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."


Energy & Commodities

Pounce Now and Ride the Upswing

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Posted by Jeb Handwerger: The Energy Report

on Thursday, 18 October 2012 16:21

Uranium Stocks Are at Two-Year Lows

Jeb Handwerger, Gold Stock Trades editor, says coal and natural gas lobbyists are kicking the uranium industry while it's down in the shadow of the Fukushima nuclear accident. It's still stormy out there, but the sector may prove be the pot at the end of the rainbow for contrarian investors. In this interview with The Energy ReportJeb Handwerger challenges investors to take a calculated risk on a sector with major potential.


The Energy Report: Jeb, in a September post on www.goldstocktrades.com, you opined that nuclear energy is essentially being kicked while it's down. Can you explain that for our readers?

Jeb Handwerger: We experienced the Fukushima disaster, plus a very risk-off market for most of 2011 and 2012 in commodities and mining equities, with investors concerned about the global economic situation. That added up to two major hits to the uranium sector. In addition, we had many lobbying groups pushing their individual energy sources, such as natural gas, coal, wind or solar, to take advantage of the nuclear slowdown. We also saw a large short position build in many of the uranium miners and we've seen the short-term uranium price correct. At this point, the uranium miners are trading near 52-week lows, and I believe they are extremely undervalued. Even Japan is looking to acquire uranium miners.


TER: You think Japan as a country is looking to acquire uranium miners?

JH: There was a report that Japan Oil, Gas and Metals National Corp. (JOGMEC) is signing a production-sharing agreement with the government of Uzbekistan. It was also interesting that the CEO of Cameco Corp. (CCO:TSX; CCJ:NYSE) went to Japan to try to buy surplus uranium from utilities, but couldn't finalize a deal. This indicates to me that Japan is going to turn some of these reactors back on, especially the newer, safer, more efficient reactors.

Over the next 12–18 months, the uranium sector is going to have a very powerful rebound based on supply-demand fundamentals. So it's very important to watch what the smart money is doing when prices are down and the uranium miners are trading at 52-week lows.

Also, consider the recent deals that have been occurring, including a utility signing an offtake agreement with Paladin Energy Ltd. (PDN:TSX; PDN:ASX) and Chicago Bridge & Iron Co. (CBI:NYSE) buying The Shaw Group Inc. (SHAW:NYSE) for its nuclear building capabilities.

TER: Is most of the nuclear rebound wrapped up in what's happening in Japan or are there other catalysts?

JH: There are other catalysts, such as BHP Billiton Ltd.'s (BHP:NYSE; BHPLF:OTCPK) decision to delay the Olympic Dam expansion because of the $30 billion cost. This delay may have significant impact on the uranium spot market.

We also have the expiration of the highly-enriched uranium (HEU) agreement with Russia soon. The Russians are signaling that there is not going to be any increase of the secondary supply. We are heading toward an even larger uranium deficit right now.

On the demand side, we're seeing the building of new reactors in the Middle East, Saudi Arabia and the United Arab Emirates. We recently saw the power outage in India, which demonstrated the importance and the hunger for power upgrades in that country. That's one of the major areas of growth. India is building something like 42 reactors by 2032. China is going full-speed ahead with nuclear power and is still pushing for 60 new reactors by 2020. We may hear some major announcements after the transition of leadership on November 8th. China is already discussing a major infrastructure program. We believe the nuclear buildout is part of that initiative. The Middle East issues and rising energy prices are really forcing Asia to think more about energy, including nuclear energy and uranium. Demand from China and India alone will push us further into this shortfall. So we don't think these uranium prices will stay at multiyear lows. Get ready for a catapult-like move.

TER: Investors interested in entering the energy sector have a number of options. These include green energy, natural gas, coal and uranium. Where is the best place for them to be right now?

JH: We believe for baseload energy, uranium is providing a very good opportunity right now because it's trading near multiyear lows. Because of the low spot price, the assets are priced as bargains. The upside has great potential. We think that nuclear is the choice of the emerging nations, such as China, India and the Middle East.

