Oil Takes A Bath In The Market

Hurricane Gustav came in this weekend and did nothing compared to what Katrina did three years ago. The region prepared for the worst, which is better than they did back then. With all the rain that came in, oil took a bath. At the start of the day oil was down as much as $8 and as I type this post oil is sitting at $108.50.

It’s being said that with everyone looking at what the storms could do to the price of oil that they’re not looking at the fact that OPEC will be meeting on September 9th as well as that there are no sanction being put on Russia in regards to the Georgia conflict. One trader that was interviewed on CNBC stated that this is a good buying opportunity (I beg to differ).

last week I built a position in stocks that leaned toward having oil go up in price. My thinking was that if Gustav came in and hit the region harder that what it did, the price of oil would have gone up. Unfortunately it didn’t go that way and I’m getting hammered today with those stocks. One of those stocks was Cabot Oil & Gas Inc. which is presently down 8% and the other is XTO Energy Inc. down almost 9%.

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Watching the markets you can see that the airlines are doing great today because of the drop in oil prices. United airlines (UAL) and Delta are up over 16% as of 12:00. The rest of the sector is just about up 10% as well. If you were one of the traders that bet against the storm doing damage and invested in the airline sector you’re doing great so far today. I do believe that price of oil will come down more by the end of the month (maybe somewhere near $100) and I will be looking for dips in certain stocks that would gain strength on those numbers.

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As for the financial sector, it’s up again today with news coming out on many different levels. I said last week that I would be building a postion in one or more stocks from this sector. Lehman Brothers was one of those stocks that I jumped into and the other was Goldman Sachs. In the last three trading days I’m up 14% and 8% respectfully.

Day like this are the days that I like to see. If you look at the Retail sector you can see that this economy is stronger than what the bears want us to believe.

Tags: Commodities, Financials, How to make fast money, Stock market news

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Alternative Energy: Ethanol

For some time we’ve known about ethanol and how it will help our dependency on oil. A fuel source derived from corn. Is it really worth the effort to go this route?
When this idea was first presented to the American people, It was packaged and sold to us that this is the way to go to remove ourselves from the need of foreign oil. It’s been several years now and lets take a good look at what ethanol really does for us.
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Ethanol has been used in gas products for decades and offers a way for a cleaner burning fuel. Unfortunately it’s not true, well the fuel burns cleaner, but to make the fuel it causes more pollution than if we just used the gas without the ethanol.
As for the corn that is needed to make the product. We use 20% of the nations food supply (corn) to make 3% of the fuel that we burn. Mathematically that doesn’t seem like an equation that makes sense. We’re creating a new problem while trying to eradicate another.
It is believed that it will take about 60 million acres dedicated to corn growing to remove our oil dependency without effecting our domestic food supplies, but what about the exporting of those products. We export quite a bit of it to other countries and what’s to come when we don’t have enough.
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Take into consideration that ethanol can not be transported by pipelines, so we need to use trains, trucks and barges to move it, which in turn becomes more expensive and involved than using a pipeline.
Ethanol contains less energy than gas. That means drivers have to make more frequent trips to the pump. it is estimated that vehicles get 25 % less mileage with ethanol than it does with fossil fuels. It is stated that the new vehicles will get better mileage as the car manufacturers improve the vehicles, but we know that they (with the help of politicians) will only improve the cars so much.
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So you make the call. Is ethanol really worth the effort? In my opinion, no.

