The concerns over the growing record-high U.S. crude oil stockpiles have been countered by disruptions in Nigeria and Canada, both of which export oil to the country. On Tuesday, May 10, it was reported that U.S. oil rose by 2.8 percent due to the outages experienced in the two countries.
Reuters correspondent Barani Krishnan cited the following numbers: “Brent (LCOc1) settled up $1.89, or 4.3 percent, at $45.52 per barrel. More than 6,000 contracts changed hands in the final minute, Reuters data showed. The global oil benchmark rose to as high as $45.70 in post-settlement trading. After the settlement, it briefly dipped more than 30 cents on the API data, then recovered to near its settlement price. U.S. crude’s West Texas Intermediate (WTI) futures (CLc1) rose 1.22, or 2.8 percent, to settle at $44.66. WTI also fell briefly on the API data. Refined oil products joined the rally, with gasoline (RBc1) closing up 3 percent and ultra low sulfur diesel (HOc1), or heating oil, 4 percent.”
As a Learning Markets feature indicated, “The more oil commercial firms have in inventory, the less demand these firms will have for oil in the future and the cheaper the price of oil will become.” Consequently, it stated, “The less oil commercial firms have in inventory, the more demand these firms will have for oil in the future and the more expensive the price of oil will become.”
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The stockpile levels are, of course, influenced by other factors — which include force majeure incidents that cannot be easily controlled or predicted. This is why oil industry watchers are told, “Don’t read the news in a vacuum.” It helps to be clued in on what’s happening around the world. In this case, it means being aware of what exactly happened in Nigeria and Canada.
Tension in Nigeria
Nigeria is Africa’s largest oil producer, but a series of attacks on its oil infrastructure has pushed its crude output close to a 22-year low. According to data compiled by Bloomberg, production has fallen below 1.7 million barrels a day since 1994.
As Bloomberg further explained, this is not the first time that Nigeria’s oil industry has been violently disrupted by militants. From 2006 to 2009, the self-proclaimed Movement for the Emancipation of the Niger Delta and other breakaway groups launched similar attacks. The attacks abated after thousands of fighters were granted amnesty by then-President Umaru Musa Yar’Adua. However, in some cases, the government agreed to make monthly payments in order to ensure the safety of the oil facilities.
But current President Muhammadu Buhari has vowed to stamp out corruption and oil theft. Hence, the attacks.
“Pipeline attacks and violence have risen in Nigeria’s southern swampland since authorities issued an arrest warrant in January for a former militant leader on corruption charges,” reported Tife Owolabi for Reuters.
In February, militants targeted a Shell (RDSa.L) oil pipeline and shut down the 250,000 barrel-a-day Forcados export terminal. Earlier this month, a group of militants called the Niger Delta Avengers attacked the facility of Chevron Nigeria Limited, an operator of a joint venture with the Nigerian National Petroleum Corporation (NNPC). Just recently, a militant threat led to the evacuation of Shell personnel at Nigeria’s Bonga oil field in the southern Niger Delta.
Wildfire Threat in Canada’s Fort McMurray
In Canada, a recent wildfire affected Alberta’s Fort McMurray, which is known for having the largest oil sands reserve in the world. The Fort McMurray-based oil facilities were forced to shut down as a precaution. According to Reuters, “initial inspection by officials showed the Canadian energy boom town was spared the worst.” Oil companies are looking forward to resume production, but displaced residents — many of them workers in Fort McMurray’s oil industry — have to take time to rebuild their homes.
“If the output is low for an extended period, it may have a significant effect on Canada’s economy. The oil sands contribute 2.1 million barrels to Canada’s total daily production of 3.9 million barrels. Nearly all of it is sent to the United States,” reported Ian Austen in The New York Times. He added, “Restarting the large projects after a shutdown can take months and be hugely expensive.”
As always, the next question is this: “Until when will excess stockpile worries be kept at bay?”
The Vanguard cited a note that Societe Generale had sent to its clients. It had stated, “Despite some significant supply disruptions, most notably in Canada, ongoing bearish fundamentals precipitated a modest retracement in price.”
