Contrarian Stock Market Investing News - Featuring Bargain Stocks » Diesel Fuel

Oil Rises above $68, Dollar Supports

Contrarian Profits — Tue, 23 Jun 2009 14:55:48 +0000

Oil rose above $68 a barrel on Tuesday, reversing earlier losses, supported by a weaker dollar and ahead of inventory data expected to show a fall in crude stocks.

U.S. crude for August was up 58 cents at $68.08, by 1212 GMT, off an earlier low of $66.37. U.S. crude for July delivery expired on Monday, settling down $2.62 at $66.93 a barrel.

London Brent crude rose 48 cents to $67.46.

The dollar fell more than 0.5 percent against a basket of currencies on Tuesday. A lower dollar can strengthen commodities denominated in the currency.

The market awaited U.S. weekly inventory data from the American Petroleum Institute due later on Tuesday and U.S. government oil stocks figures on Wednesday for clues on the demand outlook for the world’s top energy consumer.

A Reuters poll of analysts ahead of the government inventory data forecast crude stocks fell by 1.3 million barrels last week on lower imports, while gasoline stocks and distillates, including heating oil and diesel fuel, were seen rising.

The API will release its weekly stockpile data at 2030 GMT, while the U.S. Energy Information Administration will release its report on Wednesday at 1430 GMT.

Special Energy Indicator Points Toward Higher Gas Prices and a Potential 467% Profit Play

Keith Fitz-Gerald — Fri, 13 Jun 2008 12:02:46 +0000

Here at Money Morning over the past six months, we’ve talked a great deal about oil and gasoline prices. We’ve offered our predictions about how high those prices were going, and have detailed a number of investment opportunities – chosen as much for their margins of safety as for their profit potential.

This time we’re going to detail three energy stocks with the potential for double-digit – or even triple-digit – profit gains. Admittedly, these are longer-shot, speculative plays. But we used a special energy indicator to help ferret out these energy plays.

This indicator is known as the “crack spread.”

In case you’ve never heard the term before, the crack spread is the difference between the price of crude oil and the value of the petroleum products that refiners can make from it. The crack spread can widen or narrow over time, depending upon various combinations of supply and demand.

If the spread is positive, that means the price of the products that result from the refining process – gasoline, diesel fuel, aviation fuel, heating oil, kerosene and asphalt, to name a few – is greater than the cost of the crude oil needed to make them. But if the spread is negative, it suggests that the cost of crude is higher than the end-game value of its derivatives.

Right now, the crack spread is narrowing. In fact, it has been for some time as governments around the world and gasoline companies actually try to hold down the pain motorists feel at the pump.

Granted, governments and major oil players make for strange bedfellows. But they have a common interest right now: Both are trying to prevent “demand destruction,” the plunge in oil demand that would result if millions of motorists – fed up with high oil and gasoline prices – just stopped driving. Governments want to prevent an economic collapse, while the integrated oil companies simply want to avoid being branded as the “bad boys” of the soaring-oil-price era – making it much easier for the incoming presidential administration to slap the entire sector with an “excess-profits tax” (something that’s already being discussed by Washington insiders).

But we can also see another scenario, one that’s very different. Peering into our crystal ball, we can see a situation in which the crack spread begins to widen, and gasoline prices run away anyway – eventually reaching $7 or even $9 a gallon.

For motorists, the pain would be excruciating. For investors, however, there’s a chance for double or even triple-digit profit gains.

Let me explain…

The Subsidy Gambit

It turns out that a number of Asian governments – most notably Taiwan, Malaysia and China, for instance – are actually reducing or eliminating fuel subsidies designed to shield their consumers from crude oil’s relentless march. Ostensibly, this is designed to control demand, but history suggests this will merely give those with the money access to increasingly large supplies that they’ll gobble up. In other words, we believe that demand may be growing fast enough to override the prices that governments around the world still believe to be inelastic.

Combine that possible new reality with the fact that a developing Asia accounts for as much as 70% of the increase in global oil consumption, this end of subsidies would probably hammer worldwide markets, including our own.

Given that Asia represents a mere 20% of current global usage, Asia’s growth is critical to how the rest of the world uses and prices petroleum-related products – particularly gasoline. Incidentally, this stands in stark contrast to how Japan and much of Europe do things where high taxes on fuel and transportation are used to blunt demand.

The economic forces that will be unleashed when these subsidies are removed have the potential to make the Great Tunguska Blast that took place 100 years ago this month look like a wet firecracker.

Indonesia, for instance, spends nearly 20% of its budget to underwrite fuel costs and has telegraphed a 30% hike in fuel prices when those subsidies are removed. It’s much the same story in China, India and the Philippines, where separate figures for fuel subsidies are hard to come by, but where it’s safe to say that the net effect of these price controls have contributed to artificially low prices and artificially high levels of demand.

