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Oil Update: The Iraqi Crisis PDF Print E-mail
Written by Uncommon Wisdom   
Wednesday, 18 June 2014 05:49

 Right after the Iranian Revolution and their oil embargo in 1980 the oil supply disruptions from Iran caused oil prices to spike. This was one of the main causes of a severe U.S. recession. Inflation and interest rates went to double-digits.

Over 30 years later, unfortunately, the conflicts in the Middle East are worse.

Last week Sunni militants seized control of major cities in northern Iraq.

A group called the Islamic State of Iraq al-Sham is behind the latest attacks. ISIS, as the media calls the group, came across the Syrian border last Tuesday, captured the city of Mosul and may be looking to close in on Baghdad.

Kurdish nationalist forces also took control of Kirkuk as Iraqi government forces apparently fled.

Below is a map of the area of conflict:

061814-img-01

Islamic extremists, in particular ISIS, would like to redraw the Middle Eastern borders that the British and French established.

According to the Wall Street Journal, they would like to establish an Islamic state from the coast of Syria through Iraq, which was recognized in the seventh century, after Mohammed's death.

The current crisis could cause disruptions to oil supplies.

Iraqi Oil Production &
Proved Oil Reserves

According to the U.S. Energy Information Administration, Iraq has about 141billion barrels of proved reserves.

Below is a chart of Iraqi production:

061814-img-02

Iraq production has increased dramatically thanks to their abundant reserves, global capital, workers and technology. They produce about 1% of their proved oil reserves per year.

Yet, for the amount of oil they have, they are relatively small oil producers.

By contrast, according to the U.S. Energy Information Administration, the U.S. has about 27 billion barrels (equivalent) of proved reserves. But we produce about 4 billion barrels a year, close to 15% of our proved reserves.

We are the No. 2 petroleum producer in the world.

The world uses about 90 million barrels per day of oil, so the Iraqis' share of global supplies is only about 4%. Other world producers could make up the difference.

The Chinese buy about 50% of Iraqi oil and are major investors in Iraq. They have outbid and out-negotiated other investors, including the U.S.

In fact, the Chinese have been the main beneficiaries of Gulf War II.

Other major investors in Iraq include the British, Russians and the U.S.

The Global Oil Supply Could Lose Its Current Surplus

Below is a chart about the spare capacity from OPEC:

061814-img-03

The spare capacity is basically the output of Iraq. So if we have total supply disruptions, this would cause nervousness in the oil markets ... and they would continue to spike.

Below is a longer-term trend picture for Iraq.

061814-img-04

At the beginning of Gulf War II, production fell to about 1.5 million barrels per day. This means the surplus would be about 2 million, and that is still too small.

The rest of the oil producers in the world could make up the difference if there are more supply disruptions.

Unfortunately, a disruption — or multiple disruptions at once — could occur at any time due to more terrorist attacks on supplies in the Middle East and Africa, maintenance issues, weather (including hurricanes), oil spills and worker strikes, among other reasons.

But don't expect producers to go down without a fight. There are some silver linings to be found, particularly for energy investors.

The oil boom of Northern Iraq's Kurdish oil is an optimistic development after the end of Gulf War II.

Northern Iraq and the Kurds

Iraq is basically divided among three groups: the Shiites, Sunnis and the Kurds in the north.

The Kurds have a lot of oil (it's estimated they have 45 billion barrels and 10 trillion cubic feet of natural gas). And so far they are defending their territory.

The Kurds claim they have 190,000 troops and are committed to keep the ISIS out and to keep oil flowing.

Reports from different sources say that ISIS has between 4,000 to 14,000 troops.

The Northern Iraq/Kurdish territory is semi-autonomous of Baghdad. Recently the Kurds sent 2 million barrels to Turkey to go to global markets.

Also, at this point, it's not believed ISIS wants Kurdish territory (again, please see the map at the top of this issue).

Regardless, ISIS is certainly making waves with each move it makes right now.

Past Oil Spikes

Below is a long-term chart for oil:

061814-img-05

As we can see from the chart, after each spike, prices fall quicker than the rise.