The Vanguard report pointed out that “with plenty of crude available, refiners have produced large volumes of gasoline and diesel, threatening to swamp demand despite the coming U.S. summer driving season.”
The same sentiment was expressed by Oystein Berentsen, managing director for crude at Strong Petroleum in Singapore. He told the Vanguard, “Crude cannot go up without support from products, and that support is not there at the moment, and more refineries are coming out of turnarounds so there will be more products and tanks are getting full.”
Gold Prices Reach Historic High, Breach $2,000 Level
For the first time ever, gold prices reach a historic high level of $2,000 today, even reaching a high of $2,049.18. Judging from the way the markets are still active, there are signs it’s still going up. Buoyed by a week dollar, low Treasury yields, and fiscal stimulus, gold keeps rising. On Monday, worldwide holdings in gold ETFs totaled 3,365 tons, and prices have surged more than 30% YTD. As prices rise during the day, there are yet no indicators that the bull market for gold is ending soon.
Related Article: How To Buy Gold For Your Investment Portfolio
Along with government securities, dollars, and others, gold is a safe haven investment. Safe havens are assets that investors turn to during market turmoil. investors turn to during market turmoil. These stocks usually keep, or even gain value during periods of hardship. As they aren’t correlated with the economy, safe haven value can rise in value in a market crash.
While the gold prices reach historic high. Gold has profited from the pandemic and its resulting economic downturn. While US Treasury yields have dropped to below-inflation levels, lowering their value. Gold meanwhile, does not pay an income. In a booming economy, interest levels go high, which means higher yields for bonds or securities. For gold, the lack of yields makes it strong when the market crashes.
The Fed’s earlier decision to lower interest rates to near-zero pushed investors to look into gold. It serves as an insurance asset in case stock prices go down. With the depreciation of the dollar, gold is the current safe haven choice for investors. With a weaker dollar, other currencies rush to buy gold, hence the historic highs. According to Rhona O’ Connell of StoneX Group: “Gold is a haven. It doesn’t have anyone else’s political or financial risk associated with it.”
Other factors contributing to the rise in gold prices are international in nature. The tension between China and the United States over trade issues is one. Lately, some analysts think that the recent Lebanon explosion also pushed prices higher.
Stimulus plans also have an effect on prices. Some see the rising stock prices on news of a new stimulus package as a signal. It means stimulus money is powering the stock rally, and might not be sustainable. This also leads investors to turn to gold instead.
Market strategist Margaret Yang believes the rise will continue in the next months. She said today’s low-interest rates and fiscal stimulus makes gold bullish for the mid and long term. And with the elections in November, gold prices may swing further depending on the winner. Analysts think that gold can breach the next psychological barrier of $2,500 within the year.
Pushing Precious Metals
Gold isn’t the only precious metal winner lately. Silver prices have also spiked to more than 30% year to date. Some analysts even believe that silver has the potential to outperform gold. Once the world economy recovers, industrial consumption will return. This in turn will spur demand for silver, which many industries use. Already, the gradual reopening of industries has increased demand for silver. Its increasing applications in the medical and telecommunications fields helped with the demand. Apart from silver, platinum and palladium are also enjoying high prices this year.
Watch this video as the gold prices reach a historic high level of $2,000:
Latest Update On Oil – Expected to Settle Between $45 and…
“Oil is going to a new price point because of the revolution in production,” said Bill Perkins, chief investment officer of energy-focused hedge fund firm Skylar Capital Management. Perkins believes the price of crude could fall as low as $45 a barrel. He is personally short, a bet that the price of the commodity will drop. He believes oil will settle between $45 and $80 a barrel in the next year.
“Companies are harnessing amazing new technology to destroy the traditional energy value chain,” Perkins said. “There’s a lot of money to be made on that.” “U.S. energy names remain a significant net exposure for equity long/short managers who added longs and cut shorts after October’s trough,” the report said. “If pressed, one could interpret this positioning as bullish for energy stocks.”
Andurand thinks crude might hit $50 a barrel within the half-moon of 2015 and so rebound to a high of $70 within the fourth quarter. He also said the oil market is oversupplied by between 1.5 and a couple of million barrels per day, given weak demand, low disruptions to produce and enhanced production by nations that do not belong to the Organization of the oil mercantilism Countries.
