Crude Oil

After Nexen's Buyout, How Should You Play Canadian Oil Sands Stocks?

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The purchase of Calgary-based energy company Nexen Inc. (NYSE: NXY) for $15.1 billion by China's CNOOC Ltd. (NYSE ADR: CEO) is the largest overseas purchase ever by the world's second-biggest economic power.

But it will likely be the last time China, or any other country, takes a big chunk out of Canada's oil sands - the world's third-largest proven reserves of crude oil.

That's because after Canadian Prime Minister Stephen Harper approved the Nexen deal in December, he banned further foreign firms' investment in Canada's oil sands and will allow them only under "exceptional" circumstances.

"The government's concern and discomfort for some time has been that very quickly, a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this [oil sands] industry from one that is essentially a free market to one that is effectively under control of a foreign government," Harper said in December.

"Foreign state control of oil sands development has reached the point at which further such foreign state control would not be of net benefit to Canada," he added.

But foreign government control isn't the real problem facing Canadian oil sands companies.

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Why Oil Prices Could Soar 40% by Summer

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Oil prices have continued their upward move that began at the end of 2012, gaining over 8% in the past month.

Now, an oil analyst with Goldman Sachs Group Inc. (NYSE: GS) predicts Brent crude could soar much higher in the next few months.

Jeff Currie, GS's head of commodity research, said he wouldn't be surprised "if we woke up in summer and oil cost $150" per barrel.

That would be a 35% gain from Brent's recent price of $111.

Using the narrowing spread between the Brent price and that of West Texas Intermediate (WTI), at $95, Currie's forecast implies a 40% increase in WTI prices.

And there are many reasons oil could hit those highs by summer, or even sooner.

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Will the New U.S. Shale Boom Kill Oil Prices?

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These days everybody wants to extol the virtues of rising U.S. domestic crude oil production.

From decades of increasing reliance on foreign providers, some hardly sympathetic to American interests, the new prospect of having significant unconventional oil reserves here at home has been a major development.

The assumption advanced says that domestic sources will be cheaper. As a result, this should comprise a positive boon to consumers of oil products but a problem for producers and refiners. In short, the mantra among some commentators is to proclaim the end of the oil market as an attractive option for investors.

As with most such simplistic observations, however, it turns out not to be true.

A number of these "analysts" are actually talking down the prospects of oil prices because they have already shorted the commodity and will benefit their own investments if they can continue the downward push.

Well, oil prices are now going up, with both West Texas Intermediate (WTI) in New York and Brent in London at more than three-month highs.

In addition, the spread between WTI and Brent is narrowing.

The narrowing of that spread is occurring while both benchmarks are rising in price. The mantra of the pricing doomsayers would expect it to be going in the other direction.

There are two broad categories of reasons why matters are not happening as the doomsayers had expected (aside from the obvious - they misunderstood the dynamics from the beginning).

And once you understand both, you'll be in position to profit as prices continue to rise.

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Play the Bakken Oil Boom Like Buffett

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Many investors have heard of the Bakken oil field in North Dakota and Montana, but most are unaware of how important this formation is becoming to the U.S. economy.

More germane to investors is the fact that there is still a lot of money to be made from Bakken oil in the months and years ahead.

Just ask Warren Buffett.

He spotted the potential of Bakken oil well ahead of most and bought a non-energy company that would benefit greatly from the boom. Three years ago he bought Burlington Northern Santa Fe (BNSF) Railway Co. for $26 billion.

That railroad is now one of the main beneficiaries of the Bakken oil boom. (And people thought he just had always wanted to own a train set!)

"We're the 1,000-pound gorilla in the oil markets," BNSF CEO Matt Rose told Bloomberg News. "Crude by rail is going to be really strong for us. It's been a real benefit to us to replace some of that lost coal business."

The Bakken oil formation isn't just an investing opportunity; it's transforming the U.S. energy landscape.