There is something very interesting going on in that we're seeing Saudi Arabia and the center of the oil world looking into nuclear energy. This, to us, has significant implications, meaning that maybe peak oil is here and they're realizing that, even in their own society, they can't base it completely on oil, natural gas or coal. If Saudi Arabia, with the largest oil supply in the world, is building nuclear, shouldn't countries dependent on fossil fuels also be looking at alternatives? Both Romney and Obama have goals of being energy independent. Nuclear is a critical part of reaching that goal.

Nuclear is growing in the developed world too. For the first time in 30 years, we're building three nuclear reactors in the U.S. Canada is building reactors. Europe is building reactors in Poland, Finland, Spain and Slovakia. In all of these regions there is significant growth, and it's providing investors with a great opportunity because you're able to get in at 52-week lows.

Most investors don't realize that Europe currently has approximately 160 working nuclear reactors. It has the largest per-capita consumption of nuclear power. Most people don't realize that France, Lithuania, Slovakia, Belgium, Sweden, Slovenia, Hungary, Bulgaria, the Czech Republic and Finland have more than 25% of their electricity coming from nuclear power. Despite that, Europe has only one uranium mine in production. Europe is a major importer of uranium.

TER: Where is that uranium mine in Europe?

JH: It's in the Czech Republic. The other deposit that is in development is European Uranium Resources Ltd. (EUU:TSX.V; TGP:FSE). It has a deposit in Slovakia and recently the nuclear giantAREVA (AREVA:EPA) became a major shareholder and sits on European Uranium's board. Slovakia recently elected a new prime minister who is a major supporter of nuclear energy. The party has officially stated that it believes that domestic assets, such as European Uranium's Kuriskova project, should be developed.

TER: With juniors trading at near 52-week lows, why haven't we seen more consolidation?

JH: We have seen some deals. Cameco raised capital and went into Australia to buy the Yeelirrie uranium project in Western Australia for $430 million ($430M). Rio Tinto outbid Cameco and bought Hathor for a large premium in the Athabasca Basin. I think as the uranium prices bottom and as the large miners' prices increase, we will see more of these deals. There will be more confidence in the sector for mergers and acquisitions activity. And as we get closer to some of these supply shortfalls, such as the 2013 Russian HEU agreement expiring, near-term producers, especially in the U.S.—where there is already a huge supply-demand deficit—the near-term U.S. producers, such as Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT)Ur-Energy Inc. (URE:TSX; URG:NYSE.MKT) and Uranium Energy Corp. (UEC:NYSE.MKT), are going to become more highly sought after by the majors. We may see consolidation in these near-term producers, especially as they begin to produce profitably.

TER: Uranium Energy Corp. is currently producing uranium from its Palangana in-situ deposit in Texas, and it is developing the Goliad in-situ project, also in Texas. Is the success of that company impacting others in the sector? In other words, is this a template that investors can follow with similar companies?

JH: Yes, exactly. When you start seeing new U.S. uranium production, it's a huge boost of confidence for the entire sector. This may impact other companies such as Ur-Energy, which recently received its permits for construction and Uranerz, which has a great position in the Powder River Basin and which already has a processing agreement with Cameco at its nearby Smith Ranch in-situ uranium asset. It already has an offtake agreement with a very large utility at much higher uranium prices, at like I think $60–65/pound (lb). We believe it will shortly receive its final deepwater disposal well permit for production.

TER: Do you think there will be further consolidation in the Athabasca Basin? Or is Texas looking ripe for the picking right now?

JH: You have to look for operations where it is already working, such as in the Powder River Basin of Wyoming with Uranerz or in the Athabasca Basin. Some names there are Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT)UEX Corp. (UEX:TSX) and Fission Energy Corp. (FIS:TSX.V; FSSIF:OTCQX), which could attract a major that is looking for exploration plays modeled after Hathor Exploration's success, using some of the same technical personnel.

Also in the Athabasca Basin is explorer Athabasca Uranium Inc. (UAX:TSX.V; ATURF:OTCQX), with its Keefe Lake property. We expect that it is probably going to do another drill program utilizing Dr. Zoltan Hajnal's seismic technology at the University of Saskatchewan. That might be interesting if a company is looking for an early-stage exploration success. Dr. Hajnal was a critical player in using seismic data to discover Hathor's Roughrider deposit. Athabasca Uranium has millions of dollars of seismic data, which helps the geologists pinpoint exploration targets.