“OPEC is not the swing producer anymore. U.S. shale oil producers are, but will take more time to react to prices than OPEC—it is a game changer that will lead to more volatile prices and bigger price ranges,” he added.
Morgan Stanley aforesaid the worth would wish to fall as low as $35 or $40 a barrel to prevent production and rebalance provides.
Still, the bank noted that the worth can doubtless rise eventually.
“Oversupply is probably going exaggerated and therefore the market is also content regarding side risks,” the report aforesaid.
Investing in Energy Markets Part 2: Oil, Gas and Energy
It’s no secret that the energy industry is very profitable, with oil and gas making up 80% of the market.
Thus, these two resources attract the most people. They are the best energy investment resources due to high demand and wide range of options. However, with energy scares fresh in our recent memory and the climate change movement greatly affecting energy policy, new alternatives are constantly being sought.
Everything that we do requires some type of energy. As a result, the price of energy affects the going rate for other commodities as well. When the price of oil increases, the price of transporting goods goes up as well.
That is why the cost of milk fluctuates and why your favorite imported coffee beans are more expensive than Folgers. Factors that contribute to these prices include geopolitics and natural disasters, but can never truly be accounted for in full. That is one of the underlying points to understand and accept about energy markets. Something can always go wrong. Typically, it doesn’t, but when it does things can get hairy and fast.
TYPES OF ENERGY SECTORS: That could affect your Household
Nuclear Nuclear power actually produces 1/10th of the world’s power, without emitting carbon. The United States and China have roughly 75% of the world’s nuclear plants with India and Russia also tapping into the market.
“Green” and renewable energy companies You can invest in different companies that place an emphasis on renewable resources by using the stock market. This option is optimal for investors who like the idea of green technology but do not now want to run the risk of investing in developing companies directly. This market has always been tricky from an investment perspective due to volatility. If you have an appetite for risk, however, this is a good place to look.
Modern Energy (solar, wind, geothermal, transportation, efficiency) Modern energy is made up of three major components or categories. They are wind, solar and biomass. The renewable sector is expanding at a rapid rate. We have witnessed a steady employment increase in the energy sector since 2011 with no end in sight. All types of investors and speculators are flocking to the natural resource markets in attempts to get out ahead of the renewable energy trend that could be the way of the future.
Big Oil In 2010, the world market for oil witnessed an incredible increase of 32%, to over $2,100 billion. According to estimations of oil segment professionals, the market’s value will hit $2,683 billion in 2015. The competitiveness of the global market of the crude oil is explained by its limited resources and mankind’s insatiable appetite for growth. This factor should not be disregarded easily. Our desire for more explains the majority of the energy marketplace.
Gas sector The market of natural gas reached $18.5 billion by the end of 2011. Demand for gas has recovered to match and surpass pre-recession levels. The US prices for gas are half of those in Asian countries and the EU. Gas demand decreased 3% in 2009, but at present is on the rise.
Electricity Buying the stock of electricity companies is the preferred way of entering this marketplace. The majority of the participation in electricity markets, however, takes place in the futures markets. Since power companies are constantly projecting and calibrating their loads, the futures market is the only place where investors with this sort of risk profile will feel that they belong.
Coal Many non-coal energy sectors directly depend on the performance of coal because burning coal has been proven to produce enough energy to support high demand. Due to recent regulations in the US by the Environmental Protection Agency, coal has taken a minor hit, but until a massive, institutionalized adoption of newer technology, it is highly unlikely coal will be going anywhere for the foreseeable future. In other words, coal is very much a barometer for this market. Though it is unlikely to happen any time soon, a massive dip in coal production would likely signal the emergence of a new viable energy source.
Hydro Hydropower energy is still very limited but there has been over $75 billion in investments pledged to R&D before the year 2020. There are some companies worth checking into, but for now this is very much a long term play.
Energy Funds These funds are established with companies related to the energy field. Be aware that some energy funds are more successful than others and produce a higher return than others. Often times, the energy funds are established to diversify various portfolios and minimize risk.
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