Friday, April 29, 2016

Fundamental Friday: 29 April 2016

Crude oil: Crude oil production posted another decline this past week as energy companies begin to reveal their first quarter earnings. Total output fell 15,000 b/d to a total of 8.938 million b/d, another new low for 2016 and evidence for a waning shale glut. A little over a month ago, estimates were 100,000 b/d higher on March 18th. The losses in output continue to be coupled with growing stocks as another 2 million barrel increase was logged last week. Stocks, now at 1.235 billion barrels. continue to drag on bullish outlooks as an oversupply could still persist long after production reaches a trough. Since the 100,000 b/d decrease in output, stockpiles have grown over 8 million barrels in the same period.

Refinery inputs fell last week by about 250,000 b/d to 15.847 million b/d breaching the 16 million b/d mark that was crossed the week before. Refinery utilization also fell by 1.3 percent. Last week's estimate of 88.1 percent sets a new six-week high after peaking at 91.4 percent at the beginning of the month. A flat trend in refinery crude oil inputs could be the cause of growing stockpiles. According to April averages, refinery inputs grew a measly 0.16% from 2015 to 2016 while stocks added 4.59% in the same period. An increase in crude oil outflows is a must if companies want to see inventories lower.

Crude oil prices continued their bullish rebound this week. The WTI spot price grew over 5% this week closing at $45.99 on Friday. The Brent spot price jumped just under 5% this week to a Friday close of $47.32. Prices could be headed towards $50 a barrel if production continues to fall.




Natural gas: Natural gas rig data continues to move flatly. Just 1 rig went offline last week for a total of 87 still online. For the month of April so far, a loss of 2 rigs has been the net change, a fairly unconvincing downtrend. Although, bearishness still reigns supreme as today's rig count is still 138 lower than a year ago. Underground stocks increased dramatically last week according to the Energy Information Administration. Natural gas stocks grew by 73 bcf to 2557 bcf an enormous addition considering the flat trend that had been evident over the past couple weeks.

Supply and demand changes were estimated to be -0.40% and -1.70% by the Energy Information Administration this week. The trend for both has been relatively flat as well, but stock data hint at more demand lag than is estimated. Suppliers have been cutting operations ever since the above average warm weather has caused demand to decrease significantly. In an EIA report, "average daily production from April 1 through April 23 1.0% lower than average production in March, and a full 2.5% lower than the average production in February." Underground stockpiles will be high for awhile until demand is allowed to flair up again.

With the jump in natural gas stocks, bearishness continued to affect the Henry Hub spot price. Over the past week, losses of -5.6% dropped the price to $2.14 upon Friday's close. Lagging demand and surges in supply could keep prices low for awhile.


Gasoline: The trend in refinery operations has bullishly affected the motor gasoline market. Total stocks of finished gasoline have decreased by 413,000 barrels to 24.412 million barrels due to decreases in refinery capacity. Over the last three weeks, finished gasoline has been below 25 million barrels down from the three weeks before where it was above 26 million. Component stocks grew by 2 million barrels last week to 216.85 million barrels total. The build up can most likely me attributed to less demand from refineries. Finished gasoline production dropped by 231,000 b/d to 9.507 million b/d last week. Product supplied declined 400,000 b/d last week to 19.828 million b/d as estimations for demand declined with refinery capacity.

Gasoline prices continued their climb upwards this week. The average price of regular gasoline across the U.S. jumped $0.025 to $2.162 per gallon. Every region of the U.S. showed price growth based on estimations last week. The average price of diesel gasoline in the United States grew $0.033 to $2.198 per gallon. Once again, gains were recorded across the country in solidarity.


Wednesday, April 27, 2016

Aramco To Go Public

Of the behemoths that rule the global markets, none top the beating heart of the Kingdom of Saudi Arabia. The national company named Aramco was originally established in the 1930's as a joint venture by Saudi Arabia and Standard Oil after World War I after the Kingdom granted concessions to the U.S. company over its competition in Iraq. After equity in the company passed through many private portfolios, the government of Saudi Arabia started to build up their own stake in the oil company in 1973 and fully nationalized the entity in 1980.

But after 36 years, the Saudi Arabian Oil Company, formerly known as the Arabian American Oil Company, could find itself in the hands of U.S. financiers once again. A crown prince of Saudi Arabia has recently announced its consideration of an IPO on the New York Stock Exchange. He claimed that this public introduction will be the first step in a process to reduce the nation's dependence on energy revenue. The funds that are raised by auctioning off a stake in Aramco will be diverted to a sovereign wealth fund which will most likely become the basis of a push for independence from oil. In an interview with Bloomberg, crown prince Mohammed bin Salman pointed out that this Public Investment Fund will become "the largest fund on earth." The New York Times reports Norway's Government Pension Fund Global as the current largest at $850 billion.

How The Saudi Public Investment Fund Would Stack Up?
from TheStreet

The same member of the royal Saudi family rejected the proposed output freeze earlier this month because Iran's absence at the negotiation table. This set a precedent for the leader of OPEC a position which put the massive oil producer at the forefront of output changes in the past. The failure of the negotiations only increased the tension in the Saudi government as revenue has fallen significantly with volatile oil prices. With U.S. shale companies encroaching on Saudi Arabia's oil market share, the threatened nation is looking for ways to maximize the value they can get out their oil assets. Whether that's continuing to toss their weight around in the oil energy arena or liquidating those investments for development in other areas of the undiversified Saudi economy, the wary investor may never know. The extra cash from the IPO would bolster any move by the OPEC giant including a possible request for a cut. But if the Saudi government believes in the long-term low oil price scenario, then a push for power could come from swinging financial firepower away from energy assets. Either way, U.S. investors are lining up for the opportunity to claim a parcel of the gargantuan oil firm, and their concern lies mainly with financial figures, not geopolitical gambits. So let's turn to those now.

Aramco vs. Competitors (BoEpd, mn)
from TheStreet
In his interview, the crown prince said that only 5 percent of Aramco's equity would be put up for sale if an IPO was arranged. Typically, selling that amount of market capitalization would be insignificant, but investors have so much more to consider here. The sale of one-twentieth of Aramco would be similar to the sale of 2.25 percent of the contributions to Saudi Arabia's GDP. A Forbes report on the biggest oil and gas companies in the world recorded Aramco's production at 12 million boe/d almost 4 million boe/d over the second place Gazprom (4 million is also about the size of PetroChina, the Chinese oil major). Its girth has helped them dominate the export scene by providing one-tenth of the global oil supply. In the long-term, Aramco reigns supreme with enough barrels of reserves to sustain over 74 years of the annual production in 2014. Did I mention it has one of the largest natural gas reserves in the world at 294 trillion cubic feet? No, I didn't have to because most investors are already sold on the investment. What fund wouldn't with dividends safer than cash itself.

