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Energy & Commodities

Oil Sands/Shale Oil: Pay Attention To This Important Oil Chart…

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Posted by Matt Insley - The Daily Resource Hunter

on Monday, 05 November 2012 08:45

There’s a lot of news set to hit the wires this week – but none may hold a candle to what the price of oil has to say.

Since the market recovery of 2009 the price of crude has been a great benchmark for what the economy is doing. Higher crude means a rosy outlook, while lower crude stirs up “double dip” recession worries.

“It’s the oil, stupid!” would be the party platform I’d adhere to these days. With that said, let’s take a look at our crude barometer and see what the market is really saying…

For the past 24 months oil has locked into a $30 trading range from $80-110. Both above-$100 spikes occurred around increasing Middle East turbulence – where fears of a supply disruption were highest. And each low below $80 was caused by economic malaise and recession fears – bad jobs reports, manufacturing data, you name it.

Here’s a look at the chart that every oil trader needs to know…

NotTooHot

 

So where can we expect to head from here? Let’s take a look at the most pressing details…

First things first, remember, oil is a physical commodity. To put the oil market in perspective today – what with Hurricane Sandy brining a physical shortage of power and commodities to the New Jersey area – it’s important to note that at any point in time the U.S. has right around 25 day’s worth of crude oil in stock.

So if there was ever a catastrophic global event, barring any release of strategic reserves, we’d have approximately 25 days of “energy-as-usual.” But after that point we’d be back to the Stone Age. Yikes! That’s the kind of danger we’re talking about when it comes to physical commodities!

Luckily over the past three decades (since the gas lines seen in 1973 and 1979) oil has been readily available. But that doesn’t have to be the case. Looking at the spikes in the chart above, it’s clear that oil traders don’t always think the outlook for global oil is all that rosy.

Looking at the big picture, here in the U.S. we’re getting an extra boost of luck (or is it skill?) from the shale oil boom. The next decade could hold turbulent times for global oil users – with a boiling Middle East and a rising China. But in a positive twist of fate, the oil pumps in America’s shale patch are bobbing up and down at a faster clip than just a few years ago.

And from what I’ve heard out in the field the breakevens for the most efficient producers are quite impressive.

 

The North Dakota’s Bakken formation, according to the folks at Statoil, can produce oil at $50-60 a barrel. And we could soon see over 1 million barrels of oil a day (bpd) coming from the Roughrider State.

 Down in the Eagle Ford formation in South Texas, according to the folks at ConocoPhillips, oil can be produced at $37 a barrel! The Eagle Ford is the big boy on the block when it comes to new oil production for the U.S., and could produce nearly 1.8 million bpd in just a few years.

Although these breakevens may not be the norm, they do shed light on the fact that efficient producers can still make a lot of money with oil prices north of $80.

But that may not be the same sentiment coming from our neighbors to the north, in Alberta, Canada’s oil sand region.

“Amid rising costs, gyrating prices and a burst of supply competition down south” the Wall Street Journal reports, “Canadian oil companies are rethinking investment in one of North America’s earliest and fastest-growing “unconventional” oil frontiers—Alberta’s oil sands.”

“The new caution concerning oil sands in Canada” the article continues, “comes amid sharply rising costs for everything from labor to construction material and contracting. These days, even the most cost-efficient oil sands producers need U.S. benchmark prices of at least $50 a barrel to justify investment in new projects, executives and analysts figure.”

So you see, $50 is about as low as oil sand operations can go. But many of the operations, including any synthetic crude production have a breakeven closer to, or north of, $100. According to a report released this summer from Bank of America Merrill Lynch, one of Canada’s big oil sand producers may need oil over $113/barrel to bank a profit.

Add it all up, and the U.S. could find itself in a very enviable position in the North American oil game. Producing oil cheaper and more efficient could lend itself to increased production in the states and a cool down of oil-sand crude from Canada.

Profiting from this situation comes down to breakeven. And between you and me, I believe the U.S. is set to win this game – at least in the next 3-5 years with shale oil producers optimizing current production techniques.

So that’s where our oil logic stands today. Looking at the big picture if the rest of the world stays turbulent and less oil-filled than North America, and if oil sand operations don’t pose an over-supply threat, I look for prices to remain strong. You can count on spikes to the top area of that chart above.

Remember, the two million bpd upswing (coming from increased production in the Bakken and Eagle Ford) isn’t happening anywhere else in the world. And although an extra two million barrels flowing through our domestic pipelines can create a solid boom for North America, it represents only 2-3% of world oil production. That means world oil dynamics can still impact the price of oil, to the upside.

Of course a recession-based market correction could send the price of oil below the $80 mark on the chart above. But so far the price of oil has remained resilient, signaling a recession-free future.

If that remains the case, this U.S. energy trend bodes best for domestic producers. And, of course, their dividend payouts.

