Nobody believes in oil stocks. Look, I get it.

It has been three years since oil crashed.

The price of oil just never goes up.

We have had so many oil price rallies that didn’t amount to a hill of beans that we have all lost count.

Everyone has accepted that being bullish on oil is being wrong.

Here is the thing though.

Everywhere I look today I see reasons to be bullish about oil.

In fact pretty much the only thing that I see that isn’t bullish for oil is the price of oil itself.

That can’t last forever.  Eventually the fundamentals will dictate the price.

There are some pretty obvious charts that investors are ignoring…because they’ve been burnt.  Group psychology has a block on oil…even as they are staring bullish charts.  And that’s where fortunes are made.

Bullish Item #1 – Crack Spreads

An oil processing spread (crack spread) is the margin that a refiner can make while processing raw crude oil into refined products like gasoline and distillates.

These crack spreads provide us with a real-time indication of how strong demand is for oil products.

Demand for oil products directly impacts demand for raw crude oil itself since crude oil is the raw material.

While crude oil is quite flat year on year the prices of both heating oil and gasoline are up significantly.

That is a disconnect worth paying attention to.

When the price of heating oil or gasoline outperforms the price of crude oil it is a very bullish signal – a sign of stronger demand.

Here is a very strong price chart for heating oil:

With the price of crude oil not rising nearly as much that has blown out heating oil processing spreads.

Last year for the week of October 17, 2016 the heating oil processing spread ranged from $15.00 to $16.20 per barrel.  For the same week this year that spread was $23.40 to $24.60 more than 50 percent higher.

Bullish!

Here is also a bullish looking price chart for gasoline (discounting the seasonal peak in early September):

The peak in the driving season wrapped up on Labor Day weekend back in September.  While prices have backed off since then the gasoline processing spread is still far wider than where it was last year.

For the week of October 17, 2016 the gasoline processing spread ranged from $11.40 to $13.30 per barrel.  For the same week this year that spread was $16.00 to $17.50.

That is nearly 35 percent higher.

Bullish again!

Bullish Item #2 – Back Into Backwardation

As I write this the current price for the December 2017 WTI futures contract is trading at $52.66.  Meanwhile the price for the December 2018 WTI futures contract trades for $52.19, almost 50 cents lower.

This is the first time in more than three years that the WTI futures market has moved into backwardation (current month pricing higher than future pricing).

When the front month contract trades at a discount to the future price (known as contango) it is a symptom of a market with high inventories and oversupply.  In the near term there is plenty of supply for the amount of demand so prices are weak.

We have been in a contango situation for the past three years.

That makes sense given how oversupplied the market has been.

Backwardation meanwhile with its premium for nearby contracts is associated with a near term supply shortage and dwindling inventories.  The market is bidding up near term prices because demand is strong relative to supply.

Both Brent and WTI prices have been moving away from contango and towards backwardation for more than two years as the market slowly rebalances.  Now it seems we have reached the promised land.

Brent futures moved into backwardation temporarily in August and have been consistently trading that way since September.  Now WTI is there as well.

The inventory supports the market moving into backwardation.

U.S. commercial crude stocks have decreased by 23 million barrels since the start of the 2017.  That is very bullish relative to an increase of 19 million barrels over the same period in 2016, and an average seasonal rise of 24 million barrels over the last decade.

Now for some interesting historical information.

The last four times the oil futures market slipped into backwardation oil prices rallied between 25 percent and 72 percent over the next nine months.

Using $50 WTI as a starting point a rally between 25 and 72 percent would see us hitting a WTI oil price of $62.50 to $86.00 by July of 2018.

Bullish some more!

Bullish #3 – Stock Prices of the Majors

The bullish supply and demand story for oil has become pretty convincing.

What really got my attention this week is when I pulled up the charts of the major oil producers.

They are very supportive of the idea that good things are about to happen for the price of oil.

First we have Exxon which is on the verge of a major breakout.

Then we have Chevron which is going to hit a new 3 year high if it breaks through the resistance at the $120 mark.

