However, Matt Badiali in The Growth Stock Wire says lower crude oil prices should be good news for fuel refiners. When oil prices were in the stratosphere this summer, refiners lost out because demand for gas dropped hard.

Matt says refiners’ stock is rising and should continue to do so, as long as we don’t see another spike in crude prices…

This from Matt:

From an investors’ prospective, refining seems like a bulletproof investment. These companies have a huge “moat” because you can’t build new refiners. And they supply a necessary commodity – it’s not as if you can turn to some other fuel for your car if the price goes up.

But Americans parked their cars when the price of gasoline hit $4 a gallon. So not only were refiners losing money on the margins, they sold fewer gallons.

For example, Sunoco – an average U.S. refiner – lost $91 million on its refining business during the first half of 2008. It earned $558 million in that same period in 2007. Shares of the company are down 46% from their 52-week high.

However, those shares are also up 35% since early July, when they bottomed. Barring another spike in the oil price, I think refiners’ share prices will come up. But thousands of companies out there make much better margins than refiners. It’s a cyclical business… and tough to make money on in the long term.

Source: Are Refiners a Buy at Last?

Gold for December delivery gained 50 cents to $817.30 an ounce on the Nymex. Yesterday, the metal climbed $11.10, or 1.4%, to close at $816.80.

Gold is, however, a long way off its March high of over $1,000 an ounce. And many investors in gold are now left wondering what triggered such a sharp sell-off.

Geologist and S&A Oil Report editor Matt Badiali says the key to gold’s drop is the unwinding of hedge fund-positions in commodities…

Gold and silver got caught in a massive trade that came undone… About six months ago, the Federal Reserve had a choice to make: fight inflation or bail out financials. It chose the latter.

So hedge funds bought the entire commodity sector as part of a bet against the U.S. dollar. These investors based their trades on the same theory – that real assets (gold, silver, oil, grains, and other commodities) were going to increase in value.

The problem is this trade depended on high oil prices. Falling demand meant high prices were unsustainable and, as oil dropped, funds unwound their positions. This boosted the dollar and routed gold.

What’s in store for gold now? According to Matt, prices will fall further…

I think we’re seeing the other side of market exuberance – the same energy that drove oil to $145 a barrel is taking it back down again. Just as that tide brought all commodity prices up with it, everything, including gold and silver, will sink as it washes out.

Matt says expect gold prices to settle in the near term at $770 an ounce, roughly 4% lower then they are now.

Adrian Ash of The Bullion Vault says this makes gold a “screaming” buying opportunity, as history shows we should soon be expecting another steep rebound in the price of precious metals. More from Adrian:

With a near-tedious rhythm, the price of gold has risen in spring, slipped back or steadied in summer, and then enjoyed very much sharper gains once more, before the next year really gets started.

There are no guarantees this shape could be repeated this year. With the gold price falling so far, so fast, from its recent all-time record highs, sentiment among professional and institutional traders has clearly turned against the metal.

Gold buying by the world’s No.1 buyers, meantime, has indeed collapsed, with imports to India dropping by 47 percent in the first half of 2008 from the same period last year. Indian gold buyers tend to account for the surge in physical buying seen during the autumn, as their festival season culminates in Diwali, the “festival of lights.”

Diwali falls at the end of October this year. Reports out of India say the recent sharp falls in gold prices have already led to strong investment and jewellery demand. And here in the West, the economic background remains very bullish for gold — at least according to history.

 

U.S. interest rates now lag inflation in the cost of living by more than three percent. A mountain of leveraged debt still teeters above Manhattan and the City of London. Government debt is rising worldwide, with a true “monetization” of bad loans at Freddie Mac and Fannie Mae now only a few weeks or months away.

If you thought about buying gold but were deterred by this spring’s sudden high prices, it may be worth noting that the case for gold remains as it was. Too much debt, plus too much inflation, threatens to destroy the value of savings and wealth held in paper (whether in bonds, cash or equities). Physical gold, in sharp contrast, cannot be created at will. Owned outright — in your name alone — it’s also no one else’s liability or promise to pay.