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter

 

About Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he’s stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

Special Report: Wait until you see what could happen in America next… An unbelievable phenomenon is set to sweep the nation... The railroad, steel, and technology age - this phenomenon triggered them all. And now it’s taking shape again! Watch this special, time-sensitive presentation now for full details on how it could affect your job… your lifestyle… and your wallet. Here’s How…

 



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Energy & Commodities

Astounding Oil Drilling Projects = Dollar Bills for a Dime

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Posted by Brian Hicks - Energy & Capital

on Friday, 02 November 2012 02:34

With all the talk about the fracking boom under way in the Bakken, Marcellus, and Eagle Ford, we forget there are other earth-shattering drilling projects and technologies going on around the world.

Now, two weeks ago I told you about a new technology that's emerging in America's oil and gas-rich shale formations...

It's called "well pad drilling," or "multi-well pad drilling."

Multi-well pad drilling allows companies to drill four to ten wells on a single pad site.

Historically only one well was drilled on a pad site, but with the revolution in horizontal drilling, companies can spread out their drill bits from a single pad site — almost like tentacles of an octopus.

It's estimated that multi-well pad drilling can double the recovery rate of oil in North America.

As American companies perfect horizontal drilling and hydraulic fracturing with multi-well pad drilling, another technology is quickly emerging on the scene.

And it's being utilized by "old oil" companies...

In fact, this method — called "extended-reach drilling" — recently helped Exxon destroy a record for drilling depth.

From the Russian island Sakhalin (just north of Japan), Exxon drilled onshore wells to a depth of 12,376 meters.

That's over 7.5 miles down into the earth.

It then turned the drill bit and drilled horizontally for 11,745 meters to reach the offshore Odoptu oil field...

brian image1 1031

brian map 1031According to media reports:

Exxon, the world's largest oil company, has completed drilling the world's deepest well in the Chayvo oil field on the Sakhalin Shelf in the Russian Far East.

The shaft of well Z-44 is 12,376 meters deep — the equivalent of 15 times the height of the world's tallest skyscraper, the Burj Khalifa in Dubai.

"We are proud of this achievement, which furthers the successful implementation of this remarkable project," ENL chief James Taylor is quoted as saying.

Six of the world's ten deepest wells, including Z-44, have been drilled in Russia for the Sakhalin-1 project using ExxonMobil drilling technology — the so-called "fast drill," Taylor added.

Chayvo is one of the three Sakhalin-1 fields and is located off the northeast coast of Sakhalin Island in eastern Russia. The Sakhalin-1 project is being developed by an international consortium led by ENL, which holds a 30% stake, the Japanese SODECO (30%), India's ONGC Videsh Ltd (20%), and subsidiaries of Russian oil major Rosneft, RN Astra (8.5%) and Sakhalinmorneftegaz Shelf (11.5%).

The total project is estimated to cost $10-$12 billion. The fields of Chayvo, Odoptu, and Arkutun-Dagi are estimated to yield 2.3 billion barrels of oil and 17.1 trillion cubic feet of natural gas.

The total resource value of these three fields is estimated to be above $200 billion.

But this is just the beginning...

Extended-reach drilling allows companies to go after reserves that were previously too costly and out of the reach of traditional drilling methods (sound familiar?).

In other words, oil reserves that have been known about for decades — but weren't produced because of economic and technology constraints — are now open for business.

The oil and gas singularity is here.

Forever wealth, 

Brian Hicks Signature

Brian Hicks

Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth DailyEnergy & Capital, and the H & L Market Report. Known as the "original bull on America," Brian is also the author of Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century, published in 2008. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox, and countless radio shows. For more on Brian, take a look at his editor's page.

 



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Energy & Commodities

We Have Been Warned!

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Posted by GE Christenson aka Deviant Investor

on Tuesday, 30 October 2012 08:26

Bernanke announced on September 13, 2012 a massive “money printing” program – QE3 – that will increase the money supply, help the large banks, create more commodity price inflation, and lower the standard of living of most of the middle class in the United States. Read what other authors had to say about QE3: We Have Been Warned! – Part 2

It is relatively easy to predict further commodity price inflation and that hard assets, not paper assets, will help protect purchasing power. But it is much more difficult to project where else this money printing leads and to what extent a crash is inevitable. What is the endgame? Will it be another financial crash such as in 2008? Or will it be a more destructive financial and economic crash that causes a severe but temporary disruption in the delivery of goods and services?

Jason Hamlin wrote regarding the United State national debt, as well as the sovereign debt of most other countries. His conclusions were:

  1.  “Raising taxes will not solve the problem. We could raise the tax rate to 100% and the government would   still not be able to get outof debt.
  2. Cutting spending (austerity) will not solve the problem. We could cut every non-essential government service and the government would still not be able to get out of debt.
  3. Inflating away the debt will not solve the problem in the long term. It will only kick the can down the road, exasperating the final crisis and making everyone pay for the poor decisions of a small group of lenders.

Solutions

So then, what is the solution to the debt crisis in Europe, the U.S. and around the globe?

The immediate default on all fiat debt.” (Worldwide Debt Default is the Only Solution)

 

....continue reading how the endgame will end by 7 more analysts including Michael Pento, Charles Hugh Smith, Egon von Greyerz, Chris Martenson, Vincent Cate, Nick Barisheff, John Rubino and the Conclusion HERE

warning-challenges

 

 



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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.

chart1

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.

chart3

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.

chart4

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.



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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

About 

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.

 

 



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