Daily Gains Letter

natural gas

Why Major Profits Could Be Ahead for Investors in Natural Gas

By for Daily Gains Letter | Mar 24, 2014

Natural GasOne of the most important investing lessons I have learned over time is to be careful when the price of an asset goes up significantly in a very short period of time—it usually doesn’t end well. Prices increasing very quickly tell me that speculators are entering and they are buying at whatever price the stock may be at the time; it shows irrationality. It’s all about short-term profit—making the quickest bucks in the shortest period of time and leaving.

When I look at natural gas prices, this is exactly what has happened. Please take a look at the chart below of daily prices and how it has been a rollercoaster ride for investors in this commodity recently.

Natural Gas - Spot Price Chart

Chart courtesy of www.StockCharts.com

In late November, natural gas was trading below $3.75. By the end of December, the prices jumped about 19% and surpassed $4.50. Then they declined for a bit in January. From mid-January to the end of February, they soared significantly higher; we are talking about a gain of 50% in just about 28 trading days.

From there, prices have been declining.

As I have stated in these pages before, I am bullish on natural gas in the long run. My reasoning for this: when prices are low, producers don’t have much incentive to produce more. This creates significant supply problems over time. With a growing reliance on natural gas, the supply problem could get even bigger.

One of the reasons that prices soared between January and February was a short-term supply concern. In cold weather, natural gas is used to heat up homes and factories. With the U.S. and … Read More

Why I’d Still Stay Away from Bitcoin

By for Daily Gains Letter | Mar 17, 2014

Stay Away from Bitcoin“I think the stock market is getting into the overbought territory. Gold is due for a pullback. To be honest, I don’t see many opportunities out there other than bitcoins.” These were the words of wisdom from my good old friend Mr. Speculator. While most have forgotten about the virtual currency, Mr. Speculator thinks there’s an opportunity.

His reasoning behind this shows he is very naïve. He said, “The bitcoin prices have come down significantly from their highs. Buy low.”

It seems as if Mr. Speculator has forgotten one of the most basic lessons of investing.

Sure, bitcoin prices have declined—in fact, the word “collapsed” should be used. Just a few months ago, one bitcoin could be purchased for more than $1,100. Now, the price hovers below $700.00.

If you are considering bitcoins to be a good investment opportunity, you have to know what is really happening; there are too many concerns surrounding the currency, and investors should be aware of them.

One of the biggest concerns, among many, is that one of the main exchanges where bitcoins could be bought and sold, called Mt. Gox, filed for bankruptcy. Before the exchange filed for bankruptcy, there were complaints about users not being able to withdraw money. With this, there is also evidence of fraudulent activity. (Source: Finley, K., “Bitcoin Exchange Mt. Gox Files for U.S. Bankruptcy as Death Spiral Continues,” Wired, March 10, 2014.) This is sending out a wave of fear.

Another concern is that usage of the virtual currency is being questioned. Will bitcoin ever get the currency status?

Consider this: a company called Balanced Energy LLC, based … Read More

How the Ukraine/Russia Situation Is Misleading Investors

By Sasha Cekerevac for Daily Gains Letter | Mar 7, 2014

Misleading InvestorsSometimes, what seems obvious on the surface isn’t necessarily the best way of looking at a situation. The recent crisis between Ukraine and Russia is a perfect example.

A very basic fundamental analysis of the situation would lead one to conclude that if hostilities were to break out, one of the results would be a disruption to the oil and natural gas supplied to Europe. This makes sense, since many pipelines and oil/gas fields are located in Ukraine and Russia.

What most people don’t realize is that stocks traded here in America could be negatively impacted and could perhaps have their earnings outlook downgraded due to such an event, even though the price of oil and gas might rise.

One point to make is that natural gas is more of a local commodity, so fundamental analysis cannot be extrapolated on a global basis, since transportation is far more difficult than oil.

The earnings outlook for some non-Russian companies could have issues, since many firms have agreements or outright equity stakes in Russian companies.

