Energy & Commodities

There is blood in the streets in the energy sector.  Oil- and gas-related stocks have been pummeled for the better part of the past year and a half. Yet, economists and analysts continue to lower their forecasts for energy prices and downgrade stocks in the group.  The latest rout came this week on bankruptcy rumors surrounding Chesapeake Energy (NYSE: CHK) — once one of the world’s largest natural gas producers — which seemed to call into question the survival of some companies in the space. However, there is little question regarding long-term demand in the sector. Natural gas… Read More

There is blood in the streets in the energy sector.  Oil- and gas-related stocks have been pummeled for the better part of the past year and a half. Yet, economists and analysts continue to lower their forecasts for energy prices and downgrade stocks in the group.  The latest rout came this week on bankruptcy rumors surrounding Chesapeake Energy (NYSE: CHK) — once one of the world’s largest natural gas producers — which seemed to call into question the survival of some companies in the space. However, there is little question regarding long-term demand in the sector. Natural gas accounted for 35% of U.S. power generation last year, up from just 20% in 2010. And BP (NYSE: BP) estimates natural gas consumption will grow 13.4% through 2020. #-ad_banner-# Energy companies that can survive the current storm could thrive when the clouds clear. In the current market, though, one natural gas heavyweight could offer traders a chance to book a 174% annualized return. Why I’m Bullish On A Sector The Market Loves To Hate With oil and gas producers burdened by huge debt loads thanks to years of heavy capital investment and falling energy prices, it’s not surprising that… Read More

Shares of oil stocks plunged again as the price of West Texas Intermediate wiped out nearly half of its late-January rebound. Sluggish demand growth and stubbornly high supply has had investors whipsawed for months.  In all the confusion, it is difficult not to look at the long-term picture and be positive on oil and shares of energy companies. The dramatic cut in the North American rig count has to eventually curtail supply. Even on more uncertain forecasts, China and India are both expected to grow their economies by nearly 7% this year with higher energy demand in tow.  … Read More

Shares of oil stocks plunged again as the price of West Texas Intermediate wiped out nearly half of its late-January rebound. Sluggish demand growth and stubbornly high supply has had investors whipsawed for months.  In all the confusion, it is difficult not to look at the long-term picture and be positive on oil and shares of energy companies. The dramatic cut in the North American rig count has to eventually curtail supply. Even on more uncertain forecasts, China and India are both expected to grow their economies by nearly 7% this year with higher energy demand in tow.   #-ad_banner-#So far, Mr. Market has made a fool of the long-term perspective. Oil prices have fallen consistently since mid-2014 and more investors throw in the towel every day. The argument is to buy when there’s blood in the streets — but that’s not so easy to do when you’re already bleeding. How can you take advantage of the long-term upside for oil without the short-term pain? It turns out, Warren Buffett may have found the perfect balance. What’s The Future For Oil? Right now, no one knows what exactly to expect from the price of oil. No sooner… Read More

It’s already been a remarkable year so far in 2016 — especially in the rapidly fluxing oil sector.  Recently, crude set yet another historical benchmark, slipping below $30 per barrel for the first time since 2003.  #-ad_banner-#That caps a 70% slide in oil since the most recent peak in mid-2014.  And the fall has caused havoc in the sector. The most direct effect of lower crude is falling activity in the exploration and production (E&P) sector. Industry analysts at Baker Hughes reported that the U.S. drilling rig count has now fallen to 664 from 1,750 a year ago.  Simply put,… Read More

It’s already been a remarkable year so far in 2016 — especially in the rapidly fluxing oil sector.  Recently, crude set yet another historical benchmark, slipping below $30 per barrel for the first time since 2003.  #-ad_banner-#That caps a 70% slide in oil since the most recent peak in mid-2014.  And the fall has caused havoc in the sector. The most direct effect of lower crude is falling activity in the exploration and production (E&P) sector. Industry analysts at Baker Hughes reported that the U.S. drilling rig count has now fallen to 664 from 1,750 a year ago.  Simply put, many of the shale plays that became sweethearts for E&Ps and investors over the past five years are no longer viable. Cash flows are shrinking to the point where many drillers aren’t making money pumping crude here anymore.  Add that to high levels of debt that many E&Ps took on during the good times, and the industry has been hit with a sandbag.  These days, news of bankruptcies in the sector is coming almost daily. A recent analysis from experts at industry watchdog RBN Energy flagged a slate of 12 companies that are set to become “zombie” firms due to… Read More

Growing up I swore to myself that I never wanted to be a rancher or farmer. Moving irrigation pipe, caring for cattle, bucking bales of hay — needless to say the work was strenuous.  But the older I get, the more I find myself yearning for the back-breaking work and solitude that comes with the gig. Luckily, I still have a close connection to it. Being raised in a tiny village in the northwest, ranching and farming is — next to mining — probably the largest employer. And my father keeps a pulse on the agriculture business, as it directly… Read More

