Energy Archives - Page 13 of 27 - Money Morning - Only the News You Can Profit From
Winning the Race for Resources
The world watched in awe as American swimmer Michael Phelps became the most decorated Olympian of all time.
I've read he's been training in the pool for an average of 6 hours a day, 6 days per week, which equates to about 30,000 hours since age 13 and about 10,000 calories burned during a training day. It's inspiring to see the incredible results of his tremendous sacrifice and commitment.
Investing in global markets requires the same sort of stamina, especially at times like this week, when the month's reading on the manufacturing industry was not encouraging. The J.P. Morgan Global Manufacturing PMI of 48.4 for July was the lowest since June 2009.
However, I believe there are encouraging pockets of strength to energize and inspire investors.
For example, we're coming up on the anniversary of the first stimulus move that kicked off the global easing cycle.
On August 31, 2011, Brazil unexpectedly cut rates by 50 basis points, and since then, ISI says 228 stimulative monetary and fiscal policy moves have been initiated across several countries, including the Philippines, China, France, and Colombia.
In June and July alone, there were nearly 70 moves-the most since the world began this massive easing.
Generally, by the time central banks make a fiscal or monetary easing move, economic deterioration has already occurred.
Even with these moves, it still takes several months for the stimulative measures to take effect and work their way through.
China Makes Its Move
But while the world wades in the shallow end of the pool waiting for the economy to warm up, Asia has taken a deep dive into the energy space as they've recently announced acquisitions of Canadian resources companies.
Oil Prices: U.S. Drought Hurting More than Crops
The unusually warm and dry weather across more than half of the United States has resulted in one of the worst droughts in U.S. history. Much has been made about how the crisis will affect crops and cattle, but it could also alter oil production and prices.
With nearly 64% of the contiguous United States in a drought, the highest percentage since the U.S. Drought Monitor began recording such data in 2000, the economic repercussions are searing.
To date, 2012 has already surpassed 2011's $12 billion in drought losses, and this year is on pace to rival the droughts of 1980 and 1988, which endured losses worth a current value of $56 billion and $78 billion, respectively.
According to 70 years' worth of data studied by the National Center for Atmospheric Research, weather (from heat waves to cold spells to droughts) can cause up to a 1.7% rise or fall each year in the U.S. economy's gross domestic product.
Farmers and agricultural companies have been voicing concerns, now oil and gas companies are speaking up.
With farmers trying to hold on to every ounce of water they find, oil companies don't know how they will get the water needed to drill into their oil fields.
"Water is the key to unlocking oil and gas. We take it for granted," in the U.S., said Chris Faulkner, president and chief executive officer of Breitling Oil & Gas, which has numerous operations in several of the new shale regions.
How We'll Profit in the Coming Growth Crisis
The mantra these days is that we need growth to offset a double-dip recession. After all, if the economy is growing, everything else ought to work itself out…
Well, it depends on the nature of the growth.
Everybody understands that a rapid increase of the currency in circulation is a ready path to inflation. They also get that accelerating growth concentrated in one economic sector will risk intensifying problems in other sectors that aren't participating in the advance.
Yet growth is still widely perceived as being a good in itself – a kind of general elixir for whatever ails a market.
How many times during the ongoing political campaign have we seen "growth" as the key to:
- increasing employment;
- reducing the budget deficit;
- allowing a reduction in taxes;
- permitting an increase in benefits;
- creating better business startup opportunities; or
- curing the common cold (or just about anything else that comes to mind)?
This is especially true with energy.
Pundits translate sluggish energy demand into a concern about economic decline. Expanding demand, on the other hand, is always regarded as evidence of everything that's noble and right about capitalism.
The point is made in both directions, actually.
Some consider an improvement in energy demand to be an indicator of an improving (by definition an expanding) economy. Others see signals of economic growth as a springboard for expanding fuel and power demand.
Either way, economic growth is the essential foundation upon which investment decisions are made in the energy sector. Positive or negative spin is given as part of every argument over oil, gas, nuclear, renewable and alternative sources, or biofuel advance.
Seems logical enough.
Yet consider this….
Oil Prices: Three Factors to Watch this Week
Oil prices took a break today (Monday) from their four-day streak of gains. Crude for September delivery ended 35 cents lower, or 0.4%, to $89.78 a barrel on the New York Mercantile Exchange.
But there are a few catalysts that could propel energy higher this week.
The recent resurgence in oil prices – up about 14% in the past month – has trickled to prices at the pump, too.
For the third consecutive week last week, the Energy Information Administration (EIA) reported the U.S. average retail price of regular gasoline jumped seven cents to $3.49 a gallon. The national average diesel fuel price increased nine cents to $3.78 per gallon.
Money Morning Global Energy Strategist Dr. Kent Moors warned a few weeks back of this expected oil price climb. He said "the gasoline and oil markets have certainly been oversold and remain so to this day," adding that "the rebound is likely to be greater there than in the energy sector as a whole."
It appears that rebound has started. Here are three factors that could fuel the oil price climb this week.