A perfect example is BP p.l.c. (NYSE/BP), which has a 19.75% stake in Rosneft, a giant Russian energy company. Approximately one-third of BP’s production comes from this stake in Rosneft, which could impact the earnings outlook for the company if tensions rise. Of course, BP does have other assets, including a pipeline that does not go through Ukraine, which could see an increase in demand partially offsetting any decrease in the earnings outlook from their stake in Rosneft.

This is a situation where the fundamental analysis might seem simple, but the reality is that understanding the interlinked … Read More

Three Ways to Protect Your Wealth from Global Uncertainty

By for Daily Gains Letter | Mar 5, 2014

Crude oilNothing helps create volatility on the stock market like the threat of war. And just a few short days after the close of the bloated $52.0-billion behemoth in Sochi, Russia has embraced its ne’er-do-well Olympic spirit and invaded the Ukraine. Or, according to Putin, “pro-Russian soldiers” have simply moved into the Ukraine to defend Russian interests.

With a growing threat of war/retaliation on the horizon, investors have been pulling their money from riskier assets, like stocks—sending global financial markets reeling. Crude oil and gold prices, on the other hand, have been on the rebound.

While it seems utterly crass to deconstruct the potential for war down to economics, the fact remains—a stand-off or sanctions could both disrupt gas supplies to the European Union and send U.S. crude oil prices higher.

For starters, any issues in the Ukraine could disrupt the flow of natural gas supplies from Russia to the European Union. That’s because the European Union gets about a third of its crude oil and natural gas supply (and a quarter of its coal) from Russia, mostly piped through the Ukraine. Russia, the world’s biggest crude oil producer, generated 10.9 million barrels a day in 2013 and currently exports close to 5.5 million barrels of crude oil per day.

Since the end of the Cold War, no one really worried about relying on Russia for crude oil and coal. All of that has changed. While the notion of war is remote, it’s still on the table. Nations far removed from Russia and Ukraine might push for economic sanctions, just as the U.S. has done, threatening visa bans, asset freezes, and … Read More

Extreme Cold Weather Boosting Profits in This Natural Commodity

By for Daily Gains Letter | Feb 21, 2014

Natural CommodityJust like any other commodity, natural gas prices are affected by supply and demand metrics. If demand increases and supply remains the same (or declines), you have a perfect recipe for higher prices. Since the beginning of the year, this commodity’s prices are up more than 40%!

Before you start judging where the prices will go next, you have to see what kind of factors can affect the demand or supply. Consider gold prices, for example. If the demand for gold increases and, at the same time, there’s a discovery of a major mine—the prices may not move as much as anticipated if the mine wasn’t discovered. The reason behind this is simple: there’s supply to meet the demand.

A few factors that affect the natural gas demand and supply are playing out in favor of those who are bullish on it. For example, the commodity is highly affected by weather.

In extremely cold weather, natural gas is used to heat up homes—cold weather disrupts the short-term supply due to increased demand and causes prices to soar. In extremely hot weather, we see a similar situation occur in the commodity’s prices. Power plants use more natural gas to make electricity to meet the increased use of air conditioning units in homes and buildings. This phenomenon, again, causes a disruption in the short-term supply because power plants consume more. This results in higher prices as well.

What’s happening in natural gas prices these days is the very same problem; the short-term supply is being tormented by extreme weather—in this case, extremely cold weather. We have seen some extreme winter storms and … Read More

Now the Perfect Time to Get Back into Oil Stocks?

By for Daily Gains Letter | Feb 14, 2014

Oil StocksThe price of light crude oil recently broke through the $100.00-per-barrel mark for the first time this year. Oil prices had been on the decline since early September 2013 when they touched a high of $110.00 per barrel. By early January, oil prices had dropped more than 17%, hovering around $92.00 per barrel.

Thanks to the frigid weather blanketing much of the U.S. and improvements in the country’s oil infrastructure, oil prices have since climbed more than nine percent.

