Oil Prices

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.



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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:

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Oil Prices Look For Steady Rebound

Why have oil prices been down lately even with the Iran oil embargo in place, and when will oil prices pick back up?

Dr. Kent Moors, Global Energy Strategist for Money Morning, tackled those questions today (Friday) on Fox Business and gave his latest prediction on the future for oil prices.

Despite the high level of worldwide supply for oil, Moors expects oil to rise from the amount of global demand. He noted that the effects of the embargo have been overshadowed by Europe's debt crisis and once those sanctions are felt oil will start to rise.

You can see all of Moors' analysis on oil prices in the accompanying video.

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Three Reasons Oil Prices are Gushing

Oil prices have taken a backseat lately to the turmoil in Europe and Obamacare. But investors and consumers are starting to take notice again.

For the first time in three weeks, oil staged a noticeable rally. Brent crude oil topped $100 a barrel on Tuesday and crude for August delivery jumped $3.80 to $87.57 a barrel.

Tuesday's rise in oil came off Monday's 1.4% decline and follows a selloff that has pushed oil down some 22% from its 2012 peak of $128.40 on March 1. In the second quarter, oil prices experienced their biggest quarterly drop since the financial crisis of 2008.

Moving oil prices higher on Tuesday was a trio of factors: Iran tensions, dwindling inventories, and a wager that further policy action to shore up global growth is on the horizon.

Oil Prices and Iran Tensions

Concerns about Iran had calmed over the past month along with the sagging worldwide oil prices, but those worries were stoked Tuesday by an army general in Iran.

The general reportedly said that the country wouldn't "sit idly by" as the U.S. and Europe built a missile-defense shield program that could target Iran.

Late Monday, Iranian authorities staged missile drills to test weapons reportedly capable of hitting targets as far away as Israel. Iran officials also announced possible legislation targeted at closing the Strait of Hormuz, one of the world's most important choke points. Approximately 20% of the world's oil, nearly 17 million barrels a day, passes through the narrow strait.

Iran's move came on the heels of the European Union's full embargo on Iranian oil that went into effect Sunday. The EU embargo halts the vast majority of imports into Europe, ending exemptions for contracts signed before 2012, and barring insurance for Iranian oil shipments.

"Iran is always a factor and it has the potential to have a dramatic impact on oil prices," Ben Le Brun, a markets analyst at OptionsXpress in Sydney, told Reuters.

While Iran was the biggest catalyst behind oil's ascent Tuesday, it wasn't the only factor moving oil upwards.

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Shale Oil Stocks are Poised to Earn Investors Big Profits

With oil production soaring in the United States, shale oil stocks will be pumping out profits for years to come.

It's all thanks to huge deposits of shale oil.

At least four new major shale oil plays including the Bakken in Montana and North Dakota, the Eagle Ford in Texas, and the Marcellus in Pennsylvania and New York, may have more than 20 billion barrels each of recoverable oil.

Each of these new shale oil plays has the potential to double the total reserves we have today.

In fact, the "shale oil revolution" will soon make the United States the world's leading producer of crude oil, a report from Goldman Sachs Group Inc. (NYSE: GS) recently predicted.

The United States will produce more than 10.7 million barrels of oil per day by 2017, the report said. That's more than any other country, including Saudi Arabia.

And even though oil prices are in a short-term swoon, the glut of shale oil is about to make savvy investors a huge fortune.

That's why you need to take a hard look at a particular group of shale oil stocks that stand to benefit most from this boom.

But first, you need to know how this came about.



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How a Crude Oil Prices Slump Could Bury these Countries

As crude oil prices fall far below $100 a barrel, the trend is affecting the most oil-dependent economies in the world. You see, whether we're talking about a country or a company, having a "competitive advantage" is one of the most important principles involved in succeeding in business. Just like a company, a country does […]

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Why Crude Oil Prices are in Steep Retreat

Oil prices sank to their lowest level in eight months Wednesday and the trend continues.

Crude oil for August delivery fell yesterday (Thursday) below the $80 line to $78.20 a barrel on the New York Mercantile Exchange.

Oil prices breaking the $80 line can have a psychological impact on traders, which could send oil spiraling even further.

"Oil is participating in the broad decline of equities and commodities," Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago, told Bloomberg News. "We broke an extremely key level for oil, the previous monthly low around $81."

