Natural Resources, Energy and Precious Metals Update
Posted on: June 24, 2009 - Email Article - Printable Version
Many investors are somewhat dazed and befuddled as they watch what used to be called “The Natural Resources Sector” bounce up and down as the summer season commences. With the dollar up again, commodities including the precious metals and oil were off sharply yesterday. All in all, it was just a broadly negative day. Little was spared, including equities, which also took a serious hit. Even perennial bull James Moore, of TheBullionDesk.com, was forced to write that, “Short-term the metal [gold] could extend lower as a result of the dollar.” John Reade, of UBS in London, concurred, writing that, “We would not be surprised to see further short-term declines, especially in the absence of any material jewelry, physical-investment or ETF demand.”
How do you put a happy face on that? Easy, according to the folks at Casey Research. “However, the current correction is likely to prove beneficial longer-term with the pullback offering investors a chance to enter the market,” Moore said.
Meanwhile, “The market focus this week will be on the summit of BRIC countries tomorrow,” Barclay’s Capital analysts wrote, referring to Brazil, Russia, India and China by the common acronym.
The meeting in Russia, to which the US was pointedly not invited but did include the “re-elected” President of Iran, is expected to focus on the world monetary crisis and the dollar’s role in it.
Some think the countries may be preparing a call for a new international reserve currency, although whether they would have enough economic clout to push that remains to be seen.
Those interested in accumulating some of the precious metals version of “Natural Resources” might consider the gold and silver ETF [GLD: 109.59, -0.81 (-0.73%)] and [SLV: 17.09, +0.04 (+0.23%)] or the Market Vectors Gold Miners ETF [GDX: 46.27, +0.15 (+0.33%)].
Crude oil dipped on Monday and hit an intraday low of $69.58 a barrel on the Globex. On Tuesday as I write this it’s back to $71 a barrel.
One might have expected something of a rally off of the post-election turmoil in Iran, but that was downplayed in favor of concern over the supply glut.
“The first reason [for the oil retreat], of course, is the resurgent dollar,” said Phil Flynn, of Alaron Trading. “Then we got the Empire State manufacturing number that was much worse than expected, and that put pressure on oil.”
The Empire State index fell to negative 9.4 in June from negative 4.6 in May, indicating the downturn is widening to affect more firms, according to a report released yesterday by the New York Federal Reserve Bank.
[We are becoming more of a "Black Swan Investor" which is explained in our special report, "Fives Secrets to Creating Wealth in a Financial Crisis" which you can subscribe to by going to our home page and submitting your name and email in the sign-up section of the right-top quandrant of the home page.]
The bigger picture: “Stocks of oil are high all around the world — which suggests that on a supply/demand basis, oil prices should fall,” said James Williams, of WTRG Economics. “However, crude prices are supported because investors are using oil as a hedge against the dollar and inflation.”
This doesn’t mean we won’t see wild price swings in oil and the oil ETF [USO: 40.23, +0.44 (+1.11%)] in the weeks and months ahead. We might see a trading range develope between $60 on the downside and $75 on the topside.
“Commodities in general are seeing pressure as funds and individuals seem to feel that everything is overbought at this point,” said Zachary Oxman, managing director at TrendMax Futures. And, “Oil specifically seems strongly overbought.”
Commerzbank analysts concurred, writing that, “As the market was pricing in a rapid economic recovery, we think that the probability of a significant correction, taking place as early as in the coming weeks, is very high.”
But, of course, analysts have been saying that for weeks now, and crude has stubbornly resisted any big move to the downside.
Today brings the Energy Information Administration’s closely-watched stockpile report, and inventories are apt to decline again, says Linda Rafield, Platts senior oil analyst.
If you’re looking for a Natural Resources Exchange-Traded Fund that focuses mainly on energy, take a look at the iShares S&P North American Resources Fund [IGE: 35.29, +0.34 (+0.97%)].
IGE seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P North American Natural Resources Sector Index.
Over 79% of the holdings are in the energy sector, and includes names like Apache [APA: 106.18, +1.53 (+1.46%)], Canadian Natural Resources [CNQ: 73.95, +1.04 (+1.43%)], Chevron [CVX: 74.67, +0.69 (+0.93%)], ConocoPhillips [COP: 52.98, +0.81 (+1.55%)] and Schlumberger [SLB: 66.60, +1.08 (+1.65%)].
As of the end of April the only precious metals company in the “top ten holdings” happened to be Barrick Gold [ABX: 40.16, +0.07 (+0.17%)].
Concerning ENERGY AND THE NATURAL RESOURCES MARKET
Last Saturday Frank Holmes of US Global Investors wrote the following review which is very insightful.
