Are You Protected from Oil Price Downside?

The Energy Report: What have been the most important changes in the oil and gas markets since your last interview in February?

Chen Lin: Yes, there has been a major change: I turned bearish on China, and I warned my subscribers about that in Q1/13. I shorted copper, the Australian dollar and U.S. government bonds and I just booked a nice profit after the Fed decision. I also shorted oil as a hedge. I have short positions in both copper and oil.

TER: Where's the downside risk? Continue reading "Are You Protected from Oil Price Downside?"

Potential Oil Glut! Raymond James Analyst's Contrarian Forecast

The Energy Report: Why are you expecting an oil glut in 2014?

Andrew Coleman: Because of the evolution of North American shale oil plays, we are on track to add about 3 million barrels (3 MMbbl) of new supply over the next five years. Yet we know oil demand has been falling across the developed nations and is still weak coming out of the global financial crisis. Those developments point toward a glut.

TER: Saudi Arabia surprised you last year by cutting production when oil was more than $110 per barrel ($110/bbl). Why would Saudi or other suppliers not do that again?

AC: What hurt production outside the U.S. last year and helped keep the demand side a little more in balance was that Saudi cut 800,000 barrels a day (800 Mbbl/d) in Q4/12, sanctions in Iran reduced exports by about 800 Mbbl/d as well, conflict in Sudan took 300 Mbbl/d offline and the North Sea average was lower by about 130 Mbbl/d. These reductions kept last year's supply more balanced than we thought it would be. Going forward, Saudi's ability or willingness to cut is certainly going to be tested, because by our model the country may need to cut 1.5 million barrels a day (1.5 MMbbl/d), about double what it cut last year. It would have to do that for a longer period of time, given the amount of excess storage that could show up on the global markets.

TER: But, as you just pointed out, Saudi Arabia's cut came in the context of actions by other players. The other players are going to be as unpredictable as they were last year, aren't they? Continue reading "Potential Oil Glut! Raymond James Analyst's Contrarian Forecast"

Bullish on Oil Prices? Two Reasons You Might Change Your Mind

The Energy Report: Marshall, before the Great Recession hit, we appeared to be on target for $150 per barrel ($150/bbl) Brent in mid-2008, and we were hearing forecasts of $200/bbl before the end of that year. But things have changed. I'd really like to get your fix on how you perceive energy markets have been altered over the past five years.

Marshall Adkins: For the oil market specifically, two massive structural changes have occurred since 2008. First, U.S. oil supply from horizontal drilling in tight shale formations has created a reversal of the four decade-long decline we've seen in U.S. oil production. When I say reversal, I'm not just talking a minor blip; I'm talking about erasing a 40-year decline within five years. This truly is a massive structural change to U.S. oil markets.

On top of that, in conjunction with the Great Recession, the world has figured out that there's too much debt, and most of the developed world is going through a deleveraging period. Historically, whenever you deleverage, you get subpar economic growth, and subpar oil demand growth. For the past five years, we've seen significantly lower demand growth for oil compared to the prior two decades. I expect that to continue, and I expect U.S. oil production to continue marching higher. Continue reading "Bullish on Oil Prices? Two Reasons You Might Change Your Mind"

Today's Video Update: Goodbye Yellow Gold, Hello Black Gold

Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Tuesday, the 26th of March.

Goodbye Yellow Gold, Hello Black Gold
The gold market continues to frustrate the bulls and confound conventional wisdom. The market action yesterday and early today can only be seen as negative. With both our weekly and monthly Trade Triangles red, we see no reason to get excited about gold moving higher at the moment, so for now say goodbye to yellow gold.

On the other side of the ledger, say hello to black gold. Yesterday our weekly green Trade Triangle kicked in and gave a buy signal in the crude oil market. Yesterday's buy signal was in line with the longer-term monthly Trade Triangle, which has been bullish and in place for quite some time. We see the renewed bull market in crude oil continuing from here based on our Trade Triangle technology. With gasoline and crude oil prices moving higher, it does raise concerns about gas prices. If gas prices become so expensive, is that going to derail the economy? Continue reading "Today's Video Update: Goodbye Yellow Gold, Hello Black Gold"

Can the U.S. Economy Survive $100 Crude Oil?

The big question is if crude oil is headed higher, how much of a price increase can the US economy afford and withstand?

Here is a raw commodity that is used by everyone and the US has no control over it. This key commodity to commerce just happens to be in areas that are hostile to the US. If we see a hiccup in the supply chain that changes this market dynamic, even for a short time period, we could see oil move back to the $100/barrel range in a heartbeat.

How will this affect the US equity markets? If crude oil heads back to the $95-$100 range, I expect that the economy will take a hit and that will send the major indices south. In this short video, which I made a few days ago, I share with you the potential target zones that we could see in the next 6 to 12 months in crude oil. Continue reading "Can the U.S. Economy Survive $100 Crude Oil?"