Growing up I swore to myself that I never wanted to be a rancher or farmer. Moving irrigation pipe, caring for cattle, bucking bales of hay — needless to say the work was strenuous.  But the older I get, the more I find myself yearning for the back-breaking work and solitude that comes with the gig. Luckily, I still have a close connection to it. Being raised in a tiny village in the northwest, ranching and farming is — next to mining — probably the largest employer. And my father keeps a pulse on the agriculture business, as it directly affects his business. #-ad_banner-#So I do my best to pick his brain about happenings in the agricultural business. And during a recent conversation I found myself particularly interested in what was going on in the corn and wheat sectors. What he told me was exactly what I wanted to hear… A Brief History Of The Corn And Wheat Markets Due to a large supply glut in the corn and wheat markets, prices have tanked roughly 50% since their 2012 highs. But I think conditions are ripe for a rebound in both corn and wheat prices — especially for corn. Read More

Forecasting the price of oil has become the hot topic heading into 2016. There seems to be little consensus on direction, though. Just as many forecasts call for $20 oil as for $50 per barrel.  There have been record inflows into energy ETFs as investors try to time a bottom. In fact, Bloomberg reports “a wide range of investors collectively spent about $24 billion over the past 18 months trying — and failing — to call a bottom in oil.” While other traders franticly try to catch a falling knife, I’ve uncovered an alternative play that is all… Read More

Forecasting the price of oil has become the hot topic heading into 2016. There seems to be little consensus on direction, though. Just as many forecasts call for $20 oil as for $50 per barrel.  There have been record inflows into energy ETFs as investors try to time a bottom. In fact, Bloomberg reports “a wide range of investors collectively spent about $24 billion over the past 18 months trying — and failing — to call a bottom in oil.” While other traders franticly try to catch a falling knife, I’ve uncovered an alternative play that is all but guaranteed to rally if oil rebounds, but should also do well while we wait. Higher Oil Someday‚Ķ  Despite the difficulty in timing a bottom, several factors point to an eventual rebound in oil prices. #-ad_banner-# More than $68 billion was slashed from capital spending across the energy industry in North America alone this year, with a survey by Barclays showing it could be cut by another 10% to 15% next year. Globally, the bank found capital expenditures were cut by 20% this… Read More

This year’s bear market in oil has taken the spotlight in the press, but it’s not the only commodity that has struggled. Natural gas has fallen 50% over the last year, reaching a low not seen in two decades. Many investors have been left scrambling to cover their losses. But I see this drop as an opportunity to focus on companies that will benefit from this epic bear market.  In fact, one company will have a huge advantage against international competition and is selling for a 35% discount to its long-term average. How To Play The Epic Bear Market In… Read More

This year’s bear market in oil has taken the spotlight in the press, but it’s not the only commodity that has struggled. Natural gas has fallen 50% over the last year, reaching a low not seen in two decades. Many investors have been left scrambling to cover their losses. But I see this drop as an opportunity to focus on companies that will benefit from this epic bear market.  In fact, one company will have a huge advantage against international competition and is selling for a 35% discount to its long-term average. How To Play The Epic Bear Market In Natural Gas Bear markets like the one in natural gas are extremely rare. And with prices touching 20-year lows on an inflation-adjusted basis,  you’d be hard-pressed to find an investment that has produced more losses.  There doesn’t appear to be any bottom for prices either. Both cost drivers, industrial demand and weather, look unfavorable for at least another quarter. Industrial output in the United States declined in August and September and broader economic growth has been mostly a result of consumer spending. Across the United States, record temperatures are being recorded as the El Nino weather phenomenon looks to… Read More

One of the most important points in the curriculum for the Chartered Financial Analyst (CFA) designation is diversification across asset classes. More than stock picking or top-down economic analysis, analysts are taught to take advantage of all asset classes to produce risk-adjusted returns for clients.  It’s a sound strategy, but one that runs up against problems when you start adding commodities to a portfolio. While assets such as stocks, bonds and real estate all produce cash returns through interest and dividends, investments in commodities offer no returns until you sell them. #-ad_banner-# Sure, mining companies may pay dividends,… Read More