That would be a major signal.

Finally there is Shell which has already broken through and is setting new highs on a regular basis.

All of the signs are there.

Does this say the Market is on the cusp of a significant breakout for the price of oil? Maybe.

The last thing that is bullish for oil?  Nobody else is bullish on oil. Institutional money wants nothing to do with it.  Nobody believes. Other than the supermajors–whom you would expect to lead–oil stock charts look bad.

The main reason for that–oil producers as a group don’t produce Free Cash Flow.  But my portfolio is full of the few which do…and one in particular is a Free Cash Flow machine–with oil at $50. Oil doesn’t have to go any higher for this company to grow within cash flow, and not have to add any debt or equity.

It’s the best place for investors to get their toe-hold in the oil market now–when people don’t believe what the charts are telling them.  Early investors make The Big Profits–get this machine working for you–click HERE.

Keith Schaefer

WTI pricing is a fairy tale for US E&Ps.

What I mean by that is…no producer gets to realize WTI prices in selling their oil, and that shows up in their quarterly reporting.  Investors can’t just average out the WTI price for a quarter and think that the company in whose stock they own will report cash flow or earnings off that number.

One small reason is differentials; which is the difference in pricing between various oil hubs around North America.  Houston and Midland in south and east Texas have different prices than The Big Oil Hub at Cushing Oklahoma, where WTI is priced–as does Clearbrook in Minnesota.

But the largest reason is that…and I’ve said this before…there  are no true oil producers in the US; many of them produce as much natgas or natgas liquids (ethane, propane, butane etc) that receive much lower pricing than oil.  To me it’s one of the most open secrets in investing in the oil patch, but investors don’t ever seem to truly grasp how much gas is in shale oil.  And that has a HUGE impact on “oil” companies’ cash flow and profits.

Earlier this month, I invited one of my research gurus, Nathan Weiss of Unit Economics to fly out to Vancouver from his office in Rhode Island to explain all this to our subscribers in person–and in under 15 minutes, with no big words.

I think this is so important for investors to grasp, that I have included his full presentation below:

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If you want to profit from oil, you want to find the “oiliest” stock you can, and preferably one with very low costs and netbacks, which is the industry term for profit per barrel.  You want to find one that can grow–and grow fast–but still spend less than its cash flow.

I’ve done all that research for you.  This stock is an energy investor’s dream.  It’s the “oiliest” stock I see, with a management team who has built and sold several juniors before, and have wells that payback so fast they can grow production and cash flow per share faster than anybody else.  The oil price doesn’t have to go up at all from here for this stock to have a great multi-year run right now.

Start profiting from Nathan’s comments right now–get the name and symbol of this stock right HERE.

Keith Schaefer

EDITORS NOTE:  Two years ago I co-founded SMALLCAP DISCOVERIES with editor Paul Andreola–and he has built a great franchise there, with several multi-baggers while I stay focused on energy.  I’m excited to introduce a third letter–this one focused on cryptocurrency (bitcoin, ethereum etc), led by my colleague Ross Pilot–it’s the New Currency Frontier at www.newcurrencyfrontier.com. Ross researches and invests in major currencies, coins, and many other things I don’t understand (and never will).  But I have known Ross for 20 years.

He is also a seasoned investor in junior stocks, and knows what the public Market is looking for in stocks of any kind–which gives him a unique chair, overseeing the mix of  crypto and stocks. (It’s kind of ironic as he sees blockchain replacing stock exchanges.)

I’ll help guide Ross in growing his business, but I know he has the smarts and the work ethic to produce great research that will find A Big Audience.  After reading Ross below, please sign up for his free newsletter at www.newcurrencyfrontier.com
With China getting (very) serious about restricting Bitcoin miners in that country, we will see a continued trend towards cryptocurrency mining in the West, particularly North America, in areas with low electricity costs.

I wrote about this big new trend in my latest story, which you can read HERE.  One of the bottom lines from this is–we will see a lot more cryptocurrency stocks in the public markets.  Especially if they jump out of the gate like HIVE Blockchain (HIVE-TSXv).