Tags: Alternative energy, Commodities

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Stock Market News 8-20-2008 (FRE, FNM, FCX, DVN)

Again Freddie and Fannie are in the spotlight today with the media and investors. They’re both look like they’ll be put out to pasture at this rate. Today Freddie Mac (FRE) was down big after it was announced that they might have trouble selling off their $3 billion of their debt. This has made many think that they will need to be bail-out by the government (aka…the taxpayers). The stock is down over 22% in today trading and down 87% in this calender year. As for Fannie Mae (FNM), they too were also beaten up bad again today. Falling almost 27% today and down 85% for this year alone.
If you look at where they were in September and October it’s much worse than that. In other financial news…It’s all the same crap for them too.
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How about those energy stocks today? Crude inventory came out today. It’s pretty much as I expected since people are driving less. The inventory should go up, unless the refineries are pulling back on their production at the same time (which would be foolish). The inventories rose by 9.4 million barrels, much more than what the street was expecting. After it was all said and done, the price of crude did rise today to about $116 per barrel. Across the energy board today the majority of them were up a good percentage, but all were up.
Some of the commodity stocks also did quite well, take FCX, they’ve been down big over the last few months, but had a pop of 7.5% today. As for Devon (DVN) they had a 6.5% jump in today’s trading.
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I wouldn’t get too comfortable with the performance of the markets. Things are looking like it’s starting to settle, but be careful. Like I said earlier today in 5 tips on beating the stock market, we are in a bear market and it can give you the illusion of a bull market.

Tags: Commodities, Stock Market, Stock market news

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The Great Fear Factor

Here in Florida we prepared for hurricane Fey to make landfall today. It seems that the whole state expected it to come through their area of the state. The storm touched down near the Naples Florida area and then was graded down to a tropical storm. I’ve been here in central Florida for the last six years. One of the reason we select this area was the fact that we are sixty miles from both the Atlantic Ocean and the Gulf Of Mexico. The worst storm we had to deal with was in 2004. This county has never had a storm come at it head on, but every time that a storm is announced to hit the state it seem that the city need to take precautions. They closed the schools for two days and most businesses are scaled back for the day.
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You are probably thinking why I’m talking about this. The reason is to show you how may people get easily spooked to news. It doesn’t take much for people to freak out when news comes out on any storm or other pending news break.
Same goes for the stock market, where when a storm is announced to possibly come through the Gulf of Mexico, the price of oil will climb. It’s also effected by pending doom of war. Why is it that when bad news comes in, the price of oil goes up almost instantly, but when there’s good news it takes some time to move downward.
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Crude oil started the day lower, after the storm missed oil installations in the Gulf, but later jumped over $3 per barrel because of the surge on heating oil futures. I stated awhile back that I believe that oil will go back up and will do it soon. Until we start drilling in our own country there will not be any real relief in prices. I’ve cut back on my driving, but there only so much cutting that one can do to save money. We still have a life and need to get around to do it.
As of right now, we need foreign oil to keep our country going, but that won’t be the case in a couple of years if Congress votes on this bill for drilling in America
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. The average price of gas is $3.73 (which is still too high) and people are considering this great that it’s not $4.14 per gallon. What will happen is that those people will start forgetting that the price of gas was $3 per gallon just last year and go back to accepting the price that it is today.
When the price of gas hit $4, it freaked consumers out that they cut back their driving. What we need to continue to do is pull back on the unnecessary driving and keep it up. The oil companies and Congress will freak out and have no other choice but to continue to cut the price of gas. Congress will see that we need to drill here and drill now.
If we can do that, it will also effect the markets in a positive way. After all, isn’t that what we want to happen. It would be nice to see the DOW climb back to around 14,000.