In China, where the government caps gasoline prices, for instance, motorists pay about half of what their U.S. counterparts pay. All in all, governments around the world will spend about $100 billion on oil subsidies this year – meaning about half the world’s population is benefiting from “cut-rate” petroleum prices. This year, those folks will account for all of the growth in global oil demand, equal to an additional 1 million barrels of oil per day, says Deutsche Bank AG (DB).

Now, pressure is escalating globally for countries to end the subsidies the world economy can ill-afford. The International Monetary Fund (IMF), for instance, is “calling on governments to let consumers face market prices in order to kick-start conservation and reduce official spending,” says The Christian Science Monitor.

As I hinted earlier, this change has the potential to jam a lot of consumers personally. But it would allow world markets to function as, well, markets. And that, in turn, would afford investors one of the biggest turnaround opportunities available in the energy sector today. The reason: As the subsidy removals, pricing changes and demand shifts work their way through the global economy, the crack spread would widen again… and fast.

And the biggest beneficiaries could well be the oil refiners, which have seen their profits get zapped along with crack spreads in the past year.

The Best Way to Play the Shift From Subsidies

If there is a sector turnaround, the upside could be huge. And the three firms in line to benefit are Western Refining Inc., Valero Energy Corp. and Holly Corp. Let’s take a closer look at each of the three:

Western Refining Inc. (WNR): The El Paso, Tex.-based Western is an independent crude-oil refiner that owns and operates four refineries, and that also owns and runs 155 retail service stations and convenience stores in the Southwest. Although Western’s shares rose 77 cents each, or nearly 7.1%, to close at $11.66 yesterday (Thursday), the stock is down 82% from its 52-week high of $66.13. Independent researcher Soleil Securities Group Inc., this week initiated coverage of Western with a “Sell” rating and a target price of $8, contending that the company is highly leveraged and has seen its shares suffer in concert with its peers as part of a general sector downturn. That underscores the sentiment these companies face. But a return to its 52-week high would represent a 467% gain.

Trucking Dies & Railroads Fly When Diesel Fuel Crests $3.00

Adam Lass — Thu, 05 Jun 2008 17:58:52 +0000

Rail has a powerful tenfold advantage over trucking when fuel costs are high. Heavy Trucks require 3,357 BTU per short ton mile while Class 1 Railroads use only 341 BTU per short ton mile.

The moment diesel fuel crested $3/gallon trucking simply could not compete. This trend will only accelerate now that diesel prices have passed the $4 mark.

It’s no shock that mega-investors like Buffett and Soros are reinventing themselves as modern-day rail barons. You should, too:

Buy CSX (CSX: NYSE)
Sell Con-Way Frt. (CNW: NYSE)

Adam Lass

Senior Editor, WaveStrength Options Weekly

***Black’s $15 Million “Magic Number” Could Hand Early Investors 135%

Join Wall Street’s top traders and grab a 135% winner guaranteed… but you must get in by June 31, 2008…

Click here for enrollment information.

Source: Trucking Dies & Railroads Fly When Diesel Fuel Crests $3.00

US Oil Refiners to Cash In on Global Diesel Boom

Contrarian Profits — Mon, 19 May 2008 19:48:04 +0000

As high prices at the pumps and the rise of biofuels cut into demand for gasoline, US oil refiners are switching their attention to diesel.

“The trend that is important behind the story of the future expansions is the downtrend in gasoline,” said Joanne Shore, analyst for the U.S. Energy Information Administration, speaking to Thomson Reuters.

“We feel that demand for distillates is going to be higher than gasoline for the next several years. And margins right now for distillates are quite a bit higher than gasoline, so it makes more sense to do your investments there than other projects,” Valero Energy Corp spokesman Bill Day said, in the same article.

Demand for diesel is increasing globally, with China and Europe playing a major part in driving prices up. This from Bloomberg:

China is pushing the price of diesel fuel higher by stockpiling it ahead of both the Summer Olympics and the need to rebuild Sichuan province after last week’s earthquake … The country is hoarding the fuel in the event that its power grid fails and it needs to use backup generators.

Low inventories in Europe are also pressuring diesel prices, which have risen 53 percent in the last year in the US, compared with a 20-percent increase in gasoline.

Tom Dyson in Daily Wealth says, “I’m trying to figure out if ethanol’s a good investment. Frankly, I haven’t made up my mind yet. The fortunes of the ethanol industry depend on the government. Without the government’s support, the ethanol industry wouldn’t exist in America. So to invest in ethanol, you have to know what the government’s going to do.

“John McCain hates ethanol. If he wins the election, he’ll remove all the ethanol subsidies and hurt the farm economy. If the Democrats win, they’ll keep the subsidies in place, and ethanol stocks will probably take off.”

High Energy Prices Are Threatening the World’s Copper Supply

Matt Badiali — Sat, 26 Apr 2008 14:12:08 +0000

Just imagine if gasoline cost $20 a gallon. You’d start by cutting your driving in half. Then you’d almost never go out to restaurants, because food would become so expensive. You’d probably pull the old bike out of the closet. America would scream bloody murder and lynch the CEO of ExxonMobil.