The tantalizing financials come at the expense of investing in one of the most secretive modern nations in the world. Aramco itself is not different from its parent in more ways than one. Opening the pocketbook and revealing financials is currently a privilege the public does not have, but a public offering would require a change in the lack of transparency. So far, the Aramco website has only released corporate reports for the year of 2014 with specific accounting information left out for the "facts and figures" of the year. Wall Street investors won't let opaque financials fly especially in an oil price environment that is so uncertain. The transparency issue come coupled with the potential for conflicts of interest that could worsen over time. The officials of Aramco have asserted that improving the communities of native Saudi Arabia is part of the mission as can be seen by increases in local business over the past couple of years. In 2014, $37.4 billion worth of contracts were awarded to local companies, up from $12 billion in 2010. This commitment is not necessarily a bad thing, but may arise as a point of contention for U.S. investors. This may especially be the case if the Saudi government is looking to migrate away from oil as a basis for their revenue, one of the prime things that investors would be buying into.



Along with the secrets and obscure avenues of investment come the questions of how to value such an entity. As an IPO is considered, this is one of the first questions that investors have to ask themselves, and it proves to be a very tough question to answer. The convolution of its assets is just one reason why valuation is tough; the other is an industrywide problem. Volatile oil prices have caused pricing proven reserves and production capabilities to be a nightmare. TheStreet cites two standards of measure: a straight-up valuation of reserves and enterprise vale to reserve ratio. For Aramco, these figures would land at $2 trillion and $6 trillion respectively with a former senior Aramco advisor Mohammed al-Sabban pinning his bid at $10 trillion. For my estimations, I used recoverable reserves of both crude oil and natural gas along with the yearly averages of those prices to calculate an estimate of the assets investors would be buying into. Due to the steep decline in energy prices, the value of Aramco has dropped from about $20 trillion to a feeble $3.17 trillion, only $158.5 billion of which would be available on the market. This portion of Aramco's value doesn't take into account refinery assets or other valuable sectors of its business operations. While not as high as the Saudi valuation or the steep premium that comes from the enterprise-to-reserve ratio, but it takes more into consideration than the conservative approach mentioned by TheStreet. No matter what valuation technique is used, there's no underestimating the growth that can come from a recovery in global oil prices. This investment is especially inviting for traders who are looking to bet on a bullish oil market in the long-term. It may even be worth the price after institutional investing has pushed the price of equity beyond its IPO value. If the Saudi princes do follow through with this announcement, be on the lookout for more data for fundamental analysis as this company might be a strong pick for the long-term if its stability is can be ensured.

Monday, April 25, 2016

Is It Safe To Bet On The Rebound?

The cyclicality and volatility of the market can be represented by a child playing on a swing in a playground. As the pendulum swings faster and faster in either direction, the rider finds himself invigorated by the prospect of flying higher and higher until the seat flips, chain loosens, and the individual falls to the ground. Often times, like the investors in the stock market, the child will jump back on the device that failed him just a few seconds ago. The oscillation of the market is not just represented by the prices traded on its exchanges, but also in the sentiment of its traders. The year of 2015 replicated these roller coaster-like symptoms to the throbbing hearts of portfolios everywhere. Despite its persistence in correcting equity prices, traders continued to throw wave after wave of bullishness behind falling prices. As a result, we find ourselves knocking on the door of an 18,000 Dow Jones Industrial Average and a 2,100 S&P 500, values prognosticated as speculative just a year before. What should we make of it now?


A review of 2015 doesn't really give hope that this rebound could solidify. The beginning of last year saw a trading range develop where investors constantly shuffled between achieving new highs and falling to new lows. Volume and momentum values hinted at the weakness of the speculative prices peaking around 2,130 (for the S&P 500) before falling to 1,867 in a matter of days. Chinese weakness and questions surrounding the solvency of investments in their stock market inspired a flash shock that shaved a good bit off equities. However, almost half of the losses were gained back in what looked like a contrarian response that drove oil prices and their equities higher after being heavily sold off in the first part of the year. The facade of strength in energy equities caused a phantasmic recovery in a record-setting October which quickly fell into a bearish trading range after hitting the ceiling at about 2,116. At the turn of the year, another bearish crossover of the 50-day moving average and the 200-day average marked the beginning of losses in January and February of the new year. This cycle from bottom to top finished in about four months a quick completion compared to the seven-month cycle that spanned the end of 2014 and the beginning of 2015. We now find ourselves two months in the current trend from the bottom on February 10, 2016. Will we end up falling again?



In the chart above, the RSIs of four of the SPDR Select Sector ETFs are plotted, representing the cyclical movement of the energy, utility, technology, and industrials. The graph and spreadsheet will be available here for a closer look. The orange boundaries follow the lowest and highest points of the plotted lines showing the general RSI of the market as represented by some of its components. There are two periods on the graph that reveal a peculiar result, and they are surrounded by a black box individually. The first shows the cluster of sectors mostly oversold after the sell-off in late August which lead equities into an uptrend into late December where three of the four sectors peaked near 80 or overbought. Around this point, the next downtrend tumbles into late February where another black box marks another period of a cluster of oversold RSI readings. Trace the lines to the green endpoints where we can find them now. Utility and technology stocks are currently meandering near overbought levels but have yet to peak above 80. Conversely, industrial and energy stocks approach 30 and 20 respectively warning of oversold trends. Even though the S&P 500 has approached the ceiling that was established near the red arrow, the momentum indicator reveals some upside potential in industrials and energy despite their weight on the overall markets. An overbought utility sector might also signal more growth or at least sustained girth for the time being as that interest-rate sensitive sector typically leads peaks in the overall market. This phenomenon can be observed in the peak of the blue utility RSI just after the first black box (around October 27th) then weakening as the other three sectors continued to their peak indicated by the red arrow. Could we see the pattern repeat if XLE and XLI recover and push higher?