In late January, a new oil pipeline opened that connects Alberta, Canada to the Gulf Coast refineries and export terminals. The pipeline is made up of a combination of the original Keystone pipeline running from Alberta to Cushing, Oklahoma, where it then connects with the new Keystone XL South pipeline, which carries on to Texas. (Source: Philbin, B., “Oil Pipeline Opens, Prices Surge,” Wall Street Journal, January 26, 2014.)

Cushing is the pricing point for the New York Mercantile Exchange’s West Texas Intermediate (WTI) contract, North America’s benchmark oil price. It is also America’s biggest oil storage hub. The southern extension of the contentious Keystone XL pipeline is expected to help eliminate the glut of oil in Cushing that has artificially skewed U.S. oil prices for three years, keeping it trading well below crude oil prices based on the European Brent benchmark.

Interestingly, the abundance of oil and increased flow of crude oil from Cushing to the Gulf Coast does not translate into a drop in oil prices. That’s because some of the so-called “extra” oil making its way to the Gulf Coast is being processed into fuels and shipped to … Read More

How to Profit from the Second Deep Freeze Headed Our Way

By for Daily Gains Letter | Jan 15, 2014

Profit from the Second Deep FreezeLast week, North America was plunged into a deep freeze when a “polar vortex” (an extreme weather event marked by record-breaking cold temperatures and winter weather systems caused by an Arctic cold front) swept across the continent, sending the coldest air in 20 years into major population centers in both the United States and Canada.

Areas in the Midwest and most of Canada were hit with weather normally reserved for the North Pole. On January 5, 2014, the temperature in Green Bay, Wisconsin was a brisk -18 degrees Fahrenheit (°F). During the polar vortex, the temperatures in Atlanta fell to just 6°F, while those vacationing in Tampa were treated to temperatures as low as 24°F.

In the lead-up to the polar vortex, spot U.S. energy prices soared. Natural gas for next-day delivery for one contract in New York jumped to a record $90.00 per million British thermal units (BTU) on January 6; that represents a 660% increase from the close of the previous week and 20-times more than the natural gas benchmark futures prices. Normal winter natural gas prices can be found in the high teens or low $20.00s. (Source: Meyer, G., “Freeze drives up US gas and power prices,” The Financial Times, January 6, 2014.)

The harsh, cold weather forced many Americans to burn more gas to keep warm. And since roughly half of all U.S. households use natural gas for heating (accounting for 21% of U.S. natural gas consumption), there was concern that natural gas suppliers might not be able to service every customer. (Source: “Frequently Asked Questions,” U.S. Energy Information Administration web site, last accessed January 14, … Read More

Natural Gas the Next Big Commodity Trade?

By for Daily Gains Letter | Sep 19, 2013

Natural GasTo put it mildly, natural gas simply doesn’t get as much attention as crude oil, or even gold. Mr. Speculator, my good old friend, once said, “Why would you want to even bother looking at it? The prices have collapsed and have been ranging for years.” It’s certainly true that natural gas prices have come down from where they used to be. Just take a look at the chart below to see what has happened to the price of natural gas in the past few years.

Not very long ago, natural gas prices were trading above $13.00 in 2008. Now, they are below $4.00; that’s a decline of almost 70%. With this, one should really wonder if natural gas has any future. Is this commodity even worth paying any attention to?

As I dig further into the details, I see natural gas prices going higher in the future. When this will happen is very hard to predict, but all the cases are pointing towards that conclusion.

When it comes to evaluating the prices and their direction, the most important factor I look at is the supply and demand, be it for gold, silver, oil, or any other commodity, for that matter. The basic rule of economics suggests when the demand goes up and the supply stays the same or declines, the price increases.

Natural Gas Chart

Chart Courtesy of www.StockCharts.com

 This is exactly what is happening when it comes to natural gas.

Let’s backtrack a little. In the first half of 2013, 39% of electricity in the U.S. economy was created using coal-fired plants. This is troublesome, because the U.S. government is actively … Read More