PM Daily Market Commentary - 5/12/2015

davefairtex
By davefairtex on Wed, May 13, 2015 - 4:04am

Gold rose +9.30 to 1192.50 on moderate volume, while silver climbed +0.21 to 16.51 on moderate volume.  PM was hit early in asia, rebounded, and broke out higher prior to the US open.  Both gold and silver remain within their recent trading ranges, but things are a looking a bit more positive after today.  Gold needs a close above 1200, and silver needs a close above 16.75 to suggest a break out higher.

Both gold and silver managed to close back above their 9 EMA and 50 MA.  Silver continues to look stronger than gold.

Mining shares continued to climb today, with GDX rising +1.35% on moderately light volume, and GDXJ   climbing +1.75% on moderate volume.  Junior miners appear to be heading for another breakout, and miners overall are steadily moving higher.  There is no grand explosion, just a steady accumulation, which is what I actually prefer.   If the junior miners can break out, that will be a bullish sign.

The buck was hit for -0.49 today, dropping to 94.61.  Losses were higher than that during the trading day, but the buck recovered somewhat before end of day.   Both the GBP (+0.54%) and the Euro (+0.51%) moved higher.  My "dead cat bounce" scenario for the dollar seems to be playing out.

SPX (US equities) sold off in the futures markets in Asia and fell further once the market opened in NY, but managed to recover most of the losses before noon, closing down -6.21 to 2099.12.  VIX was up +0.01 to 13.86.  We have Retail Sales report at 08:30 EDT tomorrow which might help decide market direction, as well as Industrial Production on Friday at 09:15.

Bond ETF TLT rallied modestly, closing up +0.26%.  Bonds are still having a tough time; the rally back today was not strong.

The CRB (commodity index) rose +1.24%, remaining in its uptrend.

WTIC (west texas crude) rallied strongly today, climbing +1.87 [+3.15%] to 61.17, a new closing high for WTIC this year.  Brent rallied even more strongly.

Miners continue to do well, and PM has improved somewhat.  Commodities have been rising for a while now.  If it can continue, that will brighten the inflation outlook, which should help PM.  I remain nervous about oil, but the oil market seems to defy all my attempts to talk it down.

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5 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
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retail sales +0.0% helps gold rise $22

Weak retail sales number at 08:30 EDT resulted in a $22 move in gold.  During that same time, the USD dropped -0.96 to 93.64.  This move in the buck has driven the dollar below 94 support to new cycle lows.

SPX remains unchanged, but gold and silver are both really benefitting from the drop in the buck.

Junior gold miners have broken out to new highs.

Industrial Production out on Friday.

davefairtex's picture
davefairtex
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Posts: 5459
Bakken shale update: +12.5k bbl/day

The North Dakota Dept of Mineral Resources released their Director's Cut today (https://www.dmr.nd.gov/oilgas/directorscut/directorscut-2015-05-13.pdf) which details an 11.5k increase in oil production in the Bakken for March.

What happened?  It was about the fracklog.  Although average realized prices were $31.77 per barrel in the Bakken, drillers completed 189 wells in March.  The Bakken needs about 110 wells to be completed per month to stay even.

There is no way these wells are profitable given capex costs to drill.  On average, wells produce about 110k barrels over their critical initial 3 year production cycle, generating revenues (@ 31.77/bbl) of about $3.4M.  Costs to drill & complete range from $7M - $8M per well.  Perhaps you can tell me how they can make money at that price.

 "We lose money on every well, but we make up for it in volume."

Or as Foghorn Leghorn once said, "That's a JOKE, son!"

In the production chart below, you can see that even though production increased, its still below the peak set in January.  I do wonder though - will production continue to rise even though the wells are clearly not profitable?  When will the ponzi be exposed?

Doug's picture
Doug
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Posts: 3176
backlog
Quote:

When will the ponzi be exposed?

How much of a backlog of drilled but not completed wells is there?  That should take about 8 months according to the linked report.  When that's gone, production should take a precipitous drop until drilling ramps up again with higher prices...if that happens.

cmartenson's picture
cmartenson
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Posts: 5752
Backlog
Doug wrote:
Quote:

When will the ponzi be exposed?

How much of a backlog of drilled but not completed wells is there?  That should take about 8 months according to the linked report.  When that's gone, production should take a precipitous drop until drilling ramps up again with higher prices...if that happens.

Last I heard there were 900 drilled but not fracked wells in the Bakken.  Could be higher by now but given the surprising number of completions for March, I don't think it is.  At least not by much.

If all 900 were brought on line at once that would be in the vicinity of 500,000 extra barrels per day for that first month...of course things would drop off quickly from there, but you get the idea...

davefairtex's picture
davefairtex
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Joined: Sep 3 2008
Posts: 5459
drilled/not completed

According to latest Director's Cut:

  • 900 wells drilled-but-not-completed as of February
  • 880 wells drilled-but-not-completed as of March (i.e. fracklog dropped only 20)
  • 108 rigs active in March [83 rigs active today]
  • 189 wells completed in March
  • implied: 169 wells drilled in March, 1.75 wells per rig.

If drilling stopped today, and the completion rate was 110 wells per month (enough to keep production even), that says production would stay flat for 8 more months.  Yet drilling is clearly not stopping...

 

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