers" and is mainly used in economics - R. Zurrer for Money Talks 


  • OPEC members have a deal to cap production levels until December.
  • Oil prices are rising. 
  • When prices are higher, there is less incentive to cooperate with production caps. 

With oil prices rising, Organization of Petroleum Exporting Countries members are facing a dilemma.

Extending output caps means making more room in the market for non-member competitors, and coordinating a higher amount of output means lowering prices. So they might not do either, and game theory could help explain why. 

"Game theory suggests that higher oil prices increase the pay-off from cheating on the deal, which means that compliance could fall in 2018," Thomas Pugh and Liam Peach, economists at Capital Economics, wrote in a note to clients this week. 

West Texas Intermediate crude oil has stayed above $60 a barrel most of this year, only falling during a major market selloff in February. And as prices rise, non-OPEC production is increasing. In November, US shale producers hit a record high for production, pumping more than 10 billion barrels a day.  

For an individual country focused on maximizing revenue, producing as much oil as possible is usually the dominant strategy — what players should do regardless of the actions of other players.

But when everyone amps up production, it puts downward pressure on prices. In game theory, this is an example of the prisoner's dilemma. Because everyone acts out of self-interest, players end up in a worse scenario than if they collaborated. 

This is where OPEC collusion comes in. Member countries — Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia and the United Arab Emirates — act as a single supplier. 

But as prices rise, it creates more incentive for members to cheat and produce more. Because marginal revenue is higher than at lower prices, there is greater payoff from raising output — even in the face of production caps. 

At the same time, the opportunity cost of complying also becomes greater. 

"Cutting output to counter the effect of rising non-OPEC production would require giving up increasing amounts of market share and revenue," Pugh and Peach added. 

....also from Business Insider: Trump wants to go after Amazon



Energy & Commodities

Cracks Now Appearing In The World's Major Oil Industry

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Posted by Steve St. Angelo - SRSRocco Report

on Monday, 26 March 2018 06:10

Oil companies that have been around for more than half of a century going bankrupt? With the sell-off in the Stock Markets & the negative issues plaguing the U.S. shale energy industry spreading to the Oil Majors, Steve St. Angelo makes the case it’s just a matter of time before they do  - R. Zurrer for Money Talks

As the sell-off in the broader stock markets intensifies, it will be bad news for the world’s largest oil companies.  Why?  Because cracks are already beginning to appear in the biggest and most profitable global oil companies.  While rising costs and higher debt levels have been plaguing the U.S. shale oil industry, these negative factors are now impacting the major oil companies as well.

When the oil price fell below $100 in 2014, it spelled doom for the U.S. and global oil industry.  As oil prices continued to decline, energy companies were forced to increase their debt and reduce their capital expenditures (CAPEX).  Cutting CAPEX spending while adding debt aren’t a good recipe for positive financial earning in the future.

According to several energy analysts, they believe 2018 will be a turnaround year for the major oil companies.  Unfortunately, the fate of the price of petroleum and the oil companies are tied to the broader markets.  When the markets rise, it’s good for the oil price and energy companies, and when the markets fall, then the opposite is true.  However, the next major market selloff will likely cause irreversible damage to the global oil industry.

Investors need to realize that the global oil industry required $120+ oil in 2013 to replace reserves and bring on more oil production.  When that price level was not obtained that year, oil companies began to cut CAPEX spending even before the price fell below $100 a barrel in 2014.  Today, with the price of oil trading at $64, it is approximately half of what the global oil industry requires to fund new production growth.

So, there lies the rub.  Even though oil companies are more profitable currently, it was achieved by destroying future production.  As we can see in the chart below, CAPEX spending in eight of the largest global oil companies fell 56% from $245 billion in 2013 to $109 billion in 2017:


Yes, it’s true that a lower oil price forces oil companies to cut CAPEX spending to remain profitable, but it will also negatively impact their earnings in the future.  While all the major oil companies cut their CAPEX spending significantly over the past four years, Brazil’s Petrobras and ConocoPhillips both reduced it the most by 70%.

Now, to offset the falling oil price, many of the oil companies resorted to adding more debt to pay shareholder dividends or to fund CAPEX spending (or both).  For example, Shell’s long-term debt increased from $36 billion in 2013 to $74 billion in 2017 while ExxonMobil, one of the most profitable major oil companies in the world, saw its debt increase significantly from $7 billion to $24 billion during the same period:



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