Natural Gas Companies Enjoy Price Climb Ahead of Earnings
There's not much to love about an ultra-hot U.S. summer – unless you're investing in natural gas companies.
The record-breaking temps (the U.S. is on pace for its hottest year ever) have made the country crank the AC, lifting natural gas prices and stocks.
"Hot weather forecasts and elevated cooling demands continue to provide a boost to the market," Addison Armstrong, director of market research at Tradition Energy, wrote in a research note Tuesday.
These Natural Gas Stocks Will Bounce Back As Demand Rises
Now is the perfect time to invest in natural gas stocks.
To many investors, that may seem counterintuitive. After all, natural gas has been the red-headed stepchild of energy for years.
But prices for this plentiful alternative fuel are just beginning to turn higher after a four-year slide that saw values slashed by more than 80%.
That price decline – from a high of $10.38 per million British thermal units (BTUs) in July 2008 to just $1.83 in April of this year – was primarily the result of a decade-long increase in U.S. gas production, which climbed by 21.6% from 2002 to 2011.
That trend finally has begun to reverse, as the rate of inventory build-up has fallen steadily for almost three months. What's more, the size of the current natural gas surplus relative to year-ago levels has fallen by 23% since late March.
Three big reasons explain this shift:
Why Gas Prices are Heading Higher
With "Big Ben" testifying over the next two days on Capitol Hill, the indices will be bouncing around.
I always find it curious that the same Street urchins who criticize government for interfering in the "free market" are nonetheless the same ones pouting in the corner when the Fed doesn't propose a new bailout to improve their portfolio values.
When my children would pull a stunt like that, they would be sent to bed early… not given a seven-figure salary and benefits.
In any case, that's not the only pouting going on…
A few weeks ago, pundits were claiming U.S. gas prices could be moving down to as low as $3 a gallon nationwide.
Well, these same guys have been quiet lately.
That's because the price has been moving, all right, but in the opposite direction.
The RBOB near-month futures price was up again yesterday (Monday) at market's open. This is the contract traded on the NYMEX for blended gasoline. The price has increased 5.6% in the past week and 11.6% for the month. As of Monday's open, the price had recovered 13% from the recent low, just three weeks ago.
Gasoline is now tracking ahead of the rise in crude oil futures prices.
The reasons are rather straightforward.
Four Things Suppressing Crude Oil Prices Today
The collapse of talks between Iran and the "Big 6" (the five permanent members of the UN Security Council plus Germany) should have accelerated international crude oil prices.
And yes, they are higher.
But the real spike hasn't hit. Not yet.
The rising crisis atmosphere in the region and the genuine possibility that a fourth round of talks between the two sides will not even take place should have renewed the upward movement.
That hasn't taken place yet, either.
Oil prices are caught between the normal dynamics of geopolitical concerns – which push prices north – and continuing concerns over a global economic slowdown – which results in lowering expectations.
Now, this limbo is a delicate balance; it could change in a matter of hours.
We are likely to see a short-term rise Monday evening if the Norwegian oil and gas sector strike is not averted. Labor negotiations between Norway's oil workers and employers over pay and pensions failed – yet again – yesterday. The country is now just hours away from the first complete shutdown of its oil industry in decades. (Already, the strike has cut oil output by 13%, according to Reuters.)
Then there are the figures coming out from the Energy Information Administration (EIA) on Wednesday, which will almost certainly show a drawdown on U.S. inventories. Normally, that would also push up prices.
However, absent an Iranian move against the Strait of Hormuz or a major refinery accident somewhere in the world, the rise will be less than usual.
That's because right now, four things are tempering the oil price rise:
Chesapeake Energy (NYSE:CHK) Needs to Dump CEO Aubrey McClendon
Strategically, Chesapeake Energy Corp. (NYSE: CHK) is a great business with a long, bright future.
Chesapeake had been the largest independent natural gas producer in the U.S., with significant cross-interests in oil, a creative approach to bringing in international majors without losing control over projects, and some of the most attractive drilling acreage around.
It's positioned for a decade of growth – at least.
What's more, now that the shares have sold off, Chesapeake is incredibly attractive from an investment standpoint, too. (In fact, we're taking advantage of the company's growth potential in my Energy Advantage right now.)
So don't get me wrong when you see what I have to say today. I love the company.
But Aubrey. Oh Aubrey…
I don't normally devote an entire column to criticizing a company executive. But I have had enough of these shenanigans by the company's fast and loose CEO and co-founder Aubrey McClendon.
The latest revelations have caused yet another sell-off.
This time, there are allegedly email records of his attempts to suppress land-bidding fees with normal competitor Encana Corp. (NYSE: ECA). And this may end up in the lap of federal investigators.
While this might be concerning, I don't want anyone to overreact. I only see this as a temporary problem – and one that creates even more of a buying opportunity for potential shareholders.
Nonetheless, the time has come for more drastic action on the corporate side.
These Natural Gas Companies Found the Next Energy Hotbed
Natural gas companies have struggled as the fossil fuel's overabundance in North American shale formations has led to decade-low prices.
But don't expect those cheap prices to be around long.