I think precious metals are a pretty low-risk investment in general right now. We’re on the brink of a global inflation crisis.

I’m no economist, but I know inflation when I see it. The price of oil is incredibly high. Oil affects the price of everything. Plastics are made from oil. Trucks, trains, and boats that move goods from point A to point B burn oil products. No matter what it is, if you bought it, you paid an “oil tax.”

That’s not an American phenomenon, that’s worldwide. High oil prices mean price inflation on a global scale.

Take a look at Asia, where Indonesia’s inflation rate is 10%, the Philippines’ is 10%, and India’s is 12%. Those countries are indicative of much of the developing world, where food and fuel prices have a bigger impact on the economy than in the West.

However, even in places like England, inflation is skyrocketing. The Financial Times reported inflation rose to 3.8% in June alone. The head of the Bank of England forecasts 4% by the end of the year – which now looks like a conservative estimate.

Global inflation is going to drive the price of gold and silver through the roof and into the sky. When inflation raises its ugly head, investors buy gold. Gold and precious metals are impossible to create from thin air (as opposed to paper and ink currencies). So as governments run printing presses night and day, the value of gold and silver soars.

The safest bet for silver bugs is a big silver exchange traded fund like PowerShares DB Silver Fund (DBS) or iShares Silver Trust (SLV). These funds are designed to track changes in the price of silver. Another possibility is the PowerShares DB Precious Metals Fund (DBP), which tracks both gold and silver.

However, I like the big silver miners. The recent market correction clobbered the entire sector. Many big silver stocks are sitting at 52-week lows. Any boost in the silver price will send them flying.

However, mining companies are risky. They can have problems with mines or striking workers. These problems can leave your shares flat while the rest of the sector soars. The best way to avoid this is to own shares of several mining companies. I don’t know of a silver mining ETF, so you’ll have to do it yourself.

Source: Commodity Q&A: The Best Time to Buy Silver is Right Now

Twenty years ago, Fort Worth, Texas, was a much different place than it is today.Once an unremarkable Dallas suburb, it has blossomed over the last two decades into the most important natural gas hub in the United States.

Just this week, I flew into the Dallas-Fort Worth Airport. Driving around, I was struck by how the typical suburban landscape in Fort Worth has been overrun with natural gas infrastructure. Natural gas pipes wend their way through the community. New pipeline rights of way and wells are everywhere. Companies are leasing subdivisions – cul-de-sac by cul-de-sac – to drill beneath them for gas.

You see, Fort Worth sits in the heart of the gas-rich geologic formation known as the Barnett Shale. Shale is a sedimentary rock made of fine particles of clay and mud deposited at the bottom of ocean basins or giant lakes. The shale oil and gas companies covet has a lot of old plants and algae mixed in. That kind of shale makes natural gas and sometimes oil over time. The Barnett Shale is a textbook example.

Here’s what Oil and Gas Investor recently said about the Barnett Shale:

With high-profile Barnett asset sales of more than $1 billion and gross production topping 1 billion cubic feet per day (bcf) – and even the Fort Worth City Council willing to lease city land for drilling – no one needs to be convinced that shale plays are valuable, highly prospective and worth a closer look.

Indeed, the boom is on… Between 2004 and 2007 alone, the number of well permits issued by the state for the Barnett Shale rose 231%, from 1,112 to 3,679. As of June 3, energy companies had drilled 7,766 gas wells in the Barnett Shale, and drilled and permitted another 4,661 wells.

———- Advertisement ———-
Two Simple Words that Could Make You Rich

There’s a simple 2-word secret to generating bigger, faster gains on every trade you make.

In fact, most of the world’s richest traders use it to grow and protect their wealth…

… Like the legendary David Ryan – who used this secret to win the prestigious U.S. Investing Championship 3 times with a remarkable 3-year return of 1,379%.

Click here to learn how you can use it.
————————————

The Barnett Shale adds $5.2 billion per year to the Fort Worth economy. You can expect that to double in the next seven years.