World oil reserves fell for the first time in ten years, according to BP’s annual Statistical Review of World Energy. Concurrently, the International Energy Agency (IEA) also stated that global energy investment is “plunging.” Projects worth $170 billion have been cancelled so far this year, equating to a loss of 2 million barrels per day (bpd) of oil production capacity. This is a concerning development given that the IEA forecasts global petroleum demand to rise from 85 million bpd in 2006 to 107 million bpd by 2015.
Strength
* The IEA revised its global oil demand forecast upward to 83.3 million bpd. Additionally, the Department of Energy’s EIA recently increased its global crude demand estimate.
* May imports of unwrought copper & copper products into China increased 6 percent sequentially and 113 percent from a year ago to 422,666 metric tons.
* The American Iron & Steel Institute said steel utilization rates increased for the week ended June 6. This is the sixth consecutive week, with the rate at 47.1 percent versus the prior week of 46.2 percent, but down from last year’s 91 percent.
Weakness
* BHP announced that it has settled benchmark metallurgical coal prices at prices around $128 per metric ton, which is approximately 55 percent lower than last year but in line with previous indications.
* Global stainless steel production declined more than a third to 4.8 million metric tons during the first quarter of 2009 according to the International Stainless Steel Forum.
* Gold Fields Minerals Services estimates that China’s consumption of copper should rise by 4.9 percent this year. However, even if that figure were to be 11.2 percent, the world would still face a surplus of copper in 2009.
* Canada’s principal energy producers have lowered their estimate of oil-sands output for the third time in a year, due to project delays and cancellations caused by falling crude prices and scarce available credit. Oil-sands production is now expected to come in at 1.9-2.2 million barrels per day in 2015.
Opportunity
* Iraq is looking to boost the output of its southern oil fields by as much as 500,000 barrels of oil per day by 2011. There are currently ongoing talks with major foreign companies to solicit help in reaching the goal.
* The Nigerian National Petroleum Corporation intends to increase Nigeria’s natural-gas production by 5 billion cubic feet per day or 147 percent by 2013. The country expects to spend $5 billion in the natural gas sector beginning this year in an effort to double its power-generation capacity to 6,000 mega watts.
Threat
* The IEA has calculated that investment in over 2 million barrels per day of oil and over 1 billion cubic feet of gas have been cancelled in the last six months. It is warning that sustained lower investment could lead to a spike in prices in only a couple years.
We are all hoping for a correction in Natural Resources prices this summer. Although I’m trying to be careful what I wish for, in the longer-term any corrections will most likely be looked at as favorable accumulation points.
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.
- Marc Courtenay
Disclosure: The author is long GLD and SLV. This article was taken with permission from Check the Markets. All other disclosure questions should be referred to the original author.
With the dollar up again, commodities including the precious metals and oil were off sharply yesterday. All in all, it was just a broadly negative day. Little was spared, including equities, which also took a serious hit.
Even perennial bull James Moore, of TheBullionDesk.com, was forced to write that, “Short-term the metal [gold] could extend lower as a result of the dollar.”
John Reade, of UBS in London, concurred, writing that, “We would not be surprised to see further short-term declines, especially in the absence of any material jewelry, physical-investment or ETF demand.”
How do you put a happy face on that? Easy, according to the folks at Casey Research. “However, the current correction is likely to prove beneficial longer-term with the pullback offering investors a chance to enter the market,” Moore said.
Meanwhile, “The market focus this week will be on the summit of BRIC countries tomorrow,” Barclay’s Capital analysts wrote, referring to Brazil, Russia, India and China by the common acronym.
The meeting in Russia, to which the US was pointedly not invited but did include the “re-elected” President of Iran, is expected to focus on the world monetary crisis and the dollar’s role in it.
Some think the countries may be preparing a call for a new international reserve currency, although whether they would have enough economic clout to push that remains to be seen.
Those interested in accumulating some of the precious metals version of “Natural Resources” might consider the gold and silver ETF (GLD and SLV) or the Market Vectors Gold Miners ETF (NYSE:GDX).
Crude oil dipped on Monday and hit an intraday low of $69.58 a barrel on the Globex. On Tuesday as I write this it’s back to $71 a barrel.
One might have expected something of a rally off of the post-election turmoil in Iran, but that was downplayed in favor of concern over the supply glut.
“The first reason [for the oil retreat], of course, is the resurgent dollar,” said Phil Flynn, of Alaron Trading. “Then we got the Empire State manufacturing number that was much worse than expected, and that put pressure on oil.”
The Empire State index fell to negative 9.4 in June from negative 4.6 in May, indicating the downturn is widening to affect more firms, according to a report released yesterday by the New York Federal Reserve Bank.