Tags: Commodities, Stock market news

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Drybulk Shippers

I’m still continuing my deeper look into this sector. Well it actually it started out with me looking just at Dryships Inc. They are down over 30% in the last three months. I started buying into them about a month ago when I thought it was a pretty good size dip (I guess I was wrong). While I was digging deeper into the sector I noticed that these four shippers are down by a least 25% (Star Bulk) to as much as 40% (Dryships) since mid-May.
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The world economy is growing by leaps and bounds. Yes there has been a slow down, but it’s only a speed bump. Commodities, grains, and other dry bulk materials are still needed throughout the world. America is slowing down in growth, but these guys do business all around the globe. China and India are in need of commodities no what the hype is. They are expected to grow at a rate of 10% or better, at a rate like that they will need imports to get it done.
Here is a brief summary of the four dry bulk shippers that I wanted to share with my readers. If you guys and gals out there have any insight or opinions, please feel free to do so.
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Eagle Bulk Shipping (EGLE): Eagle is one of the major bulk shippers of iron ore, coal, various gains, other ores, cement, and steel . Delivered by their 17 Supraships, 3 Handymax and two more ships (one will be the largest in their fleet) to be completed before the end of the year. It has an extremely young fleet of ships (average age of 5), meaning that Eagle won’t be affected by increases in commodity prices for some time.
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Dry Ships Inc (DRYS): Dry Ships is the leading shipper of iron ore, coal and grain. DryShips currently owns a fleet of 46 dry bulk carriers, with an aggregate carrying capacity of approximately 4.2 million deadweight tons, which consists of five capesize, 31 panamax, two supramax and eight new-building dry bulk vessels. Since the company’s inception, Dry Ships has had 113% return on equity, with profit margins of 80%.
The company also has a very hot sub-company, mainly focused in the ultra-deep drilling market. Dry Ships is looking to ship this stub, which it is looking to spin off in the coming months.

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Star Bulk (SBLK): Star Bulk’s vessels transport major bulks, which include iron ore, coal and grain and minor bulks such as bauxite, fertilizers and steel products. Currently, Star Bulk has an operating fleet of twelve dry bulk carriers, plus definitive agreements to acquire one Capesize dry bulk carrier and sell its Panamax dry bulk carrier. The total fleet consists of four Capesize, one Panamax and eight Supramax dry bulk vessels with an average age of approximately 10 years and a combined cargo carrying capacity of 1,184,835 deadweight tons.
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Diana Shipping Inc (DSX): Diana Shipping is a global provider of shipping transportation services, and specializes in transporting dry bulk, including such commodities as iron ore, coal, grain and other materials. Their fleet include 13 panamax, 6 capesize and 2 more in construction.

Tags: Commodities, Stock investments

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Georgian-Russian War

Despite the War between Georgian and Russians, Crude oil fell hard Monday. The major military engagement in Europe could have large repercussions on the global oil market. Even though the news was on the minds of energy traders, it didn’t seem to effect the price of crude oil the way one would expect.
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The price of West Texas crude fell today to $114.45 and the Brent was flat at $113.33.
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The effects from a long-term conflict between the two could alter the global oil supplies in a big way. it seems that Russia is about 100 miles from taking control of the Baku-Tbilisi-Ceyhan (BTC) oil pipe line. The pipeline is the second longest one in the world, the BTC carries oil from Azerbaijan over 1,099 miles to Ceyhan Marine Terminal which on the Mediterranean Sea. It pases through Georgia and Turkey. Even though the pipeline won’t be fully operational until next year. At that time it will have a capacity of one million barrels of oil a day. There has been reports of Russia bombing the pipeline within the last 48 hours.

If the reports are correct, Russia is within 100 miles of assuming control of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. The second longest oil pipeline in the world, the BTC pipeline carries oil from Azerbaijan 1,099 miles through Georgia and Turkey to the Ceyhan Marine Terminal on the Mediterranean Sea. The pipeline first began transporting oil in October 2005. Scheduled to become fully operative in 2009, the BTC pipeline has a throughput capacity of 1 million barrels of oil a day. The pipeline is owned by Azerbaijani, U.S., European and Asian oil companies — Russia has no ownership stake. Some media have reported that Russia’s air force has bombed the pipeline in the last 48 hours.
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With any luck this issue will be over soon and oil will stay at these levels or even drop more (like back to $9 a barrel, I know wishful thinking).