TER: Do you think Cameco or a company like Cameco is more likely to do an offtake agreement or an outright takeover?

JH: Based on Rio Tinto (RIO:NYSE; RIO:ASX) buying Hathor Exploration in 2011 for $650M, we think Cameco will outright buy. Especially in the Athabasca Basin, we think that it is going to do takeovers and have more equity deals. The Hathor deal was very significant for Rio Tinto and the industry. This was the first major takeover since the credit crisis. It may be forecasting a commodity deficit—especially in light of BHP not expanding its Olympic Dam, which hosts a whole wide range of commodities. Uranium is a byproduct of that, and BHP's decision is really based on the economics of other metals and the costs to expand.

Other assets around the globe could be significantly cheaper than Olympic Dam and produce a lot of uranium. U3O8 Corp. (UWE:TSX; OTCQX:UWEFF), which has the Berlin deposit in Colombia, is coming out with a preliminary economic assessment (PEA) by the end of 2012. It has rapidly expanded its resource base over sevenfold. It just announced recent results showing an increase in the size of the deposit, which may be able to go up to 100 million ounces (Moz) uranium. It also has credits for vanadium phosphate and rare earths that are going to pay down the cash costs for the uranium. What's really interesting is that it has shown recently some positive metallurgy. That has always been the concern from the majors about this project. Progress with metallurgy and an official PEA could be the criteria for a major to make a buyout offer. Assets like U3O8's Berlin deposit could become very attractive for the majors who want to expand and produce profitably at lower costs.

TER: Paladin recently signed a $200M offtake agreement with an energy utility, but most of that money will go toward paying down some bonds that are going to be due in March 2013. Is the Paladin Energy situation unique or should investors look forward to more of these deals over the next few years?

JH: I think it shows that the utilities are concerned about long-term supply. Over the short term, we're seeing some weakness because of all of these different macroeconomic situations. That's really where uranium investors need to look, 18–24 months down the road. Yes, we do think that there are going to be more deals like this and that the supply-demand equation is already in a major deficit. Utilities are going to lock in at these record low prices.

TER: What's your strategy for buying these stocks? Are you a buy and hold investor? Are you buying them and then going to exit your positions on a price rally or when uranium gets to $80/lb?

JH: We're contrarian investors. We use a whole mix of signals to buy. Right now, we believe that the sector is hitting 52-week lows and is off investors' radars, making it a great contrarian investment opportunity with possibly exponential gains. When we see that it becomes overbought and extended, as we saw in early 2011, that's when we're going to recommend to sell.

The mainstream is beginning to accept the new nuclear reactors—which are smaller, safer, more economical—and we're even seeing smart investors such as Bill Gates and his company, TerraPower get behind the sector. Major deals are taking place such as the one between Chicago Bridge and Iron and Shaw Group, which is a major builder of nuclear reactors. These large corporate entities see the long-term picture and are investing in nuclear energy's future because it has no carbon footprint and it is safer, cleaner and more economical than all other power sources. We are going to see a lot of growth in the sector over the next 18–24 months. When people see the uranium price basing at lows and there's concern for the future of the sector, those are the opportunities for investors who have the courage and the foresight to realize the upside growth in this burgeoning sector. Investors may look back at this time one day and see it as one of the great investment opportunities that comes around once in a generation.

TER: Let's end on that note. Thank you, Jeb.

JH: Absolutely.

Jeb Handwerger is a newsletter writer who is syndicated internationally and known throughout the financial industry for his accurate and timely analysis of the equities markets—particularly the precious metals sector. Subscribe to his free newsletter.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

1) Brian Sylvester of The Energy Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: U3O8 Corp., Athabasca Uranium Inc., Fission Energy Corp., Uranerz Energy Corp., Ur-Energy Inc., Uranium Energy Corp. and European Uranium Resources Ltd. Interviews are edited for clarity.
3) Jeb Handwerger: I personally and/or my family own shares of the following companies mentioned in this interview: European Uranium, Uranerz, Ur-Energy, Athabasca Uranium, U3O8 and Denison. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.