Below are the causes of the spikes on the chart:

  1. Gulf War I
  2. 9/11 and fear of oil disruptions
  3. Gulf War II
  4. Hurricane Katrina
  5. For decades, there were always global oil surpluses, except for oil embargoes and wars in the Middle East. By the early 2000s and with strong demand coming from China, global oil producers had a difficult time keeping with global oil demand.

The gap between oil demand and production from 2004 to 2008 shrunk from "abundance" to a "very small surplus" of about 2 million barrels a day.

This made oil markets nervous, and caused risk premiums in oil prices to rise.

Also, notice that volume surged. Trend-followers and momentum players jumped on rising prices, exaggerating the trend in oil prices.

Demand fell in 2009, and a surplus in oil increased. But we may be back to a very low surplus, and risk premiums are rising again because of the crisis in Iraq.

Will trend-followers exaggerate the rise in oil prices, as they have in the past?

The next resistance is about $110, and then round numbers would be potential resistance levels: $120, $130, etc.

The $150 level is the last historical high, and would be major long-term resistance.

If prices went to $150, we could expect a global recession, and oil prices would fall again because of lower demand.

The conflict in the Middle East was in full bloom when I started my investment career 34 years ago. The religious civil wars among Muslims in the Middle East that started about 1,400 years ago will probably be around in another 34 years and beyond.

Here in the near term, the Kurds will likely keep the oil flowing, and the momentum traders will continue keeping things interesting in the oil markets. And I'll be looking for ways to help you to profit, so stay tuned to this space each week for my updated outlook.

Sincerely,
Dan Hassey

 

P.S.  Recently, my colleagues James DiGeorgia and Geoff Garbacz modified a little-known military technology to predict the direction of the stock market with pinpoint accuracy.

Doing so has allowed their newest trading system to achieve a remarkable 95% winning percentage this year. Click here to see how they did it >>

 

 

 
Prepare for $4 Gas While You Still Can PDF Print E-mail
Written by Peter Coyne Matt Insley Byron King - The Daily Reckoning   
Tuesday, 17 June 2014 05:09

 

  • GasPriceTimes were tough when a gallon of regular fetched $3.58 last year… Are you ready for $4 per gallon and more? We show you how to prepare...
  • Think it’s unlikely? $4 gas is in the cards, says Matt Insley, and sooner than you think. It’s all because of the "Middle East Effect"...
  • Then, Byron King explains how the U.S. struck shale oil at just the right time. Yes, the Middle East might be going up in flames… and oil prices will head higher… but that doesn’t mean you can’t carve out a slice of America’s New Age of Wealth for yourself...

Peter Coyne, explaining the chances of $4 dollar gas...

“I just really think that something could be done about the gas prices,” Natalie Hay told her local Orangeburg paper in South Carolina last year as she stood at the pump.

Thanks to still-pricey gas, this ordinary woman had canceled her Independence Day travel plans because she had to pinch pennies.

“I understand everybody has to make a profit,” Hay humbly explained, “but... these gas companies mark record-making profits yearly and the working people are struggling.

“Us working people gotta live.”

Jimmy Weathers, one of “us working people” from Bowman, S.C., agreed. “They need to get on down,” he told the same reporter. With a Ford pickup, Weathers gets 11 miles to the gallon. Maybe 12, if he’s lucky.

That means he needs to consolidate his trips… and stay at home a lot more. He’s essentially lost his freedom. “I am on disability,” he explained, “and I can’t afford to go anywhere.”

Perhaps you can empathize.

If not, a third motorist, Dan Brown, who was from out of town, felt a little differently.

Today, gas prices are lower than in 2008 yet slightly higher than in July 2013.

Coming from Asheville, N.C., where prices had been even higher, he threw in his perspective. “I think they are pretty low,” he said of South Carolina’s gas prices. “It is not as bad as it has been.”

Brown had a point, too. At the time the three talked to reporters, in July of last year, U.S. gas prices averaged $3.58. That was bad enough. But at their peak in 2008, the average was $4.12.

Today, gas prices are lower than in 2008 yet slightly higher than in July 2013. At writing, a gallon will cost you $3.68 on average. Again, that’s bad. But perhaps you should count your blessings...

Because there’s a good chance prices will head back to $4 by the end of the year.

For your editor, it roughly means his ol’ bucket -- a 2004 Honda Civic -- will cost him at least 12 bucks more per month to drive. And our fiancee’s Audi SUV will cost an additional $20 per month. And it only goes up from there. We’re overjoyed at the thought. How about you?