And plenty of energy companies have made fortunes in the Barnett Shale over the last five years. One company in the S&A Oil Report portfolio, XTO Energy (XTO), went from $32 per share to more than $73 at its peak in just two years. Another Barnett player, Quicksilver Resources (KWK), went from $19 to $45 this year alone.

The U.S. consumes about 23 trillion cubic feet of natural gas per year, but only produces about 19 trillion cubic feet. Canada supplies the rest, but it is falling short. Between a lack of drilling and the increased use in developing tar sands, Canada’s exports will dwindle.

That means the future of U.S. natural gas prices looks good for the long run.

Of course, the run-up in share prices for Barnett Shale developers like XTO and Quicksilver means we won’t find a lot of bargains there. But seeking to repeat its overwhelming success in Barnett, the energy industry has turned its attention to an equally promising shale region – this one in the birthplace of the U.S. petroleum industry, Pennsylvania.

Central Pennsylvania is flush with a dark, organic-rich shale industry professionals compare to the Barnett Shale. The shale, called Marcellus, has the kind of potential to turn poor farmers into millionaires.

Importantly, these gas-rich shale beds are close to the demand centers of the urban corridor from Boston to Richmond – unlike natural gas stranded in Colorado and Wyoming.

In 2002, the U.S. Geological Survey estimated these eastern shale beds hold 30.7 trillion cubic feet of natural gas – that’s a little more than a year’s worth of consumption for the entire U.S. But more recently, Schlumberger’s engineers updated those estimates, taking into account the technological advances from 2002 to today. Schlumberger puts the volume up as high as 1,000 trillion cubic feet – more than 32 times the old estimate.

Right now, companies are rushing to the shale region of Pennsylvania the way they did in Fort Worth a few years ago. Pretty soon, companies working there will see their shares take off the way Barnett developers did.

I’m a long-term natural gas bull, so I think you’ll do well in several different kinds of investments here… from pipelines to ETFs to exploration companies. But for the biggest returns, I recommend focusing on Pennsylvania – the site of the next great American energy boom.

Source: Why Pennsylvania Land Prices Are Skyrocketing

This piece is taken from The Growth Stock Wire. It’s in the form of a questions and answers session. But it’s well worth the read if you’re interested in the ins and outs of shale oil.

The Commodity Investor

Matt Badiali

Q: I’ve read some articles on shale gas. What is the big deal with this stuff? – H.B.A: Shale is the world’s most common rock, formed from mud and clay deposited at the bottoms of lakes and ocean basins. Shale looks like the slate you see in chalkboards or on roofs, (slate is actually shale that was “cooked” in the earth).

Clay and mud are tiny -– much smaller than sand. So it’s hard to tap shale deposits. (See the next question, about the Bakken Shale, for more details.)

Some shale is full of old plants and animals. These shales become the source rocks for oil and natural gas. In the past, it didn’t make sense to drill shale for either oil or gas. Shale presented technical challenges that were beyond most of the industry. However, that began to change in 1990, when oil-service giant Schlumberger began focusing its attention on the natural gas in shale.

The company estimates that shale contains 500 billion to 780 billion thousand cubic feet (MCF). We consume about 23 billion MCF per year, so that’s about 20 to 34 years worth of natural gas. Today, one MCF sells for more than $13. So the reward is in the trillions of dollars.

The Barnett Shale became the proving ground for shale technologies. Barnett is in the Fort Worth Basin of Texas, which underlies the entire region west of the city of Fort Worth. The Barnett Shale holds between 25 billion and 250 billion MCF.

———- Advertisement ———-
Why We’ve Doubled the Price of the #1 Research Service in the Industry

One full year of the best-performing research advisory we publish now costs $4,000.

And going forward, we may raise the price even higher. Why?

Click here for more information.
—————————————–

I’m not targeting companies that are just Barnett players for investment. However, I am interested in companies that learned how to drill the Barnett and are now leasing land in the many new shale regions.

Investors can take a look at companies operating in the Huron Shale in southern Ohio, the Fayetteville Shale in Arkansas, and the Ootla in Canada.

Q: Why can’t we pump all the oil out of the Bakken Shale? – D.S.