Oil prices fell more than 3.5% the day after the Fed announced a disappointing extension of Operation Twist.

The commodities market, measured by the S&P GSCI Spot Index, entered into a bear market yesterday, off 22% from its highest close of the year on Feb. 24.

Many experts think oil is reaching a bottom - but there are other factors still in play.

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The Three Big Factors Weighing on Oil Prices

Oil prices this week have been pressured by a trio of global factors: OPEC, Iran, and the Eurozone debt crisis.

Crude experienced wide swings on Tuesday, sinking as low as $81 a barrel, a new eight-month low. Prices bounced back later in the day and finished moderately higher at $83.34.

Over the last year, oil prices have fluctuated between $74.95 and $110.55 - with more volatility expected.

Oil's recent wide price swings highlight the market's uncertainty over changes in global supply and demand.

"Oil has given up the ghost, the overriding concern is for global demand to moderate or even come off quite a bit in Europe, the United States and even China and India," David Morrison at GFT Global told Reuters.

Oil Prices and the OPEC Summit

Weighing on crude oil prices this week were words Monday from Saudi Arabia's oil minister as he arrived in Vienna for Thursday's OPEC summit.

The Saudi minister remarked that OPEC production quotas may be too low. The suggestion could move OPEC members such as Iran and Venezuela to shy away from a production cut.

In a research note Tuesday, analysts at energy focused investment bank Simmons and Company wrote, "This position is an indication that Saudi is not overly concerned about the recent pullback in oil prices. It is not yet anxious to aggressively cut supply."

As a matter of fact, Saudi Arabia has actually been increasing its oil supply over the last few months in an effort to pick up the slack from Iran's declining output, which experienced a slump in exports on the heels of tightening U.S. sanctions.

Iran is the No. 2 oil producer in OPEC's exporting countries, earning more than half of government revenue from oil sales, according to the International Monetary Fund (IMF). Its oil output has slipped more than 40% this year, the International Energy Agency (IEA) reported Wednesday.

The IEA report could influence OPEC's decision on production quotas. At OPEC's last meeting in December the members decided to maintain actual output at 30 million barrels per day.

Iran Sanctions Approaching

Also influencing oil prices was a report from the Obama administration on Monday that noted seven countries, including India and South Korea (sizable importers of Iranian crude), have sufficiently reduced their oil imports from Iran and will not be subject to sanctions from the U.S., set to take effect at the end of June.

"By reducing Iran's oil sales, we are sending a decisive message to Iran's leaders: until they take concrete actions to satisfy the concerns of the international community, they will continue to face increasing isolation and pressure," U.S. Secretary of State Hillary Clinton said in a statement Monday.

Oil prices have slipped as markets expect the U.S. exemptions will prevent major supply disruptions.

China, the leading Iranian crude importer in the first half of last year, has not yet been granted an exemption. U.S. officials said talks were ongoing and that status could change before the June 28 deadline to impose sanctions.

Talks over Iran's nuclear programs will restart this weekend in Moscow. It'll likely be the final round of discussion before the sanctions and before a ban on importing Iranian oil into Europe is set in motion.

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Oil Prices Due to Rise With Iran Oil Embargo Looming

After an abysmal May, oil prices might be at their low.

From May 1 to June 1 crude oil prices fell 21.8% from $106.50 to $83.23 a barrel, the steepest monthly drop since December 2008.

One week later oil is still hovering around the $83 mark. But why is oil still down?

Oil has also been hampered by weaker than expected economic reports in the United States, suggesting that the world's biggest economy is still struggling in its recovery.

Also the Eurozone debt crisis has had a strengthening effect on the U.S. dollar, which has helped push oil prices down as the dollar is the global currency for oil.

But many experts say the rise in oil prices is inevitable. From a projected 25% increase in global demand by 2015 to the possibility of Iran closing the Strait of Hormuz, there are many factors in play here.

As Money Morning's Chief Investment Strategist Keith Fitz-Gerald stated, "demand isn't the only driving force in oil prices." Also contributing, he says, "are geopolitics, supply constrictions, wars and tyrants with their hand on crude spigots."

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Oil Prices: The Best Oil ETFs for Any Move in Crude

Crude oil prices have been hammered of late.