By way of background, oil prices have been rising over the past week. This morning, a barrel of West Texas Intermediate fetches $106.91. The proximate cause, if you haven’t see it on the internet, is Iraq’s descension into worse-than-normal chaos.

It’s the same old Middle Eastern story -- Sunnis vs. Shiites -- just different characters. ISIS, or the Islamic State of Iraq and Syria, a group too crazy even for al-Qaida, has been blitzkrieging Iraq. Approaching Baghdad one captured city at a time.

That gets us back to $4 gas and your wallet...

ISIS, or the Islamic State of Iraq and Syria, a group too crazy even for al-Qaida, has been blitzkrieging Iraq.

“While the U.S. only receives about 300,000 barrels of Iraqi crude per day,” explains senior petroleum analyst atGasBuddy.com Patrick DeHaan, “the concern is about the other 3 million or so barrels per day that Iraq pumps, which could be at risk of disruption.”

To give depth to DeHaan’s statement, Iraq was the world's seventh-largest oil producer in 2013. And it’s the third-largest oil producer in OPEC. To illustrate Iraq’s importance to world supply, in 2012, the International Energy Agency released its “World Energy Outlook Special Report for Iraq.”

In it, the IEA forecast that by 2035, the price of oil would have to be $215 per barrel (about $140 in real terms) -- even if Iraq increased its production by 176%, from nearly 3 million to 8.3 million barrels per day. If that’s accurate and production is disrupted, $4 gas will be the least of your worries.

Historically, Iraq’s production is sourced from two oil fields in particular -- Rumaila and Kirkuk. For now, neither has been captured by ISIS.

But if they do fall to the rebels -- or at the rate things are going, when they fall to ISIS -- you’ll once again see what our dynamic resource duo, Byron King and Matt Insley, have dubbed “the Middle East effect.”

At that point, you’ll wish you had invested ahead of time…

To see what we mean by the Middle East effect, just look at the price of oil since 2011, keeping in mind the myriad turmoil in the region:

REC 07-25-13 Update

“$4 gas could easily be in the cards,” explains our own Matt Insley. “In fact, if Iraqi oil production goes offline because of sectarian violence or if oil supplies are disturbed for other reasons, you’re in for an oil price nightmare.”

He’s talking about $150... $200 or even $220 per barrel.

“Think back to 2008,” Matt reminds you. “Back then was the last time we saw $150 oil. And gas prices topped $4.”

“But wait,” we hear you pleading... “You spent all of last week reckoning about the U.S. energy renaissance. America’s experiencing a ‘New Age of Wealth,’ isn’t it? Oil and gas is flowing… That means the price at the pump should fall.”

And you’re half correct. Thanks to fracking for shale oil, the U.S. has indeed ushered in a New Age of Wealth. But that won’t lead to lower gas prices.

“Gasoline prices aren’t buffered by U.S. production at all,” explains Matt. “Unlike raw crude, U.S. refiners can and do export gasoline. So if oil war breaks out, domestic producers will win… and so will domestic refiners like Valero (NYSE:VLO) and Tesoro Corp. (NYSE: TSO)... but you, the little guy, will lose out.”

That is, you’ll lose out if you don’t protect yourself. And you should do everything you can, because no one, not the government or U.S. energy producers, is going to do anything to keep domestic gas prices low. Want to know what to do?

Here’s your solution: The first thing you should do is simply get out of the way. Dump any company that depends on cheap oil to build or ship or stockpile their warehouses.

Sure… oil’s price movement could be different this time around, obviously. But you're much better off getting ready before a historic moment… than you are trying to catch up after it's happened.

After you’ve taken the necessary steps to get ahead of an Iraq shock, please read on for Byron King’s analysis on U.S. fracking. He explains why despite radical Islam and the Oil War, it’s your best hope for outsized returns...

The Islamic State of Iraq and Syria, or ISIS -- a violent Islamic fundamentalist group -- has been taking over Iraqi cities slowly but surely. So far, none of Iraq's major oil production is in harm’s way... but that could soon change. Byron King details the situation and gives you his insight for how to prepare your portfolio ahead of this "Oil War"...