An important thing to keep track of in an analysis of a bullish trend is if the small-cap equities are justifying the bullishness in large-cap stocks. As stocks are declining, large companies have the ability to counter the poor sentiment shown by their share performance by adjusting their fundamentals in tandem. For example, they can boost their cash position to ensure liquidity or drop costs to encourage revenue growth. Smaller firms, usually with a market capitalization of $1 billion or below, do not have the luxury of an elastic financial position. This especially becomes a problem when the downtrend coincides with quarterly reports. The Russell 2000 is a small-cap index that allows investors to monitor the health of these equities in the current economic environment. The chart above shows that small-cap weakness was very evident before the two sell-offs that occurred in late August and late December. The red arrows show the Russell 2000 entering a trading range with successive lower lows and lower highs signaling bearishness going into the sell-off, shown by the vertical yellow marker. The blue arrows show the further weakness of small-cap shares with each downtrend as the slope of the trendline connecting the lows steepened. After a bottom in February, though, the trend appears to have reversed as early March price broke through a resistance set in late September. The green arrow shows the development of a bullish trend line as prices achieve successive higher highs and higher lows. For now, it looks as though the technicals of the Russell 2000 justifies the market rebound. Look for two important junctions to come up in the future of the Russell chart: the crossover of the 50-day moving average and the test of the ceiling at about 1,200. If these events turn to bullish signals, the recovery could be extended into 2016.

Earlier this week, the Dow Jones Industrial Average reached a local high of 18,167 approaching the 52-week high 18,351 set May 19th, 2015. Similarly, the S&P 500 reached a high of 2,111 also nearing its 52-week high 2,134 set May 20th, 2015. Both indices are trading more than 10% above their prices three months ago reversing the sell-off that stormed into 2016. Since then, investors have picked themselves up and sat back down on the swing to push equities to new heights. These price levels might actually be viable too with a bullish crossover of the 50-day and 200-day moving averages signaling technical strength. Similarly, momentum readings of the major sectors revealing strong utilities which usually lead a stock market peak. The strength of small-cap stocks shown by investors' willingness to purchase these shares justifies the gains of their large-cap pairs. The damage appears to be healing and solidifying into an economic condition that can support the current price trend. Watch earnings for the first quarter as well as some of the technical events that I have mentioned for helpful signals. But as far as swings go, this one may be wanting to go higher.


Friday, April 22, 2016

Fundamental Friday: 22 April 2016

Crude oil: U.S. producers have ushered in another week of falling production. For the week of April 15th, suppliers extracted 24,000 b/d less than the week before for a total of 8.953 million b/d. Producers continue to drop barrels from their operations, a trend that has yet to be reversed despite support for the price in the market. After six straight weeks of declines in the estimates, 125,000 b/d have been lost. Crude oil stocks speak of another underlying trend in U.S. oil markets. Last week, stocks increased again up about 2 million barrels to 1.233 billion total barrels. Despite falling output, stored supplies have increased 16.75 million over the duration of the production decline streak. As soon as stocks start to consistently even out week over week, investors can count on a stabilized market when this occurs.

Refinery inputs and operation remained mostly changed from last week.Total crude oil inputs increased by 63,000 b/d to 16.104 million b/d last week. Percent operable increased by just 0.2 percent from the week before sitting at 89.4 percent this week. Average inputs for the month of April have jumped to 16.159 million b/d up from 15.990 million and 15.723 million in March and February. The trend is showing an increase in demand from the refineries as the maintenance season closes.

Despite a failure in Doha, crude oil prices continued their bullish trend this week. The WTI spot price jumped 2.58% to $43.75 with a 2016 high established this week. The Brent spot price also jumped 2.95% to $45.09 with a 2016 high established as well.Over the past 3 months, WTI has grown over 30% and Brent has grown over 40%.



Natural gas: Rig utilization for natural gas remained relatively flat this week. Baker Hughes reported that total rigs dropped from 89 to 88. Total stocks reversed their trend from two weeks ago as last week they grew by 7 bcf to 2484 bcf nearing a local maximum of 2493 bcf in the middle of March. Total natural gas stored underground is still 48.5% over the five-year average a surplus of 811 bcf. Supply and demand changes as estimated by the Energy Information Administration were -1% and 3.7% respectively. This continues the trend from last week. On the other hand, rig change and stock change finally showed a deviation this last week after a streak of moving together.

The Energy Information Administration reported on the news of the expansion of the Algonquin Gas Transmission pipeline in New England. The Algonquin Incremental Market addition which is currently under construction will span New Jersey, New York, Connecticut, and Massachusetts. The updated pipe will add 342 mmcf per day to the existing 2,740 mmcf per day.

Natural gas's Henry Hub spot price shot up over 9% in the past week. Trading on Friday ended at $2.256 after a gain of 2.17%. A bullish trend might continue if colder than normal temperatures last for a little longer.


Gasoline: As refineries gear up for more production, gasoline fundamentals are starting to tighten. Total finished gasoline stocks grew 410,000 barrels to 24.825 million barrels total. Total component gasoline stocks fell by 521,000 barrels to 214.826 million barrels total. As refinery inputs continue their upward climb, component stocks have been falling in conjunction from averages of 228 million and 220 million in February and March to 215 million in April so far. Finished gasoline production jumped 170,000 to 9.738 million as product supplied went up in tandem. This category estimated that demand increased by 241,000 to 20.228 million b/d last week. This category was last above 20 million during the week of January 22nd.

Regular gas prices resumed their upward trend this last week. The U.S. average increased by $0.068 to $2.137 per gallon with gains across the board. Diesel prices followed a similar trend. Increases across the board have caused a $0.037 jump to $2.165 per gallon for the average U.S. diesel price. The price trend should continue as demand increases with warmer weather.


Wednesday, April 20, 2016

A Legal Review of the Oil and Gas Industry

from Woody Hibbard
From climate change activists to communities burdened with a neighboring refinery, the threats of lawsuits can be rather annoying in a conflicted economic environment. Plaintiffs can easily be appeased when oil prices are high and revenue streams are growing. Analyzing the legal issues of a company offers information concerning the long-term liabilities of their balance sheet. In the oil and gas agency, the most popular form of legal attack is claims of pollution or labor disputes. Lawsuits and court cases can become muddled over long periods of times making the outcome uncertain and difficult in security analysis. Not only are settlement amounts convoluted by the legal terms in which they are discussed, but an appeal from the firm can delay, dilute, and even diminish the punishment or reward.

Today, I've compiled some of the more recent legal disputes involving some of the largest oil and gas companies on the market. No matter what the judgment is to be, the mere existence of a legal measure can reveal a subtle connotation underlying the status of the company. Energy companies have the unique conundrum of appeasing environmentalists pitted against the methods which they use to make their money. They are just one of many antagonists that find themselves mitigating firms like Exxon-Mobil and Halliburton.Without further ado, let's take go ahead and peek into the courtroom.