Energy & Commodities

How to Make a Killing on US Energy Independence

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Posted by John Thomas The Mad Hedge Fund Trader

on Thursday, 18 October 2012 09:55

10-18-12-tmhft-5-dakota-resize-380x300With US energy independence fast emerging as a topic in the presidential election, I thought I’d delve into this topic in greater depth and see how real this possibility is. This will undoubtedly be the most important change to the global economy for the next 20 years.

The energy research house, Raymond James, put out an estimate Wednesday that domestic American oil production (USO) would rise from 5.6 million barrels a day to 9.1 million by 2015. That means its share of total consumption will leap from 28% to 46% of our total 20 million barrels a day habit. These are game-changing numbers.

Names like Eagle Ford, Haynesville, and Bakken Shale, once obscure references on geological maps, are now a major force in the country’s energy picture. Ten years ago North Dakota was suffering from depopulation because of a severe job shortage. Now, the housing shortage is so extreme that itinerate oil workers must brave -40 degree winter temperatures in their recreational vehicles pursuing their $150,000 a year jobs.

The value of this extra 3.5 million barrels/day works out to $120 billion a year at current prices (3.5 million X 365 X $94). That will drop America’s trade deficit by nearly 25% over the next three years, and almost wipe out our current account surplus. Needless to say, this is a huge positive development.

This 3.5 million barrels will also offset much of the growth in China’s oil demand for the next three years. Fewer oil exports to the U.S. also vastly expand the standby production capacity of Saudi Arabia.

If you want proof of the impact this will have on the economy, look no further than the coal (KOL) and rail stocks (UNP) which have been falling in a rising market. Power plant conversion from coal to natural gas (UNG) is accelerating at a dramatic pace. That leaves China as the remaining buyer, and their economy is slowing.

It all makes the current price of oil at $94 look a little rich. As with the last oil spike three years ago, this one is occurring in the face of a supply glut. Cushing, Oklahoma is awash in Texas tea, and the Strategic Petroleum Reserve stashed away in salt domes in Texas and Louisiana is at its maximum capacity of 727 million barrels. Concerns about war with Iran, fanned by elections in both countries, have taken prices up from $75 in the fall. This is why I have been smashing every $6 rally in oil, advising readers to go short.

My oil industry friends tell me this fear premium has added $30-$40 to the price of crude. The current run-up isn’t going to take us to the $150 high that we saw in the last cycle. It is also why I am keeping oil companies with major onshore domestic assets, like Exxon Mobile (XOM) and Occidental Petroleum (OXY), in my long-term model portfolio.






About the Author

John Thomas-resize-100x100

The Mad Hedge Fund Trader

John Thomas writes the Diary of a Mad Hedge Fund Trader



Energy & Commodities

Bad News: Oil is Going Higher

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Posted by Brian Hicks - Energy & Capital

on Thursday, 11 October 2012 11:49

"The age of plateau oil is also the age of price-sensitive oil. All the cheap, easy oil is gone.

The only question is how do we deal with that reality.

What are we willing to pay for? Generally $70 to $90 is the transition range. Below $90 a barrel some production becomes marginal. Below $80 you start to see decrease in production. And $70 is the floor." Comment by Ray Leonard, president and CEO of Houston-based Hyperdynamics Corp.

Peak Oil doesn't mean we have run out of oil. Quite the contrary: Planet Earth willnever run out of oil.

What Peak Oil means (and has always meant) is it will cost us more resources to produce the oil that's leftover.

It's all about accessibility. The more accessible a resource is, the cheaper it is to get. The less accessible, the more it will cost... pretty straightforward, if you ask me.

So, what's happening today?

1) A fracked well (say, in the Bakken) is way more expensive than non-fracked wells. On average, each well in the Bakken costs between $7 to $10 million to drill.


chart 1 brian1011

.....read more of this extensive analysis by Brian Hicks - Energy & Capital HERE


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