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Why The Fiscal Cliff "Deal" is Spelled P-O-R-K

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Behind the scenes of the Fiscal Cliff debate, there was plenty of f-bombing, poison pilling, and grandstanding leading up to the deal - and that was before the members of Congress and the Senate actually got serious with their usual ultimatums, followed by earnest- looking sound bites and posturing. But what gets me really riled up is the amount of "pork" contained in the bill...

Where Oil Prices Are Headed In the Face of the Fiscal Cliff

You have heard all the stories of what will happen when the U.S. economy falls over the fiscal cliff.

As I write this, it appears that will happen--at least on paper.

Of course, it will take some time for the tax increases to kick in, while the automatic spending cuts may take a month or longer.

That may make it easier for some Members of Congress to act. Since the taxes will have technically increased, it will be easier for them to vote for an artificial tax cut.

I consider this the pinnacle of absurdity.

Subjecting most Americans to this charade-making them vulnerable to cuts in paychecks, dividends, and social security benefits merely to make some political brownie points-is the height of travesty.

But here we are.

Even if there is a this weekend or Monday, nobody will know what that means for several weeks. This will drag the drama on for a while longer as the precocious children inside the Beltway refuse to play on the same ball field.

Now we all know how this will end. There will be a stopgap measure rather quickly (probably around the time most receive that first paycheck of the New Year) to prolong the process into the first quarter - right into yet another showdown on increasing the debt ceiling.

Isn't there anybody else out there as sick of this as I am?

But in the end, we are interested in what the shenanigans mean for the energy sector.

Oddly enough, gas and oil prices have acted as if the cliff were an ant hill.



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Why Japan's "Lost Decades" Are Headed to America in 2016

It's only been a little more than a week since Shinzo Abe won election as Japan's latest Prime Minister in a landslide-election victory and the pundits are already lining up telling investors to "buy Japan" because it's "dirt cheap."

The hope is that Abe's promises of fresh stimulus, unlimited spending and placing a priority on domestic infrastructure will be the elixir that restores Japan's global muscle.

As a veteran global trader who actually lives in Japan part time each year, and who has for the last 20+ years, let me make a counterpoint with particular force - don't fall for it.

I've heard this mantra eight times since Japan's market collapsed in 1990 - each time a new stimulus plan was launched - and six times since 2006 as each of the six former "newly elected" Prime Ministers came to power.

The bottom line: The Nikkei is still down 73.89% from its December 29, 1989 peak. That means it's going to have to rebound a staggering 283% just to break even.

Now here's the thing. What's happening in Japan is not "someone else's" problem. Nor is it something you should gloss over.

In fact, the pain Japan continues to suffer should scare the hell out of you.

And here's why ...

The so-called "Lost Decade" that's now more than 20 years long in Japan is a portrait of precisely what's to come for us here in the United States.

Perhaps not for a few years yet, but it will happen just as we have already followed in Japan's footsteps with a "lost decade" of our own.

The parallels are staggering.

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2013 Oil Price Forecast: Why Oil Remains a "Must-Have" Profit Play Next Year

One of the most important topics we discussed in Moscow last week were the various forecasts of where crude oil prices are likely to be in 2013.

These 2013 oil price forecasts were all over the place, owing to the high level of uncertainty on a number of basic elements.

According to the Russian Ministry of Energy, or Minenergo, the "official" government estimate has oil prices low - at about $80 a barrel in 2013.

However, there were other estimates floating about. The Ministry of Finance (MinFin) set up what can only be described as a recession approach. That figure puts oil prices at $62-$65 a barrel.

Then there was the Ministry of Economic Development (MED). MED considered both domestic and external trade considerations. The estimate coming from this ministry was lower than that of Minenergo, but at $75 a barrel was higher than that of MinFin.

Against this backdrop of competing forecasts made by battling Russian ministries, estimates from the outside including my own are much, much different-as in decidedly to the upside.