  • Climatologists and environmental non-governmental organizations are gearing for a legal battle with Exxon-Mobil (and possibly more of its peers) over the knowledge that their operations were exacerbating the warming of the earth's climate.
The troubling allegations emerged last year when the New York attorney opened an investigation into Exxon's knowledge of the harmful effects of the use of their energy assets like oil, natural gas, and coal. The environmental organizations involved believe that the major oil company had shown the danger of their operations in research that is dated in the 1970's. The accusers have attracted the notable support of Rockefeller Family Fund, a nonprofit named after the creator of the first oil major in the United States. A Phys.org article claims that the plaintiff hopes "to establish in the public's mind that Exxon is a corrupt institution that has pushed humanity (and all creation) towards climate chaos and grave harm,"


Neither side has made any progress in disabling or advancing the investigation. The court has only directed that Exxon-Mobil makes available the relevant research, a seemingly small win for the plaintiffs will most likely end in a paper chase that could last for years. Their power originates from the Martin Act, a state law in New York that allows the attorney general powers to investigate financial fraud according to the New York Times. The conspiracy bordering on witch hunt reflects similar legal proceedings that dismantled the tobacco industry in the 1960's. Cases like these show that the quickest way to taboo something you don't like is to take it to a court and get the government on your side.

Financials might not be endangered by this fight. Instead, goodwill and reputation for the industry are being tested by climate change activists. The quicker they can show they have the government's support in the courts, the quicker they can push their green agenda. The emergence of organizations like InsideClimate and 350.org, both organizations fighting against Exxon, show that popular opinion is shifting towards environmentally friendly policy. The New York attorney general may never have the ability to prove that Exxon acted maliciously, but the rulings and reports that are produced will give grounds for further allegations against the industry as well as follow-up policies. Investors shouldn't be rushing to dump XOM if the case continues to see success, but they should monitor the rulings as it could have larger implications for the energy industry as renewable sources look to enter

Here's Exxon-Mobil's stance on climate change on their website.

  • After a punishment of $20 billion administered to BP for the Gulf oil spill in 2010, the Mexican government looks to build their own case for damages against to their environment
In July of 2015, the 2010 environmental crisis in the Gulf of Mexico finally concluded with a price tag of monumental proportions. After 11 workers died from a rig explosion and 134 million gallons of oil spilled into the warm waters just outside Louisiana, Mississippi, and Alabama, BP is ordered to pay $5.5 billion for violating the Clean Water Act and about three times as much to state governments for clean-up and mitigation of the damages. According to the Guardian, the money is to be paid over the period of 16 years threatening to strangle profits from the bleeding company in a time of low oil  prices. Last year, their earnings report frightened investors with a $6.3 billion loss in the fourth quarter. Investment spending reductions and labor cuts will most likely be a result of the fine.

The English company now faces a new threat from Mexico as a new class action lawsuit gathers under the non-governmental organization Sinaloa Class Actions. Hundreds of communities on the coast of Mexico saw their fishing and tourism industries damaged and now have an opportunity to be reimbursed for their pain in this lawsuit. Compensation could near the figures seen in the U.S. case if the expert witnesses and research prove to move the Mexican Supreme Court in the way of the plaintiff, according to the Guardian

BP certainly does have another crisis on their hands with the new lawsuit coming out of Mexico. The fact that the company has to deal with another year of a Deepwater Horizon stained reputation is dangerous news in a low price environment. Paying $20 billion over 16 years is already a serious long-term liability that costs about $1 billion a year; a ruling of half the size would bring the yearly cost to almost $2 billion. Over the next couple years, this could prove to be debilitating to BP's bottom line which is already malnourished by cheap oil. A dividend will be hard to maintain in the long run which should scare investors away from leaving their money with this company. To survive, BP might have to shed some weight off their market capitalization with some asset sales with a potential decrease in the book to market ratio. An overpriced BP security will be very hard to buy into as these legal punishments settle into their books.

  • A small community in New Hampshire is filing a lawsuit against many major oil and gas companies for health problems caused by methyl tertiary-butyl ether contamination of the local drinking supply
The chemical has wreaked havoc to the health and value of the community as the gasoline additive infected the local gas station and convenience store. Attorney Peter McGrath, representing the victims, said that many of those affected were plagued by "terrible skin rashes" and other health effects without ever knowing something was wrong. The chemical, MBTE, was used as an additive in gasoline around 1979 and was banned in New Hampshire in 2007. According to the Sentinel Source, a spill of the stuff in 1990 caused NH Department of Environmental Resources to establish a clean-up site working to remove 440 tons of contaminated soil.

Some of the companies that are targeted by this smaller lawsuit include Exxon-Mobil, Hess Corp, Chevron, ConocoPhillips, and Citgo among others. There's no mention of how much in damages the community is looking for, but compensation for property and health damages could reach the millions. Currently, long-term damages are under question as research on this chemical has yet to include human subjects. Known short-term effects of water with more than 13 micrograms per liter can result in headaches, nausea, dizziness, and other side effects. This chemical seems fairly obscure right now, but a case like this could support more research on the human effects of MBTE. The fact that this stuff is still around in 2016 to contaminate the water could mean that more instances will pop up and this suit could turn into a class action movement. The ensuing legal battle will be damaging to the reputation and goodwill of the oil and gas industry while supplying environmentalists with more ammunition with which to lobby.

  • A rift in Louisiana has triggered the release of 11 lawsuits naming 195 oil and gas giants two months ago in February.
Cases of coastal zone law violations and drilling permit problems have forced almost a dozen lawsuits on the hands of oil and gas companies operating in Louisiana. The list goes on for almost 100 names although some companies are duplicates in different suits. Tuscon News Now reports that the Louisiana Oil and Gas Association has responded in an outrage claiming the firms don't have the capacity to fight allegations, "The cost to litigate this is millions and millions of dollars. The industry right now, our revenue stream has been cut by almost 70-percent." 

The organization representing the oil and gas companies makes a decent point. The Cameron Police introduced this suit at a very inconvenient time for the economy. The local community which relies on the jobs provided by these operations might not appreciate the backlash that occurs. Companies are already bankrupt and laying people off, a cash settlement for legal violations will only exacerbate the effects. Investors shouldn't worry about the repercussions affecting the investment grade of the company's securities, but local operations could face an increase in costs in the region perhaps boosting the local Henry Hub natural gas price. But an effect of that magnitude would only come with a significant settlement. Other vulnerabilities that arise from this lawsuit are smaller companies that might be hurt by fines that could potentially be administered.  


