For short-term traders, understanding cyclical markets is the key to profits. And with the hottest summer months ahead, natural gas could get a price boost when air conditioners start to hum, says Roger Wiegand, publisher of the Trader Tracksinvestment newsletter. In this interview with The Energy Report, Wiegand shares some promising names for investors who are ready to read the technical charts—and mark their calendars.
The Energy Report: How are the supply/demand fundamentals playing out for North American energy resources?
Roger Wiegand: Fortunately, supply is strong. The U.S. has substantial reserves of natural gas and oil. Shale gas in West Texas is a big, wide new program. The Bakken region in the Dakotas and Eastern Montana sports 7,000 producing wells. Because domestic oil and gas production in the U.S. is increasing, we are buying less petroleum from the Middle East, much to the chagrin of the dominant forces there.
The big oil producers in the Middle East want to hold the Brent price, which is worldwide oil, at around $100 per barrel ($100/bbl). In the U.S., the floor price for West Texas Intermediate (WTI) is $85/bbl. Oil production is up 10%, which normally would push the price down. But the increase in supply is offset by inflation within the energy sector. Oil could go as high as $110–115/bbl before the end of the year.
The price of oil is tied to security-based fears. Things are ugly in Syria and Turkey right now. The oil price in the U.S. could increase in response to fear of war or increasing turmoil in the Middle East. When things really get scary, as they did in Afghanistan and Iraq, there is often a $10/bbl premium in the oil price, which is a lot.
TER: Is the oversupply of gas in the U.S. an opportunity for export?
RW: Exporting liquid natural gas (LNG) with ships is very expensive. But shipyards in South Korea and Europe are actively building LNG-carrying vessels. The primary buyer of LNG is Japan. Japan overreacted when it shut down its 25 nuclear power plants after the tsunami. The price of electricity went through the roof. When I was there last year, the temperature in office buildings was kept at a toasty 80 degrees. Japan needs to turn to LNG across all of its energy fronts. Some of its nuclear power was turned back on, and it has old plants that run on coal. Electricity generation from coal is leveling off, though.
For a while, China was starting up a new coal-fired power plant every week. That is a stunning fact, but it reflects just how much power the Chinese economy requires. A lot of these plants operate with no environmental protection restrictions. Consequently, the air and water are terribly polluted in industrial and urban areas of China. But the government is doing the best it can to stimulate the provision of electricity from a range of resources: wind, solar, coal, nuclear and natural gas.