A: The Bakken Shale, the granddaddy of the shale oil fields, underlies northeastern Montana and western North Dakota. A recent government report put the amount of oil in the Bakken Shale between 200 billion and 400 billion barrels: enough to eliminate our oil imports for at least 45 years.

However, the report also says we can only recover about 3 billion to 4 billion barrels of that oil with current technology. That’s a terrible recovery rate… around 1% or 2%.

The problem with the Bakken Shale – and with many of the shale deposits around the world – is “permeability.”

Some reservoirs are like a glass of grape juice and ice cubes. You stick in a straw and suck up the juice around the ice cubes. That’s a permeable reservoir.

However, some reservoirs are like clusters of grapes. You know there’s a lot of juice in there, you just can’t get it out. You have to stick the straw in each grape, suck a little, and then move to the next one. That’s an impermeable reservoir.

Impermeability is one of the problems facing by companies working in the Bakken Shale and other “unconventional” oil fields. You need a way to put the straw through as many grapes as possible.

It took a long time for oil companies to realize that drilling straight down wasn’t the best way to do that. The solution is directional drilling. In directional drilling, the well is drilled at an angle using a computer to help guide the drill bit.

I visited a well in south Texas where the bit went down deeper than a mile, then turned west and drilled horizontally for more than a mile. I was amazed… Here was this thick steel drill casing, steered by an engineer in a truck miles away. Now nearly all the big drilling and service companies, like Schlumberger (SLB), Halliburton (HAL), and Baker Hughes (BHI), offer steerable drilling in three dimensions.

In 1990, only about 40 rigs, or 6% of all the rigs in the U.S., were drilling horizontally. As of last month (according to the Department of Energy), 519 rigs, or 28% of the total, were drilling horizontally.

That makes it much easier for oil companies to get more out of their shale deposits. And as this technology advances, I think more of Bakken’s “grapes” will yield oil.

Some excellent companies are drilling in Bakken, including XTO Energy (XTO). But while XTO is adding reserves, you’re going to have to pay up for the growth these days. I told readers of the S&A Oil Report about the company last July, and we’re up 41% so far.

Good investing,

Matt

Source: The Commodity Investor Q&A

The black goo reached yet another all-time high today at over $141 a barrel.

Crude oil futures on the Nymex hit a new record of $141.71 in electronic trading, smashing yesterday’s all-time record price of $140.39 a barrel.

Crude oil prices spiked partly on comments made by OPEC’s president that crude oil prices go higher still on dollar weakness. Fears that Libya would cut supply also sent jitters through the market.

The decision yesterday by the feds to hold rates steady in the face of rising US inflation is seen by many as critical to oil’s recent spike.

Energy expert Kevin Kerr is now calling crude oil at $150, according to a report by MaketWatch.

Stansberry Research’s Matt Badiali is not so sure. He says a reduction in demand will bring crude oil prices down…

Let’s look at a simple statistic: Drivers consume more than 60% of all the oil used in the U.S. That demand can be cut… radically. Take my parents, for example. They work about four blocks apart… but take separate cars. That’s an easy fix if gas prices go nuts.

And the Energy Information Administration (EIA), a division of the Department of Energy, thinks the U.S. population is already making those choices. It predicts U.S. petroleum consumption will fall by 440,000 barrels per day over the next year.

That’s only a fall of 2.1% in 2008. But the EIA originally predicted a fall of less than half that. I expect the actual decrease will be larger than even this estimate.

Same thing goes for demand in China. The government just cut its oil subsidy. Guess what? Demand is going down.

Despite crude’s ascent, shares in US oil majors ExxonMobile (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) are all down so far off yesterday’s close

Matt says Hirsch is a nut who is ignoring demand and only looking at supply.

Recent developments support both sides of the argument.

Today’s Financial Times reports that “oil prices dropped sharply yesterday as traders reacted negatively to evidence that record retail petrol prices above $4 a gallon were damaging demand in the US.”

AP reports that oil prices have soared “after the president of OPEC, Algerian Energy Minister Chakib Khelil, said crude could hit a record 170 dollars this year owing to a weak US currency and geopolitical unrest.”