[We are becoming more of a "Black Swan Investor" which is explained in our special report, "Fives Secrets to Creating Wealth in a Financial Crisis" which you can subscribe to by going to our home page and submitting your name and email in the sign-up section of the right-top quandrant of the home page.]
The bigger picture: “Stocks of oil are high all around the world — which suggests that on a supply/demand basis, oil prices should fall,” said James Williams, of WTRG Economics. “However, crude prices are supported because investors are using oil as a hedge against the dollar and inflation.”
This doesn’t mean we won’t see wild price swings in oil and the oil ETF (USO) in the weeks and months ahead. We might see a trading range develope between $60 on the downside and $75 on the topside.
“Commodities in general are seeing pressure as funds and individuals seem to feel that everything is overbought at this point,” said Zachary Oxman, managing director at TrendMax Futures. And, “Oil specifically seems strongly overbought.”
Commerzbank analysts concurred, writing that, “As the market was pricing in a rapid economic recovery, we think that the probability of a significant correction, taking place as early as in the coming weeks, is very high.”
But, of course, analysts have been saying that for weeks now, and crude has stubbornly resisted any big move to the downside.
Today brings the Energy Information Administration’s closely-watched stockpile report, and inventories are apt to decline again, says Linda Rafield, Platts senior oil analyst.
If you’re looking for a Natural Resources Exchange-Traded Fund that focuses mainly on energy, take a look at the iShares S&P North American Resources Fund (NYSE:IGE).
IGE seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P North American Natural Resources Sector Index.
Over 79% of the holdings are in the energy sector, and includes names like Apache (APA), Canadian Natural Resources (CNQ), Chevron (CVX), ConocoPhillips (COP) and Schlumberger (SLB).
As of the end of April the only precious metals company in the “top ten holdings” happened to be Barrick Gold (ABX).
Concerning ENERGY AND THE NATURAL RESOURCES MARKET
Last Saturday Frank Holmes of US Global Investors wrote the following review which is very insightful.
World oil reserves fell for the first time in ten years, according to BP’s annual Statistical Review of World Energy. Concurrently, the International Energy Agency (IEA) also stated that global energy investment is “plunging.” Projects worth $170 billion have been cancelled so far this year, equating to a loss of 2 million barrels per day (bpd) of oil production capacity. This is a concerning development given that the IEA forecasts global petroleum demand to rise from 85 million bpd in 2006 to 107 million bpd by 2015.
Strength
* The IEA revised its global oil demand forecast upward to 83.3 million bpd. Additionally, the Department of Energy’s EIA recently increased its global crude demand estimate.
* May imports of unwrought copper & copper products into China increased 6 percent sequentially and 113 percent from a year ago to 422,666 metric tons.
* The American Iron & Steel Institute said steel utilization rates increased for the week ended June 6. This is the sixth consecutive week, with the rate at 47.1 percent versus the prior week of 46.2 percent, but down from last year’s 91 percent.
Weakness
* BHP announced that it has settled benchmark metallurgical coal prices at prices around $128 per metric ton, which is approximately 55 percent lower than last year but in line with previous indications.
* Global stainless steel production declined more than a third to 4.8 million metric tons during the first quarter of 2009 according to the International Stainless Steel Forum.
* Gold Fields Minerals Services estimates that China’s consumption of copper should rise by 4.9 percent this year. However, even if that figure were to be 11.2 percent, the world would still face a surplus of copper in 2009.
* Canada’s principal energy producers have lowered their estimate of oil-sands output for the third time in a year, due to project delays and cancellations caused by falling crude prices and scarce available credit. Oil-sands production is now expected to come in at 1.9-2.2 million barrels per day in 2015.
Opportunity
* Iraq is looking to boost the output of its southern oil fields by as much as 500,000 barrels of oil per day by 2011. There are currently ongoing talks with major foreign companies to solicit help in reaching the goal.
* The Nigerian National Petroleum Corporation intends to increase Nigeria’s natural-gas production by 5 billion cubic feet per day or 147 percent by 2013. The country expects to spend $5 billion in the natural gas sector beginning this year in an effort to double its power-generation capacity to 6,000 mega watts.
Threat
* The IEA has calculated that investment in over 2 million barrels per day of oil and over 1 billion cubic feet of gas have been cancelled in the last six months. It is warning that sustained lower investment could lead to a spike in prices in only a couple years.
We are all hoping for a correction in Natural Resources prices this summer. Although I’m trying to be careful what I wish for, in the longer-term any corrections will most likely be looked at as favorable accumulation points.
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.
Disclosure: Of the funds and stocks I’ve mentioned in this article, GLD and SLV are the only ones I’m currently long in.
The Following Stocks Were Mentioned In This Article: ABX, APA, CNQ, COP, CVX, GDX, GLD, IGE, SLB, SLV, USO
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