HIVE debuted on the TSX venture exchange on September 18th and trading for most of the day in the mid-eighty cent range. I wrote about HIVE the day before listing here telling readers at the time I would be a big buyer of the stock if it opened in the 70-80 cent range.  Well, it did, and today,  a month later, it closed at $3.01.

Another cryptocurrency company listed is Global Blockchain Technology Group (BLOC-TSXv). You could have bought their shares for under a dollar in the last week of September. It closed today at $2.61.

I’m convinced we are at the very beginning – the first inning – of the cryptocurrency boom for the junior public market.

I am aware of two other high-quality cryptocurrency companies that will go public before the end of the year and I will give advance notice to my readers as to when they begin trading, on my free newsletter The New Currency Frontier.

Investors jumping on the bandwagon early stand to make enormous profits as the first-movers and early-adopters stake out their grounds.

There is lot to learn but EVERYBODY is trying to climb the learning curve right now.

If You Want to Learn About Cryptocurrency, Prepare to Drink from the Firehose

Above all, watch out for the ‘stone-skippers’.

You know when you take a flat stone and skip it across the water? That’s what I see a lot when I read stories about Bitcoin and Ethereum.

The writer skips stones across the water, trying real hard not dive below the water and explore the issue.

Everybody stone-skips to some extent. I even do it. I will write up a story about Bitcoin, make a reference to something obscure like “smart contracts” or “zero cash” and the editor will come back with “what are you talking about, please explain.”

And I just want to skip that stone across the water so I can get the story out and go have some dinner. Otherwise it’s an half-hour of research and hair-pulling of trying to get a two-pages essay down to two paragraphs.

The cryptocurrency universe is big, like really big and there is a lot to learn.  I first became interested in Bitcoin in 2013. I looked back to the first email I sent to Keith on the matter:

And I began to invest in Bitcoin over the next six months. I made enough money that I took the kids to Disneyland with the profits.

Then I lost interest like so many other investors. You see, I believed the hype. Not THAT hype. The other “story” out there–that Bitcoin was a “bubble” and was going to burst.

I believed it when my friends decided to put upon themselves to give me wise counsel and stop gambling with this “fake” digital money.

I took the savings of my oldest son and bought one and a half bitcoins when it was $700. I told him we would cash it in when he went to college. But I chickened out and sold it a year later.

My son is in Grade 10. I owe him approximately $8500USD.

Almost four years later I decided to get back in the game. Last May I started buying Ethereum.

Ethereum (or “Ether”) is #2 digital currency in the world behind only Bitcoin. Bitcoin has a market cap of $92 billion while Ethereum has a market cap of $33 billion.

I could not buy all the Ethereum that I wanted as the crypto- exchanges froze up with all the money flooding in and could barely process bank wires in two weeks time. But I managed to double my money in a few months, then it tripled.

While that was happening, I was nagging Keith that we should start up a cryptocurrency newsletter.

Things have changed in the cryptocurrency world. It’s not just Bitcoin and Litecoin like it was back in 2013. There are hundreds of coins now and dozens of exchanges. And every coin has a story behind it.

Ever hear of Tether?  It’s a digital coin tied to the American dollar. One tether = one American greenback. Overseas crypto-exchanges who don’t have the licenses to transfer or transact in US dollars use Tether to settle accounts instead.

Just like that, the current financial regulations of the Western world are circumvented and turned upside down.

It takes hours of research to understand the story behind every digital coin or token and big news comes out every month, if not every week.

Not being a master of compression, and having the limited space which Keith has graciously offered, I can only offer to link to the stories I have posted on our investment newsletter, The New Currency Frontier.

One of my first stories was “Explaining Bitcoin to Martians or: You Are Over the Age of Fifty and Don’t Understand Techie Stuff”

There are lot of stories on the internet that says they explain why is a Bitcoin but I wanted to give it a try myself.