Granted, all of the non-Russian suggestions cite the three unknowns limiting the cost of crude elsewhere: the fiscal cliff, the Eurozone debt crisis, and the expected levels of productivity and demand coming from China.

Nonetheless, a strong consensus did emerge from North American and European experts during our sidebar conversations in Moscow.

The overwhelming view was that oil prices will be moving higher next year, although the continuing volatility will guarantee that this is hardly going to be a straight line advance.

Even still, there will be a number of factors that will push Brent and WTI prices as much as 20% higher next year-particularly in the first quarter.

Here's why oil will still remain a "must-have" investment next year.



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How the Biggest Investors Are Playing the "New World Order" in Oil and Gas

Thanks to the fracking boom of the last few years North America is now on a path toward energy self-sufficiency.

In fact, the International Energy Agency (IEA) now believes that, thanks to astonishing growth in oil and natural gas output, the U.S. could even become a net exporter of natural gas by 2020, and even net-energy self-sufficient by 2035.

According to IEA estimates, the U.S. is already the world's No. 2 natural gas producer.

The IEA has also indicated that increasing production from Canadian oil sands means North America could become a net oil exporter. And by 2035, it's forecast that nearly 90% of Middle Eastern oil exports will find a home in Asia.

These tectonic energy shifts have not gone unnoticed by OPEC and large state-owned energy companies. Major Asian and Middle Eastern interests have already made major acquisitions in Canada and the U.S., with an eye towards many more.

Every day it seems the energy scene is changing at a lightning pace, creating a new world order in energy.

So to gain further insight into this rapidly changing climate, I recently sat down with energy consultant Peter Barker-Homek, a true energy insider.

Peter is the founder of Eta Draco, an advisory firm focused on building operations and capital structures to provide for enduring growth and to anticipate cyclical downturns for small- to medium-sized enterprises.

Mr. Barker-Homek knows more than a thing or two about the global energy sector.

As the previous CEO at TAQA, the Abu Dhabi national energy company, and a seasoned energy executive in a Fortune 20 company, Peter has completed $40 billion in energy-related transactions.

He has more than 20 years' experience in major markets worldwide, and even served in the U.S. Department of State and the U.S. Marine Corps as an Officer/Pilot. He has appeared on CNN, BNN, CNBC, Sky News, Bloomberg TV, BBC Radio, Al Jazeera, and CrossFire, and is regularly cited in industry journals and periodicals.

I think you'll enjoy what Peter had to say during our recent Q&A.

If I did my job right, some of it may even shock you.



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The Impact of Shale Oil Means the Tables Have Turned in Our Favor

The Eagle Ford shale formation lies south of our headquarters in San Antonio, Texas, giving the U.S. Global investment team a firsthand, tacit perspective on the oil and gas industry's growing natural resources phenomenon.

We've witnessed how the oil activity is boosting the local economy with solid-paying jobs, a healthy housing market and strong consumer sentiment, as oil giants such as Schlumberger and Halliburton take a bigger stake in the area.

After seven long decades of importing oil, the U.S. seems only a few years away from reversing the flow, largely from shale technology not only in Texas but several areas around the country.

In 2005, the U.S. reported net imports of 13.5 million barrels per day, or almost two-thirds of its oil needs, according to Raymond James. By the end of 2012, net imports are projected to fall to 8.6 million barrels per day, which is about half of the country's current consumption.

By 2020, the estimated gap between supply and demand narrows considerably. Take a look...

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Are the Russians on the Verge of a Major Arctic Oil Coup?

As I move into the main meetings here in Moscow, something unexpected has joined the conversations on oil prices, European pipeline prospects, liquefied natural gas (LNG) trading scenarios, and the prospects of unconventional shale.

That something is venture capital funding.

The Kremlin has developed several venture capital funds with potential state-supported investments amounting to at least $12 billion.

It may be early yet, but I see signs of where these new efforts may be directed.