Monday, April 18, 2016

The Oil Game Heats Up As The Freeze Melts Down

In Doha this weekend, the world's largest oil producers met to discuss the possibility of an output freeze in hopes of supporting the depressed price of oil. Saudi Arabia and other OPEC nations invited its competitors to the negotiating table looking to bolster their energy income. Approximately 20 countries took their seats around the table representing over 50 million b/d of production, that's over half the 80 million b/d average that was produced in 2015. Here's a list of those participants from MarketWatch.



The goal of the meeting was to “agree on a collective OPEC and non-OPEC oil output freeze to January 2016 levels, in an effort to halt the nearly two-year oil price collapse,” said Economou. Members of OPEC such as Venezuela and Nigeria had already called on their own constituents to support the price of oil as their economies fell into a downturn. An interim freeze with Saudi Arabia, Kuwait, and the United Arab Emirates garnered hope for a broad freeze that could incorporate even non-OPEC producers like Russia. With producers from the U.S., Russia, and the oil cartel pumping oil at all-time highs, investors saw a bullish move as unlikely.



In the Monthly Oil Market Report put out by OPEC, the reported production data reveals an interesting trend in the output of its members. Members like Algeria, Angola, Ecuador, Kuwait, Libya, Nigeria. Qatar, the U.A.E., and Venezuela have had only small increases or decreases in daily production from 2014 to last year. In fact, the total difference in production for these countries is a loss of 82,000 b/d as price tumbled over 50%. As price fell sharply, it was expected that, on average, output would fall as demand for extra oil was absent. With a price stabilization in 2016, most investors think that production will jump back up. Estimates for the six OPEC members listed above have a net gain of 380,000 b/d for 2016. That's compared to estimates for Iraq, Iran, or Saudi Arabia which are increases of 421,000 b/d, 763,000 b/d, and 2,202,000 b/d.

These smaller players have shown their vehemence in supporting an output freeze or even a quota. Their inability to simply pump more oil or tap into stored away reserves leaves their revenue vulnerable to the whims of prices on the market. With just a fraction of the total market share, they are forced to side with a larger producer when deals are being made in an increasingly competitive environment. In that way, extra capacity seems to be the strongest weapon in this war. That's exactly why U.S. shale producers seemed so powerful, their growing capacity was voracious and quickly getting cheaper.



While these non-OPEC producers did not show up to the meeting, the leading producer of crude oil was finally recognized as an honorary participant. Bringing in Russia was a must for Saudi Arabia if they wanted to secure control over the crude oil landscape as the Eurasian giant control over 1/8th of total world output. Or was it? Russia's crude might seem influential on price as they have the largest individual output, but in reality, they haven't expressed their power as a swing producer. Most of the bearish pressure has come from the United States and Saudi Arabia ramping up extraction rates in a power struggle. Russia, on the other hand, has only increased their total output by 199,000 b/d since 2013, so entering into a freeze deal would be almost pointless. Negotiating a coordinated cut with them would prove to be even more futile given the disparaging economic situation in which the country finds itself. Russia's quarterly GDP growth rate has been negative since July of 2014 and won't return positive until energy prices improve as natural gas and crude oil account for 68% of the country's revenue.

So if Russia doesn't matter, U.S. producers weren't invited, and the smaller players have no power, why did Saudi Arabia's al-Naimi demand a meeting in Doha this weekend. The answer once again lies in new, sanctionless Iran. The country that has just agreed to abandon any plans of developing nuclear weapon now boasts the most viable production capacity in the industry. While under the sanctions, output was held close to 3 million b/d, but Tehran's oil minister has declared the desire to pump upwards of 4 million b/d. Forecasts from the IEA have Iraq bringing 763,000 b/d of production back online to bring the total change from 2014 to 834,000 b/d. The only other country who can bring that capacity to the table is Saudi Arabia and maybe Iraq, which is projected to bring 421,000 b/d by the end of 2016. It's clear that the rivalry is getting more intense.

Going into the meeting, Saudi deputy crown prince Mohammed bin Salman reminded everyone that a freeze could only happen with Iran. To the chagrin of constituents who hoped to reach an agreement (like those smaller players mentioned earlier) the crown prince and oil minister al-Naimi continued to insist in Iranian's involvement despite their absence in Doha. If Tehran does not get on board and a freeze does happen, a sizable increase from the Persian nation can render any output changes (or lack of changes) useless. Speculation over the freeze should have been muted until Iran showed interest in cooperating with other member countries. Perhaps that's why we saw so much uncertainty in spot price trading before the meeting in Doha.

From WSJ
It's not just the extra capacity that makes Iran a threat to Saudi Arabia's recent market share way but also the similarities in operations. Both nations produce the same kind of oil, typically darker, sour crude that's traded under the OPEC basket prices. According to the Wall Street Journal, Saudi Arabia produces crude oil at $8.98 a barrel with $3.00 worth of production costs, and Iran produces crude oil at $9.08 with only $1.94 worth of production costs. These nations can add barrels of oil to the market more efficiently than any other of their industry peers. U.S. shale producers have to pay almost two and half times to produce that same barrel. The tension between the two OPEC members could get even more divisive when Asian demand starts to increase again, and they'll have to battle for every inch of market share in the region. By then, we could have seen the end of the oil cartel for good.

Should we be surprised that Doha didn't end in a deal? Not really. The polarization of Iran and Saudi Arabia was and always will be too strong to reach an agreement in the short-term. Investors seemed to acknowledge the irreversible futility in today's trading. The WTI spot price fell to $38.00 a barrel at the start of the trading session and slowly climbed to close at $39.89 a barrel. The late rebound gives hope that this week could be bullish despite the overwhelmingly bad news that some oil investors would label the failed freeze. In the long run, those two countries will have control over the market as they have the most capacity that can be efficiently added. It's time to look past Doha and on to the next production trend going into the second quarter of 2016.

Data: EIA, OPEC

Friday, April 15, 2016

Fundamental Friday: 15 April 2016

Crude oil: Domestic production fell this week again with U.S. suppliers now pumping less than 9 million b/d. The trend continued emphatically with a drop of 31,000 b/d to 8.977 million b/d last week. This marks the end of a 525-day stretch where output was beyond 9 million b/d, a phenomenon that may not be seen again if the current price trend remains. Stocks, curiously, jumped last week about 6.6 million barrels to 1.231 billion. This increase in stocks was most likely caused by smaller refinery inputs which dropped by about 500,000 b/d to 15.941 million b/d last week. Refinery utilization decreased as well, falling by almost 2 percentage points to 89.4%. Both values are still above their 5-year averages.