Tags: Commodities

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Oil Drops, Stocks Rise

photo by victor geere

I’ve been watching the market most of the day and other than oil dropping below $116 to close at $115.20, I don’t see any real solid reason for the DOW to jump 300 points. I’m not sure if it will really hold at this level (11,728). Don’t be surprised if the markets open down on Monday.
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Fannie Mae posted their earnings today. They said that they lost $2.54 a share in the last quarter which like Freddie Mac was three times the expected of what the street thought. Expenses from foreclosed properties and credit losses totaled $5.3 billion (yes, that’s a B).
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Fannie Mac also followed Freddie in cutting their dividends to 5 cents a share from where they were at 35 cents the previous quarter. They said that the decision will save $1.9 billion over the the next year. Needless to say that Fannie Mae is down over 9% today.
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As for the rest of the financials, they are in good shape today most of them are up about 3% or better. MBIA posted a profit today of $1.7 billion when they reported their earnings for the second quarter. That number comes after factoring in the $3.3 billion in pretax derivatives gains (I guess they back the right horse there).
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The dollar was gaining strength today. It gained over 1% against the Australian dollar, Canadian dollar as well as the Swiss franc. The dollar was up .5% on the yen. Most foreign market are down in today’s trading especially in Russia where word of fighting between them and Georgian forces broke out wherethe locals want to form their own republic.

Tags: Commodities, Stock market news

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Airines Up, Oil Down

photo by Bryan Burke
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As the day began the airline sector took-off. The share prices for most of the airline industry are up greatly. At the time of this post, United Airlines (UAL) is up 22% and continental 17%. What’s the reason for this? OIL. Oil is dropping even more today after the week it had last week. At this moment it’s sitting at $121.60, down $3.13.
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The markets are of course showing some strength, the DOW is up 163 points, NASDAQ up 48 points and the S&P 500 is also up 17 points.
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In the past week that we had, it’s important to watch the different sector and how they relate to each other. With oil slipping the way it has and more to come, we need to watch the companies and the sectors that are affected. I should have seen this coming yesterday when oil fell again and that it would be a good thing for industries like the airlines.
At this level ($121), it’s considered to be a resistant level. The price of $121 is where oil has been sitting at for some time today. It’s next resistance level is $117, but the bulls in the pits expect it to go up from here say that this is a healthy pull-bull. Healthy??? I’m a bull as well but the price of oil should not be above $110. What we need is a stronger dollar. Who knows what the Federal Reserve is doing about that.

Tags: Commodities, Stock market news

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Alternative Energy

This week will be an interesting one for the alternative energy companies. Especially when it comes to wind power energy. On Thursday the Texas Public Utility Commission takes up a significant wind power infrastructure initiative. This could be a day to remember in the wind power industry.

With the price of oil at $138 for a barrel, something need to be done in the alternative energy sector. The price for wind energy is about $.04 a kilowatt, it is the cheapest form of energy that is out there today. With the Texas Public Utility Commission decision on Thursday, the wind power industry could get the boost in the arm that it needs really needs.

 The ruling could create eight renewable energy zones that would be connected the states power grid. This could possibly set the stage for other states to follow. The consensus is that the commision will rule in favor of this decision. One can only hope, since our dependency on foreign oil is out of control and with the conflict of drilling in our own country is to continue for some time.

As for solar energy, there are actually two type of technology. One is photovoltaic panels that convert sunlight directly into electricity right inside the panel. The other is a little more crude. It uses the thermal heat generated by magnified sunlight to turn water into steam, which is then used to a turn a generator.

The is a difference with cost per kilowatt between the two solar thermal power costs about 15 cents per kilowatt hour to produce. Photovoltaic electricity costs about 20 cents per kilowatt hour to create.
Solar power has it’s set backs which include, but not limited to being built where the sunlight is the strongest to maximize efficiency. Other cost that are involved are about $1.5 million for each mile of transmission lines.

P.S. Want to learn more about the stock market? take a free two week trail with Jim Cramer from TheStreet.com

Tags: Alternative energy, Commodities, Investments

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