You should watch out for two aspects with this story.

The first must happen in Russia.

But the second is likely to take shape in an unexpected place: Boston, MA.

Here's why. It has to do with Arctic oil.

Several years ago, then-Prime Minister Vladimir Putin declared that the under-used and under-equipped shipbuilding sector would be transformed into a global leader in the design and construction of offshore platforms and drilling rigs.

Of even greater interest was the initial challenge given at the time - to develop a whole new generation of ice-resistant platforms for Arctic drilling.

Moscow had already recognized it could arrest a serious decline in its mature Western Siberian fields only by moving out in three directions. They are:

  • Into highly promising but infrastructure-poor Eastern Siberian;
  • Onto the continental shelf; or,
  • North of the Arctic Circle.
Then the U.S. Geological Survey (USGS) issued its long-awaited Circum-Arctic Resource Appraisal (CARA).

This major multi-year effort evaluated petroleum resource potential for all areas north of the Arctic Circle (66.56° north latitude) having at least a 10% chance of one or more significant oil or gas accumulations (50 million barrels of oil equivalent or above).

CARA concluded that 84% of the total undiscovered oil and gas left in the world is sitting offshore, the bulk of it in three huge Arctic basins.

Russia, the survey concluded, controlled the largest single chunk of it.



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Put These Shale Oil Fields on Your Radar for Energy Profits

Energy companies in search of the next big shale play are scouring shale oil and natural gas fields in Oklahoma and South Dakota.

The shale oil fields in the two states remain largely unknown to energy investors.

As Money Morning reported Nov. 27, fracking technology has opened vast shale oil and gas fields that previously had been uneconomical to exploit.

With rapid growth in recent years, so-called unconventional oil has accounted for about 2 million barrels per day of production in 2012.

In Oklahoma, where oil was discovered in 1897, conventional oil production peaked in 1927, and the state's fields were thought to be exhausted.

Oklahoma's main field, the Anadarko Basin in the western half of the state, has yielded most of Oklahoma's oil and natural gas in recent years.

Now drillers are targeting the basin's Woodford shale layer.

One of the Most Unknown -and Promising - Shale Oil Fields

One of the companies drilling in the Woodford shale layer is Continental Resources (NYSE: CLR), who told Reuters the site is "one of the thickest, best-quality resource shale reservoirs in the country."

Continental is known for its success drilling in North Dakota's Bakken, one of the best-known shale oil fields.

At 3,300 square miles in area, the Woodford shale layer is smaller than the 13,000-square-mile Bakken shale oil field or the 5,000-square-mile Eagle Ford field in Texas. But the Woodford shale reservoir is thicker, at 150 to 400 feet thick, compared with Eagle Ford at 100 to 250 feet and Bakken at 10 to 250 feet.

The U.S. Geological Survey estimates Woodford contains 400 million barrels of recoverable oil. The site is also believed to contain 250 million barrels of condensates and lots of natural gas.

Continental Resources is one of the bigger players in the Woodford reservoir. The company has increased its acreage holdings in Woodford at an even faster rate than it has in the Bakken. From 2009 to October 2012, Continental's net acreage in Woodford rose 1135 to 316,000 acres while its net acreage in the Bakken increased by 51% to 915,000 acres.

Shale Oil: Moving South from the Bakken

Another developing shale oil play that is relatively unknown - the Tyler formation - is in the Dakotas.

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These Signs Point to Higher Oil Prices in 2013

On Monday, oil prices climbed above $90 for the first time in over a month, as encouraging data from China subdued concerns about going off the fiscal cliff.

Those worries have helped keep oil prices mired in the $85-$90 range after flirting with $100 in mid-September.

But positive manufacturing data from China, the hopes for a fiscal cliff resolution and a subsequent market rally, along with the ever-present risk of violence and chaos in the Middle East, are all sending oil prices higher today.

Those factors, as well as several others, should keep the pressure on for higher oil prices.



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