As stocks continue to build and storage capacity is strained, production and storage amounts could drop off even more. The increase in stockpiles and decrease in refinery inputs was mostly caused by Exxon's refinery fire.

Despite losses at the end of the week, The WTI spot price has jumped back into the $40's closing at $40.40 Friday capping an 8.43% 5-day gain. The Brent spot price grew as well up to $42.84 on Friday with a 5-day gain of 8.48%. More to come after this weekend's meeting in Doha.



Natural gas: Natural gas fundamentals remained mostly unchanged this last week. Underground stocks fell by 3 bcf to 2477 bcf still 52.1% above the 5-year average. Total natural gas rigs remained unchanged at 89. With warmer weather, bullish increases in demand are unlikely. The EIA estimates that net supply change was -0.40% and net demand change was 1.40%  for last week. Over the past 4-weeks, the average supply change was 0.22% and the average demand change was 1.45%. Based on the current trend, the market should stabilize slowly and price should increase as well.

The EIA also reported a bullish increase in natural gas burning power plants. In 2015, there was a 19% increase in gas-fired electricity generation. As a result, natural gas's share of power generation jumped to 33% from 28%. Expect most demand increases in the natural gas market to come from the deactivation of coal-fired plants.

Natural gas prices started this week out with gains that sent the price above $2.10. Losses on Thursday and Friday, though, sent the Henry Hub spot price to $2.009 and a loss of 4.38% for the week as the volatile trend continues.

Gasoline: Gasoline fundamentals appear to have been affected by the fire at the Exxon refinery last week. Finished gasoline stocks fell by 2.4 billion to 24.415 billion barrels last week. Component gasoline stocks fell by about 1.8 billion to 215.347 billion barrels as well. Both changes are consistent with the downtrend that can be observed over the past six weeks. Finished gasoline production fell by about 50,000 b/d to 9.568 million b/d for last week. Finally, product supplied jumped to a new 6-week high of 19.987 million b/d possibly signaling more demand to come.

The average price of regular gasoline across the United States fell to $2.069 per gallon with mixed changes across different regions of the country. Last week's loss marks the end of a three-week gain streak that led prices above $2.00 per gallon. Diesel prices did the opposite growing to $2.128 per gallon on average.


Monday, April 11, 2016

Halliburton-Baker Hughes Merger Denied

The mergers and acquisitions line is finally bustling with the news of two large oil services looking to give birth to a larger, more efficient firm that can thrive in a low price environment. Halliburton and Baker Hughes have been in talks of merging for a while now, a deal which could have significant implications for that particular industry.

The deal included an offer by Halliburton to buy out its rival for about $34.6 billion, reports DealBook. The collision course mapped out will help cut costs by almost $2 billion by meshing together the second and third rated operations in the country. By the terms of the deal, Halliburton would "pay 1.12 of its shares and $19 in cash for each Baker Hughes share...valued at about $78.62 a share." In the end, Halliburton would own 64% with Baker Hughes leadership left with a 34% minority. The proposal came as no surprise to investors who had begun to feel tension in the oil services industry as low crude prices significantly reduced demand for new machinery and both firms' ability to compete with Schlumberger, their largest competition. A year and a half later, the merger looks to be in peril with antitrust officials flashing the red lights.

From Yahoo Finance
The reasons behind the deal are clear. Halliburton (HAL) and Baker Hughes (BHI) have failed to keep up with the impressive performance of the gargantuan rival. Schlumberger (SLB) is almost twice their size meaning that a merger would still leave the newly formed corporation at second place in the oil services industry. As far as revenue streams go, the comparison looks a lot favorable for the underdogs. Investors are actually paying less per dollar of revenue in choosing either HAL or BHI versus SLB (1.36 or 1.20 versus 2.62). The major advantage that SLB has over its two competitors is its margins which are over twice as big (0.20 versus 0.11 and 0.08). Because of its ability to keep costs low and operate efficiently, SLB has managed to maintain an earnings per share (EPS) well over $1. HAL and BHI, on the other hand, are operating at losses with the latter recording net income losses of almost $2 billion. For that reason, investors are noticing the potential of incredible earnings growth for SLB come a day with better oil prices. Their ability to run over $2 billion worth of profit bodes well for dividends making them a safe bet for traders amidst uncertainty. 


Even though all three companies have seen their stock sold off since the beginning of the oil glut, SLB has seen the least loss out of the bunch. The chart above shows the securities' performances against the S&P 500 and the respective losses. Both HAL and BHI saw their shares sold off more than 45% of their girth while the top oil services company did better by more than 10%. Investors just preferred the large cap stock even though its price is twice as high. Its two competitors saw an opportunity to compete when their market and books prices dropped significantly. Halliburton, in particular, has been aggressively pursuing the venture offering to divest billions of dollars worth of assets in order to satisfy the antitrust force's desire for a third competitor. 

But despite the apparent rigor of the pursuit, its attempt to pass has been stymied by a lawsuit filed by the Department of Justice under antitrust laws. With the disappearance of a third competitor, the government argues that the oil services industry could experience problems with "collusion," an increased likelihood of "higher prices," and "less overall economic efficiency." With the firms already strapped for cash, fighting this judgment would prove to be an expensive path to take. So yes, investors can look past the deal on to the repercussions. Upon the cancellation, Halliburton will be forced to pay a $3.5 billion break-up fee which will benefit Baker Hughes by adding to their cash reserves. 

So what's that mean for the oil services industry? It seems clear that most of the large-cap firms are currently shopping for cheap assets to add to their repertoire. With oil prices looking to rebound this year, firms like SLB, HAL, and BHI will be searching for ways to capitalize on the new demand for oil and gas machinery. BHI, with an incoming cash bonus of $3.5 billion, will be looking to bolster their financial position whether that's purchasing new assets, buying back stock, or increasing dividends. The rigorous behavior shown by HAL puts them next in line for the proverbial M&A cashier as well. SLB's desire to shop around may be significantly smaller as their focus should be on pushing costs down and driving revenue up to solidify their financial position. An OilPrice.com article suggested that Weatherford International and Franks International could be possible targets for acquisitions. The purchase of either of these two large competitors would be the beginning of a large-scale consolidation in the oil services industry. The longer an environment of depressed oil prices subsists, the more likely and more robust the change will be. Nevertheless, investors should look for some small- or mid-cap oil service firms with high book-to-market-value ratios. These stocks might get boosted by the prospect of purchase when the time comes. At the same time, look for low debt ratios. Companies that are in an ideal debt position will be able to negotiate a better market price for their assets than their debt-filled counterparts. For long-term security, though, SLB is an ideal choice in the oil services industry. HAL and BHI appear to be unable to steal away market share from this behemoth and will struggle to do so unless they can find ways to maximize earnings potential by boosting their gross profit margins.