The cost of oil fell 21.8% between May 1 and June 1 - from $106.50 to $83.23 a barrel - the sharpest monthly drop since December 2008.

A few analysts blame disappointing economic news and stagnant U.S. demand for the short-term decline.

But most think crude has now found a bottom and will likely head higher for the remainder of the year - perhaps a whole lot higher.

Actual oil price estimates range from a fairly conservative average of $104 a barrel, as forecast by the U.S. Energy Information Association (EIA), to a turmoil-driven possibility of $200 a barrel.

Either one represents a substantial profit opportunity for energy bulls.

However, chasing those profits by investing directly in oil can be both a costly and risky proposition.

The standard New York Mercantile Exchange (NYMEX) futures contract for West Texas Intermediate (WTI) crude represents 1,000 barrels of oil, worth roughly $84,000 at this week's prices.

That means a $1 per barrel change in oil prices means a gain or loss of $1,000. What's more, the initial margin requirement to purchase (or short) one contract is currently $6,210.

How to Invest in Oil Without Buying Futures

If that sounds a bit rich for your blood, don't fret - there are several alternatives to futures.

The most attractive is one of the exchange-traded funds (ETFs) designed to closely track the changes in the price of oil.

These funds can be purchased through your regular broker - no commodity account needed - and you can get in the game with a 100-share lot for as little as $2,400 (or half that if you buy "on margin"), depending on the fund you choose.

At last count, there were 20 oil-price ETFs traded on U.S. and Canadian stock exchanges, and an equal number listed on the London Stock Exchange.

But be warned, many of them are fairly new and still lack the liquidity needed to be good trading vehicles. Some are better than others.

In fact, at least four of them have enough daily volume to allow easy entry and exit points, while also offering the potential for profit regardless of which way the price of oil moves.

The two most straightforward choices for a simple bullish play on oil are:

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My Strategy for Uncertain Times in Energy

There has been no shortage of red ink in the market lately.

Paltry new jobs figures (69,000 new jobs, less than half of what was expected) have combined with the ongoing mess in Eurozone and lagging figures from China to sap investor confidence.

This latest action will further depress oil prices, as the rash of bad news translates into even more knee-jerk projections of reduced demand.

Of course, it's much too early to make such predictions based on the news, but the pundits do it all the time.

In any case, we are now in a downward movement that will end only when the market manipulators say so.

When this happens, individual investors always take it on the chin.

That's why I want to take a moment today to outline for you the strategy I use for my Energy Advantage and Energy Inner Circle subscribers.

Of course, if we could time the market, or invest in perfect hindsight, we wouldn't need an investment strategy.

But while some of the largest investment banks are getting it (very) wrong these days, crystal balls seem to be in short supply.

So what should we do?...

Well, there are three overriding considerations you must keep in mind when approaching the energy sector in an environment like this.

  • First, know that this, too, shall pass. Take a deep breath and relax.
  • Second, keep your power dry. There is no point in chasing uncertain shares in an uncertain market, simply because some talking head on TV says they are undervalued. In the current situation, almost 80% of the shares I follow are well below market value. However, until the market finds equilibrium (something it always does, by the way), the undervaluation means little. Nibble when you feel targets are cheap enough, but never go all in.
  • The third point is the single most important thing to remember here. A situation like this one demands that you preserve your investment capital. Uncertainty is always the mother of discretion. The energy sector has been hit harder than the market as a whole for much of the last six weeks. That means you need to set up an exit strategy and stick to it.

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Oil Price Forecast: Expect Oil Prices to End the Year Higher

Forecasts for oil prices in the second half of 2012 and on into 2013 are varied, but there's one point on which virtually all agree: Oil prices won't be going down.

One reason is that oil prices have already dropped substantially in recent weeks.

In fact, oil futures - as measured by the July New York Mercantile Exchange (NYMEX) contract for West Texas Intermediate (WTI) crude - closed below $90 per barrel last week, the lowest level for an active contract since October 2011. That's down $17 a barrel since the beginning of May.

Two factors have contributed to the decline in oil prices:

  • A modest increase in U.S. crude supplies - up 3.8% in April from March levels and 1.5% from a year ago - primarily due to continued low demand as a result of the slower-than-expected economic recovery.
  • Increasing strength in the U.S. dollar - the global pricing currency for crude oil - due to safe-haven buying in response to continued concerns over Eurozone instability.

