Bakken Output and How to Trade Like a Sigma Master…
There's a snowstorm in Pittsburgh; but it's 72 degrees and sunny in Nassau, Bahamas…
Personally, I don't blame Kent and Marina for spending the first week of January down there.
Meanwhile, we're enduring 19 degrees with wind chill in Baltimore, and the heat is temporarily busted in our building. So, as I blow into my hands and crack my frigid knuckles, I thought I'd take some time to answer a few questions that piled up over the holiday break.
As I said last week, we're going to make an effort to respond to the increasing number of outstanding questions we receive in the comments section every day.
So if you have a question or a comment, be sure to register below and type your thoughts into the box.
Okay, who's first?
James: FYI, North Dakota crude – which happens to be light/sweet – sells for just above $86 per barrel. They are drilling five new wells a day into the Bakken, and their intent is to drill 3,000 new wells, over and above what we already have, within two years. And… they strike oil… 99.6% of the time. What does that say about our dwindling supply? ~ Bruce S.
Thanks for writing, Bruce. In short, this says that oil is going to have to stay at a high price in order to justify their continued production in the Bakken formation, where oil is costlier to extract. If oil prices were to fall to $50 a barrel in the next few months (which they most certainly will not) then producers would quickly pack up their rigs and leave.
But a more extensive answer is justified to address all of your points.
First, I recognize the 99.6% figure from a news report by KXMB CBS Bismarck in November. It certainly caught my attention during the broadcast. But recall that new producers are going to have to branch out into secondary areas of the shale formation, and over time, this staggering number will fall.
When we talk about supply, we have to step back and look at it from a global perspective.
Bakken production is just a very small part of this picture. The current estimates from the United States Geological Service state there are roughly three to 4.3 billion barrels of recoverable oil in the shale formation. While additional surveys by public companies have estimates much higher than this. Yes, the reserves there might be the largest we've found in 20 years, but production needs to ramp up significantly if we're going to put even a noticeable dent in our expanding levels of demand.
In November 2011, Dakota engineers cheered that the state's drilling activity and production estimates surpassed the 113 million total number of barrels produced through all of 2010. Sounds great. Yet if we're talking about supply issues, that 113 million barrels would meet less than two weeks of total demand of the United States.
And that is an entire year's worth of production.
We have to wonder where the other 350 days' worth of energy will come from… how quickly it can be reduced… and at what price point?
Despite that relatively glaring gap, we're not in danger of running out of oil anytime soon. We are not dealing with a “peak oil” situation. Instead, we are dealing with issues regarding a lack of access to cheap supplies of crude. That is why we are moving into unconventional sources like shale and deep-water fields.
Though all of these reserves are accessible, they come with far more problems. These reserves require more expensive technologies to extract them and hold far higher risks that must be calculated into production costs.
We don't need to worry about supply… we need to focus on quality of supply.
Dear OEI: In regard to the Energy Sigma Trader service, you say that Wall Street and hedge funds have offered Kent huge sums of money for his phantom trades… Well, couldn't hedge funds just sign up, get the picks, and profit off these trades? ~ Jim R.
Thanks for the question, Jim. I've seen this question quite a few times in recent weeks, so I wanted to take a few minutes to explain what Wall Street wants from Kent and his trades.
In essence, there's a well-known series of mathematical formulae that Wall Streeters use to trade options. They work well in most market sectors. But that brings us to the first part of the story: These algorithms are a big bust in the energy sector: They don't accurately account for the sector's extreme volatility.
Well, Kent solved that puzzle.
What Kent did? He developed an alternative algorithmic approach to identify when the market makers have mispriced “call” or “put” options, providing an opportunity to play Wall Street at its own game. On a daily basis, he runs hundreds of permutations on energy stocks to identify such mispriced options. And when he finds a perfect opportunity, he immediately tells his readers to pull the trigger on those trades.
But here's the thing.
This service isn't designed for Wall Street. Those big traders don't want you to have access to these mispriced options… they want (no, they need) them all to themselves. Think of Energy Sigma Trader as a plane. You have the opportunity to take a trip and make big profits on it…
Well, Wall Street doesn't just want to pay for a ticket. They want to own the plane and keep everyone else, like you, off it.
What's more, Kent is “cherry picking” the best play or two each week. Wall Street folks like to play broad market sectors with multiple moves and spreads. So they can't benefit just from following his trades, either. The service is great for the individual retail investor; not for the Wall Street guy.
That doesn't stop them from making Kent offers, though.
The offers are to control his algorithms to suppress the market and (possibly) to revise them into applications that can be replicated in consecutive trades. But for that, they need ownership.
And they won't be getting it.
When Kent created this service, what he did was shut them out and designed it in a way that everyday investors could profit off the mistakes of Wall Street (for once). And it's working. I highly recommend that you take a look at the video to learn more about why this strategy is so effective.
His first two options trades finished up 48% and 58% respectively. His most recent trade strategy (a covered call) is poised to make a huge profit off one company's expected growth in the midstream markets.
Again, I highly recommend that you go here to learn about options trading and how these trades work, and then… start making money today.
And keep those questions and comments coming…