Friday, April 8, 2016

Fundamental Friday: 8 April 2016

Crude oil: As March came to a close last week, production levels of crude oil converged upon a significant amount. The Energy Information Administration estimated the 9.008 million b/d were pumped last week shedding 16,000 b/d of output. Over the past month, a decline of 70,000 b/d has been recorded after four straight drops in production. Since the beginning of this year, 211,000 b/d worth of production has been halted supporting the growth of oil prices. A continuance of this trend could result in bullish pressure on prices. Stocks fell by about 5 million barrels in the last week of March. This decline ended five straight weeks of gains which will likely add to the bullish pressure from production decreases. Nevertheless, March's net change for crude oil stocks was about 9 million barrels.

Refinery capacity increased last week as well fueling bullishness. Crude oil inputs jumped again last week, up 200,000 b/d to 16.433 million b/d total. Refinery utilization also gained one full percentage point after a month of mixed movement. The short-term estimations hint that a maintenance season is coming to a close. There may be more interesting developments concerning crude oil fundamentals as details about the Exxon refinery are released.

The WTI spot price gained 7.80% to $39.72 this week, mostly because of a 6.5% jump on Friday. Brent crude spot price gained 8.33% to $41.94 this week with a similar pattern of trading on Friday.




Natural gas: Natural gas fundamentals continue to meander about through the end of March. Total stocks increased slightly by 12 bcf in the last week. The net change for the month sits at 1 bcf, following meager changes in supply and demand. One more gas rig became operational during last week for a loss of 5 rigs for the month. Supply and demand changes from last week were at 1.1% and 0.5% respectively. A short term trend in natural gas fundamentals remains unclear.

Traditionally, natural gas analysts mark the end of March as the end of the heating season. The EIA created a chart that showed this year's withdrawals and a comparison to previous years using seasonal analysis. Stocks at the beginning of the winter were some of the highest over the past few years. Ending stocks were 868 bcf or 54% higher than the 5-year average. A disappointing withdrawal season due to warmer weather and excessive production could keep natural gas prices low.

The Henry Hub spot price ventured through a volatile week of a 1.78% gain. Initial losses on Tuesday and Wednesday were reversed by a steep gain on Thursday. The price sits just short of $2 at $1.99 after settlement at the end of the week.



Gasoline: Finished motor gasoline stocks rose by about 740,000 barrels to 26.873 million barrels over the past week.Component gasoline stocks rose at a slightly slower pace, about 700,000 barrels to 217.125 million barrels in the same period. The March short-term trend for these stocks remained unclear with finished gasoline ending higher and component gasoline ending lower. Finished gasoline production was also boosted by about 200,000 b/d and product supplied jumped 414,000 b/d to levels around the beginning of the month. As refineries come back online, the increase in production should be balanced out by more demand from warmer weather.

Gasoline prices rose across the country for the eighth straight week to a U.S. average of $2.083 a gallon. The difference from a year ago, $0.33 continues to shrink as demand will see an increase in the summer, and crude oil production falls. Diesel prices, though, showed little to no movement across the country with the average U.S. price to fall just $0.006. If the current trends continue, diesel prices will be lower than most regular averages per gallon.



Wednesday, April 6, 2016

Why I'm Bullish XOM


Just a short technical session today reviewing a company that has shown its strength in the oil and gas industry. It's not hard to find reasons to be bullish Exxon-Mobil these days, but here's my technical analysis chiming in.

A first look at the chart shows a short-term bullish trend that started around the beginning of the month of February. In the first week, the price topped its 50-day then its 200-day moving averages gaining another $3 or $4. This trend was defined by a divergence of the oil major's price and the WTI spot price. This, in particular, is a very bullish signal as equities have been following the energy commodity closely (see the comparison of WTI and XOM before February). The MACD reversal indicator was very bullish in March with three crossovers touting reversals upward (but never breaking through). The next crossover, though, could result in resilient growth if supported by WTI. The RSI reads neutral momentum for the past couple months producing neither bullish nor bearish signals. Nevertheless, trendlines drawn using bottoms in February and March reveal acute bullish floors with at least three points of confirmation. Oil prices have slowed down, and XOM has settled as well. The waning volume might predict the development of a trading channel where the price will consolidate until it looks to break upwards.

Some key points:

  • The next time XOM price touches the 50-day moving average, look for a new support level to develop there
  • Based on Fibonacci ratios, another breakthrough could send price to
    • about $92 at 100% retracement
    • about $88.70 at 66% retracement
    • about $87 at 50% retracement
    • about $85.30 at 33% retracement
    • about $82 if no retracement
  • If the trend reverses downward, look for a support to be established at the 200-day average accompanied by oil prices in the low $30's

Monday, April 4, 2016

Unpacking the Saudi Bluffing Game

The bulls were back supporting oil again as its price ran up past $40 a barrel in the past week after expectations for a release in supply pressure looked to be a real possibility. Saudi Arabia showed the first signs of relenting when they signed an agreement win Qatar to freeze petroleum output at a certain level. Other members of OPEC have shown less enthusiasm towards the freeze that would only be effective if all exporters were on the same page. New bearish reports now fuel skepticism that this agreement will materialize as Russia pumps at a 30-year high of 10.91 million b/d and Iran's oil minister insists his country will continue to increase production.



In response, investors have traded WTI and Brent lower with losses of -7.96% and -7.34% over the past five trading sessions. Money managers partook in the reversal as regulatory data from the CFTC showed a 6.3% net reduction in their long positions last Friday. The chart above shows a resumption of a long-term downtrend that ended in the beginning of February. The "momentum accumulation" shows the net number of gaining sessions and losing sessions over the past 100 days. After the new pessimism from traders, the count now sits at -20 or 20 more losing sessions than gaining sessions. Technicals bears might also note that last Tuesday, the WTI spot price fell below a 100-day moving average. The question now looms: will the bottom be revisited? Regardless of the future, current headlines stay covered in black gold.