Thank God for Fracking

 

I’m sure you’ve seen the news. Radical Islamist armies are marching towards Baghdad, slicing through Iraqi government troops like a hot knife through butter.

Iraq is breaking apart. As if recent, U.S. policy fiascos in Libya, Egypt and Syria were not enough, the wheels are now coming off the proverbial bus in Iraq, site of so much blood and treasure spent in the last decade. Loss, loss and more loss.

Tragedy unfolds before us. U.S. policies across the Middle East are coming undone. In Washington, U.S. officials are panicking, and -- characteristically -- there’s talk of U.S. airstrikes against Islamists.

With that in mind, the Middle East “Oil Wars” scenario I’ve been outlining since 2007, is clearly playing out, very much along the Shiite-Sunni fault lines that I described here in the Daily Reckoning for the past several years.

At the same time, closer to home, the Age of Wealth scenario my partner Matt Insley and I have predicted is unfolding as well. U.S. oil prices are at their highest levels in well over a year. We live in a global oil market, and far distant events can drive prices upwards in the U.S. and Canada. For example, look at the chart for U.S. West Texas Intermediate (WTI) blend.

DR 06-16-14 Turmoil-580x470

Looking at the chart, not even the bitter cold and snow of this past North American winter moved oil prices up to where they are now. But the Middle East heating into turmoil? Well, that’s a camel from a different stable.

Meanwhile, share prices for energy-consuming industries -- airlines and more -- are down, on the prospect of higher fuel prices. On the other hand, domestic oils and oil service plays are up. Again, it all fits our energy investing thesis, which is to keep your net worth away from “too much” Middle East exposure.

Sooner or later, it’s all going down over there. As I watch what’s happening over there, I’m inclined to think it’ll happen sooner rather than later. But there’s good news.

The U.S. has entered its New Age of Wealth -- which gives you an opportunity to invest and profit despite Middle Eastern mayhem.

Fracking -- the key to the U.S. energy renaissance -- is the culmination of decades’ worth of technology improvements in the energy biz. That is, just pressuring rock with fluids -- classical “fracking” -- has been around for nearly 70 years. But horizontal drilling now makes it possible to expose many thousands of feet of hydrocarbon-bearing rock to the magic of super-high pressure.

In the “olden days” of vertical drilling, the drill bit might penetrate 30, 50 or even 100 feet of “pay” rock.

In other words, in the “olden days” of vertical drilling, the drill bit might penetrate 30, 50 or even 100 feet of “pay” rock. That was good back then, but can’t cut it today.

Nope. Today, with geo-steering drill-bits, and very precise placement of the well bore within a formation, an operator can gain access to literally miles of exposed rock face, deep down. Then come the “stages” of fracking, which release the oil and gas. Yes, it’s complex technology, and not all that many companies can make it work.

When you step back, new technology includes better computers, software and algorithms. Better math, physics and geophysics. Better directional control. Better drill bits. Better drilling fluids. New power technology, such as “top drive” drilling systems. Better metallurgy for drill pipe, and even “coiled tube” drilling with metal that bends more easily than you might suspect. Better valves and pressure control. All that, and more.

We’ve covered it all -- and even highlighted the companies that deliver this cutting-edge tech -- like Halliburton, Schlumberger and Baker Hughes to name just a few. The U.S. has come a long way.

Remember back in 2005 or so? U.S. conventional oil output was heading down fast, in seemingly irreversible decline. Then the directional drilling and fracking revolution happened, in the sense that it began to kick into higher gear. By 2007, the oil industry was adopting the new tech at a fairly good clip. Since about 2008 -- in the wake of the financial crash, as a matter of fact -- U.S. oil output has soared.

DR 06-16-14 OilProduction-580x470

Indeed, since about 2008, U.S. oil output is up by over three million barrels per day, while output in the rest of the world has been flat or declining. So U.S. fracking has added significant daily oil output to world markets, equivalent to a fair-sized nation in, say, the Middle East.

Also consider that, in most other oil producing nations, internal demand is increasing; which means that amounts available for export are falling. So more and more U.S. oil is making up for less and less overall oil available on world markets.

Thus, in a world with less oil available for international trade, the U.S. is growing its output. And that’s why I say, “thank God for fracking,” which really means “thank God for new tech.” Without fracking -- and the tech behind it -- we’d be in a world of hurt.