A 400% increase in the price of a precious fuel source sounds outlandish, but that’s exactly what’s happening in the country that produces more copper by far than its closest competitor.

It’s happening in Chile. Only it’s not gas, it’s electricity.

The price of electricity in Chile has jumped from about 3.5 cents per kilowatt-hour to 35 cents per kilowatt-hour in just three years. That’s like gasoline spiking from $2 a gallon in 2005 to $20 a gallon today.

This situation – which has big implications for commodity investors – stems from a deal between Chile and Argentina a few years ago…

In 1995, Chile generated 57% of its electricity from hydroelectric dams, 28% from coal, and the rest from diesel fuel. The government sought ways to diversify its electrical generation. It settled on cheap, clean natural gas piped in from neighboring Argentina. The media hailed the project as a model of national cooperation.

Chile bet big on Argentine natural gas, which quickly came to produce 37% of the country’s electricity. The switch lowered energy prices… for about 18 months. Then, like my junior prom date, the relationship went bad in a hurry…

Argentina proved to be a terrible partner. By 2004, it began violating its production contracts. To meet increasing Argentine demand, suppliers cut the gas coming into Chile.

Chilean electrical production shifted to diesel, which effectively tripled the cost. Companies had to bring many of the old diesel generators out of retirement. Where a natural gas turbine costs $50 per megawatt-hour to run, the old diesel turbines cost $250 per megawatt-hour… a 400% increase.

———- Advertisement ———-
S&A Readers Have Less than 2 Days to claim their Charter Membership to The FDA REPORT – Dr. George Huang’s unique trading advisory.

This special offer gives you the opportunity to pay 50% less than everyone else.

But you must claim your discount before midnight, April 28.

Click here to learn more.
————————————-

On top of all that, Chile is in the midst of its worst drought in decades. No water means no hydroelectric power. So the country is even more dependent on diesel than ever before.

This power crisis has rocked the global copper market. Chile produces 40% of the world’s copper. That supply is at risk… so naturally, copper prices are going up.

Back in July 2007, analysts at Macquarie and Citigroup projected copper prices around $3.50 per pound in 2008. Credit Suisse analysts bumped up their 2008 price forecast to $3.50 in March. Despite their increasedprojections, these firms are still underestimating copper’s stunning run, as you can see.

China is the world’s biggest consumer of copper. A lot of analysts thought a U.S. recession would put a damper on China’s demand, driving down the price of copper. But a stateside downturn only hurts China’s exports… Much of the country’s copper goes to internal development projects.

When it comes to choosing commodity stocks to buy, I’m not a big fan of relying on predictions. As my good friend Steve Sjuggerud says, the best indicator of tomorrow’s price is today’s close. In copper’s case that’s about $3.95 per pound, which is 33% higher than in December 2007.

Shares in copper producers have done well over the past year… But with China’s voracious appetite for commodities and Chile paying through the nose to pull its copper out of the ground, I think an investment in this sector is still a terrific way to play the bull market in natural resources.

Good investing,

Matt

P.S. We’re jumping at this huge opportunity in the S&A Prospector with a small Chilean copper company that produces without the high cost of mining. It pays a 6% dividend, will nearly double its copper production this year, and has found a way to reduce its electricity costs by 40%.

We get the benefit of high copper prices, reduced costs, and one of the largest dividends in the industry. Click here for more on the S&A Prospector and how to access this report immediately.

Truckers Protest Fuel Hikes

Contrarian Profits — Tue, 01 Apr 2008 19:20:19 +0000

US truckers have started an ad hoc protest across the country over recent hikes in fuel prices, reports AP.

Some truckers, on CB radios and trucking Web sites, had called for a strike Tuesday to protest the high cost of diesel fuel, saying the action might pressure President Bush to stabilize prices by using the nation’s oil reserves. But the protests were scattered because because major trucking companies were not on board and there did not appear to be any central coordination.

On New Jersey’s Turnpike, southbound rigs ‘as far as the eye can see’ were moving at about 20 mph near Newark, said Turnpike Authority spokesman Joe Orlando. Other truckers had gathered at a service area near Newark chanting and protesting.

Read on at Brietbart.com.

“Bad US energy policy will take down everything,” says Peak Oil expert Byron King.

“One of the biggest hurdles to the U.S. getting energy right is that the mainstream media infotainment circus has not prepared people to connect the dots of what they already know. Think about your own daily observations.

“People ’see’ information that tells them how much oil, for example, is in the hands of the national oil companies of many foreign nations. But the mainstream media (MSM) — and a lot of U.S. politicians — corporately hate Big Oil so much that they won’t inform viewers and readers how little control the name-brand players have anymore.

“Really, in a lot of respects, Exxon Mobil, Shell and Chevron are now bit players in oil. The MSM are stuck in the 1970s, in the thought processes of the disco era. Really, the MSM need to lose the polyester leisure suits.”