One of the most important points in the curriculum for the Chartered Financial Analyst (CFA) designation is diversification across asset classes. More than stock picking or top-down economic analysis, analysts are taught to take advantage of all asset classes to produce risk-adjusted returns for clients.  It’s a sound strategy, but one that runs up against problems when you start adding commodities to a portfolio. While assets such as stocks, bonds and real estate all produce cash returns through interest and dividends, investments in commodities offer no returns until you sell them. #-ad_banner-# Sure, mining companies may pay dividends, but that adds company-specific risks to the portfolio. Meanwhile, share prices may move more closely with the stock market than with actual commodity prices. The good news is that one simple strategy lets traders produce immediate cash returns on commodities. And as the stock market wobbles heading into 2016 and higher interest rates threaten the business cycle, several signs point to this being a good time to invest in gold. Gold Bugs May Soon Be Rewarded After more than three years of falling prices, there is reason to believe gold could make a comeback.  First, for many investors, gold provides… Read More

You’ve probably seen coverage on the news: This week marks a summit of global leaders to talk about the challenges of climate change, and how they will pledge to reduce greenhouse gas emissions. Named the “twenty-first session of the Conference of the Parties” by the United Nations, or COP21 for short, the Paris talks include delegations from 195 countries, representing most of the world and all of its largest economies. Unlike past conferences intended to address climate change, this one is expected to result in a global plan to reduce greenhouse gas emissions considerably over the next decade through legally… Read More

You’ve probably seen coverage on the news: This week marks a summit of global leaders to talk about the challenges of climate change, and how they will pledge to reduce greenhouse gas emissions. Named the “twenty-first session of the Conference of the Parties” by the United Nations, or COP21 for short, the Paris talks include delegations from 195 countries, representing most of the world and all of its largest economies. Unlike past conferences intended to address climate change, this one is expected to result in a global plan to reduce greenhouse gas emissions considerably over the next decade through legally binding commitments — in effect, a global climate change treaty. Many countries, including the United States and China, have already made formal commitments to reduce emissions; there’s also stronger political support than ever before to do so — outside of the United States, where climate-change skepticism remains a political force, the overwhelming consensus is that action is urgently needed, supported by scientific evidence that no credible scientist disputes. The biggest potential snag to an international climate change treaty: the largest emerging markets, such as India and Brazil, which plan to expand energy use dramatically in the coming decades and fear… Read More

The energy market is officially broken. That’s according to the International Energy Agency (IEA). On November 10, the group announced that oil prices will remain low for a long time. Next year, the agency is forecasting a barrel of crude will go for just $60… and only $80 by 2020. For hundreds of U.S. companies caught up in the shale oil boom over the last decade, that’s disastrous news. At $60 a barrel, many oil companies will not generate enough revenue to break even. The root cause of this extended period of uneconomic oil prices, according to the IEA, is… Read More

The energy market is officially broken. That’s according to the International Energy Agency (IEA). On November 10, the group announced that oil prices will remain low for a long time. Next year, the agency is forecasting a barrel of crude will go for just $60… and only $80 by 2020. For hundreds of U.S. companies caught up in the shale oil boom over the last decade, that’s disastrous news. At $60 a barrel, many oil companies will not generate enough revenue to break even. The root cause of this extended period of uneconomic oil prices, according to the IEA, is the decision by the Organization of the Petroleum Exporting Countries (OPEC) to continue producing at 2014 levels. OPEC is made up of member countries like Saudi Arabia, Iran and Kuwait. The idea behind OPEC’s production mandate is to force many of the newer unconventional producers out of the market. While this will greatly impact OPEC’s own budgets, that strategy might end up bearing fruit. Nonetheless, there’s a far different winner in this story… one OPEC might not have even considered. To understand this side of the equation we have to first look at a completely different part of the energy… Read More

Today we look at the idea of harnessing the sun’s power to generate electricity. It seems like a no-brainer, but some of the best minds in the world have burnt through billions of dollars trying to get the technology right — without a smashing success that heralds the arrival of the solar age. The watchword for this technology is still “someday.” So solar has its share of skeptics.  That’s healthy. Investors should be perpetual skeptics, questioning everything, all the time, taking everything with a grain of salt and never investing in anything they don’t completely understand. I’m always amazed at… Read More

Today we look at the idea of harnessing the sun’s power to generate electricity. It seems like a no-brainer, but some of the best minds in the world have burnt through billions of dollars trying to get the technology right — without a smashing success that heralds the arrival of the solar age. The watchword for this technology is still “someday.” So solar has its share of skeptics.  That’s healthy. Investors should be perpetual skeptics, questioning everything, all the time, taking everything with a grain of salt and never investing in anything they don’t completely understand. I’m always amazed at people who tell me they’ve bought stock in Company X or Y and then admit to knowing nothing about what the company does. Solar skepticism is also logical, at least to a point. I will be the first to concede that by any number of measures, solar has failed to take off as a meaningful source of the world’s power portfolio. Its economics have sometimes proven difficult at best.  But today, solar power represents the fastest-growing portion of the energy industry, in the United States and around the world. So I’m wondering, is this a good time to make solar… Read More