Oil Prices Continue to Climb

Longer-term, however, both of those situations should stabilize, and then reverse - meaning current oil price levels will likely serve as a base for a rebound in the second half of the year, continuing into 2013.

Even so, the leading "official" sources for oil-price forecasts aren't projecting major spikes, either.

The U.S. Energy Information Association (EIA), in its most recent report issued May 8, predicted prices for WTI crude will average about $104 a barrel for the rest of the year, and that costs to refiners for all crude - domestic and imported - will average $110 a barrel.

The WTI number is down $2 a barrel from March estimates, but $9 a barrel higher than the 2011 average, while the refiners' cost figure is up $8 from 2011.

The American Petroleum Institute (API), a trade organization of more than 500 oil and natural gas companies, didn't issue price forecasts for crude in its most recent (May 18) report, but noted that increased domestic production, slightly higher crude oil stocks (374.8 million barrels) and lower imports in April should serve to keep prices stable to modestly higher going forward.

API also expressed optimism that rising crude production in North Dakota, which hit 551,000 barrels per day in March, and a possible reversal of President Obama's rejection of the Keystone Pipeline project could keep price hikes in check for the remainder of the year.

Such optimism wasn't nearly as prevalent among many private analysts and industry commentators.



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Three Oil Stocks to Watch as Drilling Activity Soars

North America oil drilling is on the rise, and many oil companies - and their stocks - are following.

The Oil and Gas Journal reported for the week ended May 18 there were 12% more oil and gas drilling rigs active in the United States from the same period a year ago, totaling 1,986.

Just look at the Texas Eagle Ford shale region, the largest U.S. shale oil deposit, which is booming more than expected. Shale oil production has increased nearly seven-fold from 2010 to 2011, from an average of just less than 12,000 barrels a day to about 83,400 barrels a day.

And that could explode to 500,000 barrels a day by the end of 2012, according to Valero Energy Corp. (NYSE: VLO) CEO Bill Klesse, with output expected to double to 1 million barrels a day "in the next few years."

Eagle Ford isn't the only area exploding with activity. More than 475 rigs are working across the Permian in West Texas and southeastern New Mexico. Those areas are already producing close to a million barrels a day. By decade's end, that daily total could double to nearly the total oil output of Nigeria.

"We're having a revolution," G. Steven Farris, chief executive of Apache Corp. (NYSE: APA), one of the basin's most active producers, told The New York Times. "And we're just scratching the surface."

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High Oil Prices: Worries Escalate Over $200 Oil and $6 Gas

Could new sanctions against Iran spark a crisis that drives oil prices to $200 a barrel?
The leaders of the Group of Eight (G8) economies certainly hope not.

Even still, they recently unveiled plans to tap into global emergency strategic oil reserves -- just in case.

Citing their "grave concern" over Iran's nuclear program and the "likelihood of further disruptions in oil sales" G8 leaders put the International Energy Agency (IEA) on standby to tap the reserves at a moment's notice.

"Looking ahead we...stand ready to call upon the IEA to take appropriate action to ensure that the market is fully and timely supplied," said the statement summing up their meeting last weekend.

But the G8 may just be trying to calm the markets before the storm. History shows that tapping into the reserves won't do much to prevent higher prices.

And there's no reason to believe this time will be any different.

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Where Are Oil Prices Headed?

The uncertainty looming around worldwide economies sent oil prices sinking below $90 a barrel yesterday (Wednesday), a level not seen since October of last year.

Benchmark crude slid $1.95 Wednesday to finish the day at $89.90 per barrel.

The decline came on the heels of several weeks of slipping oil, sparked by a plethora of less than stellar economic reports. The concerning data mostly involved Europe's ongoing sovereign debt saga.

Oil gained 0.5% in early afternoon New York trading Thursday, but the reasons for the rally were unclear.

"You don't know if this is just a short-covering rally or the start of a more significant rally," Andy Lebow, an oil analyst with Jefferies, told The Wall Street Journal. Lebow said that progress in the talks between Iran and Western powers about Tehran's nuclear ambitions could have spurred Thursday's price reversal.

If the gain isn't maintained, however, prices could head closer to $85 a barrel.



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