Oil prices are currently up above $137 on the Nymex.

Commodity Q&A: $500 Oil

by Matt Badiali

Q: I heard someone on CNBC call for $500 oil in three years? Do you think prices will go that high? – N.B.

A: Dr. Robert Hirsch is the Senior Energy Advisor at Management Information Services, an economic and energy research firm. He’s a peak oil guru.

And frankly, I think he’s a nut.

When he was on CNBC, he was “talking his book,” calling for huge price increases in oil. But Hirsch made a mistake common among scientists: He fell in love with his theory and forgot his basic principles.

Now, Hirsch probably forgot more about economics than I’ll ever know. However, I think when he predicts oil at $500 a barrel, he’s ignoring demand and only looking at supply.

If you think supply is inadequate, like Hirsch, then you extrapolate nightmare scenarios of skyrocketing prices. To strengthen his argument, Hirsch adds growing populations around the world and claims that they will also compete for oil.

———- Advertisement ———-
Don’t Lose this 9-Digit Code: 925335AD3

To most people, the series of 9 numbers and letters above mean absolutely nothing. But if you follow just one simple instruction… and relay this 9-digit Code to your broker… you are entitled, BY LAW, to receive as much as 181% in gains by June 15, 2009.

Surprisingly, the Code has nothing to do with stocks, mutual funds, gov’t bonds, options, or any other investment you’ve likely heard of…

Learn more…
—————————————–

But think about what $500 oil by 2011 would mean – gasoline at $12 to $15 a gallon… not to mention jet fuel, diesel, and so on. Cars would sit idle in driveways. We couldn’t afford to ship packages or buy produce from outside our own zip code.

Hirsch ignores the basic fact that demand must fall off long before oil hits $500.

Let’s look at a simple statistic: Drivers consume more than 60% of all the oil used in the U.S. That demand can be cut… radically. Take my parents, for example. They work about four blocks apart… but take separate cars. That’s an easy fix if gas prices go nuts.

And the Energy Information Administration (EIA), a division of the Department of Energy, thinks the U.S. population is already making those choices. It predicts U.S. petroleum consumption will fall by 440,000 barrels per day over the next year.

That’s only a fall of 2.1% in 2008. But the EIA originally predicted a fall of less than half that. I expect the actual decrease will be larger than even this estimate.

Same thing goes for demand in China. The government just cut its oil subsidy. Guess what? Demand is going down.

Dr. Hirsch needs to rethink his theory.

Source: Commodity Q&A: $500 Oil

According to the London Times, the price of sulfur has risen from $50 to $500 a ton in under a year. More from this report:

“Shell is one of the most-efficient producers of sulphur,” Barry Clarke, a sulphur market analyst for Pentasul, said. Shell produces about 3.5 million tonnes of sulphur, much of it from its Canadian oil sands business, and its cost, Mr Clarke reckons, is merely the rail freight cost of getting the sulphur to a port, about $25 a tonne.

Mr Clarke agrees that sulphur, once a burden, could earn the oil industry billions this year. “It’s going to show up in the earnings of companies,” he said. The price is expected to rise further with spot cargoes changing hands for as much as $700 a tonne. Demand for metals is also keeping sulphur bubbling, as sulphuric acid is used in the mining industry to leech metal from ore.

“The biofuel boom has kicked off a big increase in the demand for sulfuric acid,” says Chris Mayer in The Daily Reckoning.

“In fact, some 60% of the sulfuric acid ends up in agriculture. The surge in ethanol production is a double whammy on sulfuric acid. First, all that corn needs fertilizers. And second, the ethanol facilities themselves also use sulfuric acid in their own processing. A typical ethanol facility requires 2,000-4,000 tons of sulfuric acid per year.

“Then there is that great demand pull from China and India. Traditionally, these two countries produced what they needed. But now their own rapid industrialization has turned the tables. They’ve switched from being exporters to importers of sulfuric acid.”

Read on to find the only “pure play” on sulfuric acid spot prices — a little-known company that’s one of the world’s largest suppliers of sulfuric acid.