The optimistic trading was mostly caused by prospects of broad output freeze scheduled to be discussed in Doha, Qatar later this month. The leader of OPEC will attempt to convince producers, both member and non-member, state and private, to support the price of oil by curbing increases in output this year. After sanctions on Iran were lifted late last year, the government threw open the spigot with a production of 3.1 million b/d and rising. The Energy Information Agency estimates that this represents a jump of about 300,000 b/d of production in 2015 with another 500,000 b/d to be added this year. Russia's recent high in output also threatens to prolong the saturation on the supply side of the market, and might become a point of contention at the roundtable in Doha.



The oil cartel has developed solutions to the low oil price situation in the past with Saudi Arabia at the helm. The collective goal of maintaining an iron grip on the energy market has helped the quota agreements to pass easily with only minor deviations from OPEC members. This time around, two major constituents, Saudi Arabia and Iran, might spoil the very freeze that they desire. The previously sanctioned country has been attempting to expand its exporting infrastructure to its pre-sanction size which includes the launching of new oil tankers and transportation through SUMED, the Arab Petroleum Pipeline Company, to the Mediterranean Sea. Reports from RT and the Wall Street Journal describe a Saudi campaign to restrain an Iranian comeback on both fronts. The efforts to curb exports have limited Iran to transporting just 12 million barrels of oil to Europe, just over a week's worth of production.

Antagonizing a country's crude oil output just before asking them to freeze it as a favor is a perplexing diplomatic maneuver. The move may have implications beyond the energy arena considering the longstanding rivalry between the nations that transcend oil tankers and production quotas.Iran and Saudi Arabia as different as Middle Eastern countries can be. While both Islamic nations, one is ethnically Arab, speaks Arabic, and follows the Sunni sect of Islam. The other is Persian, speaks Farsi, and subscribes the opposite sect of Islam, Shia. The history of geopolitical tension between Iran, Saudi Arabia, and the Western nations complicates the meeting that is scheduled for late this month.

Something tells me that this freeze was doomed from the first time it was mentioned by the Saudi oil minister. OPEC just recently hit their highest levels of production in 2015 without Iran operating at full steam. For that reason, Riyadh has been able to take advantage of the extra market share and line their coffers with revenue at higher prices. Fast forward to the beginning of 2016 where prices are a fraction of what they used to be and Iran has just had their sanctions lifted. Any struggling country in this situation would tap into their best source of revenue where they maintain a healthy comparative advantage and an extensive infrastructure with workers, plants, and equipment waiting to produce. Iran is no different, and their capacity to pump twice of what they are currently producing is that necessary cash flow. I don't think investors, non-member producers, and Saudi Arabia should be counting on a freeze to relieve the supply pressure on prices. I also think Riyadh knew this.

There have been reports that say OPEC officials think that a deal without Iran would still have a significant impact on the fundamentals of the oil market, but I do not think that to be the case. Global oversupply runs at about 1 million b/d with non-member production expected to cut that in half. Iranian output increases alone could completely offset this potential balance or make the market even more saturated. Whether or not the Saudi government actually believes that Iran would be unnecessary in a freeze agreement or that hindering their Iran's to export oil is a good diplomatic idea seems irrelevant because the freeze was improbable at introduction. Instead, the idea of a freeze could have been conjured up as a way to manipulate investor expectations in hopes of spurring a rebound in the price of oil. OPEC has a history of pushing perceptions in their favor.

Predictions? Just that $40 a barrel prices might be out of reach for awhile. The current trend of investor sentiment will only be able to support prices in the mid- to high-$30s until more bearishness comes as a result of a failed summit in Doha. For now, though, investors aren't buying the Saudi's assurance of an output freeze.

Sources: Wall Street Journal, RT, CNBCNews, Bloomberg

Friday, April 1, 2016

Fundamental Friday: 1 April 2016

Crude oil: On Wednesday, the Energy Information Industry estimated a third straight week of declining production at 9.022 million b/d. From last week, suppliers pumped 16,000 b/d less and since the beginning of the month pumped 56,000 b/d. This decrease in production come just a few weeks before a meeting between non-OPEC producers and Saudi Arabia is scheduled. A freeze might be unlikely if this trend continues. Stocks continued the trend of growth through the end of March with last week's estimate reported at 1.229 billion barrels, slightly higher by 2.3 million barrels.As production slows, the increasing stock trend may lose steam eventually. Look for the weekly change to shrink.

Crude oil inputs jumped 16.234 million b/d despite flat movement earlier in the month. The jump of 414,000 b/d represents the largest gain this month and brings the monthly change to a growth of 323,000 b/d. Rig utilization is also up at 90.4%. The last time more than 90% of rigs were operable was January 15th. The surprise gain in refinery capacity can probably be attributed to the trend of higher gas prices. Companies will be looking to take advantage of higher prices in order to bolster their downstream bottom line in preparation for first quarter earnings reports.

This Friday, the WTI spot price looks to be closing out a losing trend at around $37; Brent should close around $38.75. The spot prices are trading -6.74% and -5.85% lower, respectively, due to reports that an OPEC output freeze might not be in the supply picture anymore.


Natural gas: Fundamentals for natural gas extraction showed losses for the previous week. Stocks are down -25 bcf to 2468 bcf. That adds up to a net change of 11 bcf for the month. The rig count reverted back to mid-March levels after 3 gas rigs went offline, but the proportion of oil to gas rigs remains the same. Estimates of supply and demand change were -1.19% and -4.8% respectively. The decrease in overall supply and demand could have something to do with the warming weather. Look for that trend to continue in the future.

In its weekly report, the EIA mentions the approval of an expansion to the Rockies Express Pipeline. The expected will allow the flow of gas from west-to-east to be reversed to include capacity for east-to-west transport. The enhancement should increase capacity from the overflowing Marcellus and Utica shale plays.

Henry Hub spot price managed to top $2.00 this week during trading. Today, natural gas looks to be closing out around $1.95 maintaining weekly gain around 3.4% and a monthly jump of 10.3%


Gasoline: Stocks on both sides of the refinery decreased this past week. Total finished gasoline fell by 872,000 barrels, larger than losses for the rest of the month and reflecting refinery maintenance. Total component gasoline fell by 1.6 million barrels from last week continuing a trend of sharp declines. Weekly gasoline production fell by 253,000 barrels another possible effect of refineries going offline. Product supplied grew slightly possibly reflecting strong consumption that comes with warmer weather.

 Gas and diesel prices continue their upward trend above $2.00 a gallon this week. A U.S. average regular gasoline price of $2.066 a gallon marks the seventh gain where all regions of the country saw increases. Diesel gains were weaker but still evident with prices at $2.121 this week and only the Midwest and West Coast (less California) regions seeing decreases. Overall fuel prices should continue to get higher as the warmer weather encourages more consumption.