I have written two articles on cryptocurrency mining. The first one is: “What’s The Difference between Mining Bitcoin and Mining Precious Metals (for Investors)?” and “Understanding Bitcoin Mining.”

The topic of cryptocurrency mining in general is difficult to grasp at first but you need to understand even just a little bit or you will be seriously handicapped in evaluating future blockchain deals.

Another hot topic is initial coin offerings. I have written many articles on ICOs but I want to draw attention to two right here: Initial Coin Offerings: The Results are In and How a Blind Squirrel Made a 714% Return where I share how I do my research on ICOs.

By this time, if you have clicked through to some articles and read them, you may feel like I do every time I sit down and research cryptocurrency:

A warning: There are very many articles on the internet that call Bitcoin and Ethereum a “bubble.”

These articles go on to point out that Bitcoin can’t be used for anything, but that is not exactly true, as I point in my last two articles: Bitcoin is Hot but it is as Cool as Vegas and  Why Will Bitcoin Succeed? How About Saving $140 billion in Bank Fees?

Now if you read my articles, and find other good articles on the internet (you have to look in some unusual places, Google is your friend in this), I’m pretty sure you will agree with me (eventually), that cryptocurrency looks exciting, possibly rewarding, definitely risky and worthy of more study.

Can you make money with cryptocurrencies? My personal experience is yes you can. Can you lose money? Absolutely.  And I will be sharing my lessons with you on each trade.

For example, I have lost the most amount of money, literally millions, by walking away from the table, by “quitting” while I was ahead. I won’t make that mistake near as often–because I think we are just in th first innings of cryptocurrencies and crypto stocks.

I hope you’ll join me. Sign up for free before my next story gets sent out on the upcoming “hard fork” in bitcoin.  It could be one of the most profitable stories I ever publish. www.newcurrencyfrontier.com

Ross

The intense tropical storm that’s disrupted a number of major oil refineries in Texas is unlikely to drive up gas prices in B.C., according to experts.

Harvey, which peaked as a Category 4 hurricane over the weekend, struck the state’s refinery district, forcing companies including Exxon Mobil and Valero Energy to halt production.

Roughly 2.5 million barrels of daily refining capacity, or about one-fifth of total U.S. production, is offline because of the storm.

A gasoline pump awning at the Dude Stop convenience store in Webster, Texas, is partially collapsed on Sunday, Aug. 27, 2017, after remnants of Tropical Storm Harvey inundated the area. (Stuart Villanueva/The Galveston County Daily News via AP)

But Keith Schaefer, editor of Oil and Gas Investments Bulletin, said pumps in Western Canada are generally insulated from production issues in the Gulf Coast.

“We shouldn’t see much impact at all,” Schaefer told CTV News. “We get most of our refinery products from the West Coast of the United States and Alberta.”

Schaefer said it is possible, if Harvey continues to disrupt production for long enough, that B.C. could see prices hike at the pumps, but he doesn’t expect it would be by more than two or three cents.

During Hurricane Ike in 2008, Canadians gas prices soared by 12 cents in a single jump, but Schaefer said the market conditions are very different now.

“We were at the end of a huge bull run in oil and gasoline prices. Oil had gone from $40 to $140 in five years,” he told CTV News. “Here we’re at the other end of the spectrum. Oil prices are at close to record lows.”

Dan McTeague, senior petroleum analyst with GasBuddy.com, also noted there is a sizeable stockpile of oil and gas, so supply shouldn’t be an immediate concern.

The demand for gas is also expected to diminish come September.

“We’re into the last week of summer, demand may start to wane, that may actually serve to the a advantage of many consumers who may not see prices rise as much as would be expected say if this had happened a few weeks ago,” McTeague said.

With files from CTV Vancouver’s Shannon Paterson  

Update: Dan McTeague previously predicted gas prices in Canada would increase gradually as a result of Harvey, but has adjusted his analysis.

http://bc.ctvnews.ca/gas-prices-unlikely-to-spike-because-of-harvey-experts-say-1.3565226