Let’s return to the Middle East, which may still cause us a world of hurt because the place is collapsing before our eyes.

How bad will things become? Not long ago, for example at the Platts Conference in London, several speakers made favorable references to how Iraq would soon ramp up oil production and exports. This will serve to meet growing global oil demand, and moderate prices in years to come. Right?

Well, this week I saw imagery of Islamists chopping off the heads of captured Iraqi government soldiers. Thus, I began to discount that optimistic prediction by the speakers at Platts.

We live in a world that runs on oil. Much of that oil supply is at risk, due to the above-noted “Oil Wars” scenario.

Looking elsewhere, I’ve heard predictions that Libya will eventually get back to being a major world oil exporter. Then, at the Offshore Technology Conference in Houston last month, former Shell Oil CEO John Hoffmeister pointed out that Libyan rebels have managed to seize and hold Libya’s oil exporting terminals.

“Libyan forces possibly could retake those oil terminals,” noted Hoffmeister, “but to my understanding of chemistry, hydrocarbons don’t work well with exploding rocket grenades and tracer bullets.” In other words, if the Libyan troops attempt to retake the oil sites, Libya risks blowing up critical infrastructure, such that it will take years to rebuild, if that happens at all.

Here’s the bottom line. We live in a world that runs on oil. Much of that oil supply is at risk, due to the above-noted “Oil Wars” scenario. Here in theDaily Reckoning, I’ve discussed the situation for many years. I’ve focused investment ideas on investing “around” the looming storm, as much as that’s possible.

Still, here in the U.S. -- and Canada, to be sure -- our energy industries have developed technology to pull hydrocarbons out of seemingly impermeable rocks. It’s the right tech at the right time in history. Just in time, as things are turning out. We are blessed, if you care to look at it that way.

Perhaps some wonderful politician, somewhere, will stand before a teleprompter and give a fine speech. Perhaps that fine speech will move souls, to the point where peace and love breaks out, and the world enters a new era of harmony. That, and oil prices will fall. Perhaps; but don’t bet the ranch on it.

Instead, keep your eyes peeled for the furies of war. Unless you’re very elderly, you have NEVER seen the kind of carnage that’s about to sweep across entire swaths of the world. To use a different form of godly analogy, Mars wants to be paid -- in gold, blood and oil. Invest accordingly… and keep your your eyes peeled on these pages -- because we saw it all coming, years ago.

Regards,

Byron King
for The Daily Reckoning

P.S. "If the regional spillover results in a significant supply disruption in Iraq or elsewhere," an analyst from one of Europe's largest banks said, oil “could spike briefly to $150."

But get this -- my research says that prices could head much higher than $150. I guarantee you won't hear a forecast like this in the mainstream, but I think it’s a lot closer to reality. Click here for my latest price target and information on the Middle East’s meltdown.

Click here to learn how to make 416% gains like this type of situation has returned in the past. You’ll never have to feel the pain at the pump again.

About Byron King

Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents.

 

 
Water: Explosive Investment Potential PDF Print E-mail
Written by MSN via Peter Grandich   
Monday, 16 June 2014 09:55

images"One of the most mis-priced assets on the Planet." - Richard Bookbinder of Terre Verde Capital Management

Richard says there are more than a 1000 companies an investor can look at. Areas to look at are in pumps, compressors, dams & infrastructure engineering, water delivery & utilities. - Editor Money Talks

"The coming battles for water" - Peter Grandich

Peter chose this  3 minute video HERE to bring investors up to date on this investment opportunity.

 

 
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Mark Leibovit
23 July 2014 ~ Michael Campbell's Commentary Service

We intruded on Mark Leibovit's summer break and asked him for...   Read more...


On Real Estate

Over the past 3 or 4 years I have watched with keen interest (and participated) in the ups and downs of the American and Canadian real-estate markets. Recently published stats have fueled a bit of media frenzy which has become an interesting study in conflicting market noise.

Read the full article here

Food, Shelter & Clothing

Most of us think short term, smoke when we know it’s bad for us, eat junk food when we know we shouldn’t and make short term decisions on investing when we know there are long-term trends that are undeniable.

Read the complete article here

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