How to Make a Sweet Profit

White List Us Print Issue Follow us on Twitter   Follow us on Facebook   A Publication of The Sovereign Society Texas Light Sweet - the Game-Changer By Andy Hecht, Editor, Trade Hunter & Commodity Trend Alert Dear Sovereign Investor, The price of West Texas Intermediate (WTI) crude oil has rocketed in recent weeks. On November 17th, it was sitting at $28 a barrel higher than it was on October 4 - a massive 37% jump. But there is more to this story than just the rally in the price of oil. Firstly, higher prices for WTI, also known as Texas light sweet, could mean lower prices at the gasoline pumps. But there is also a significant investment opportunity for those who play their cards right. >>Advertisement CALLING ALL FINANCIAL “SURVIVALISTS” If you are confused or concerned about the radical changes sweeping through our eroding financial system... And you want to ensure that your life savings... your home and your business are never held hostage by a collapsing economy... and an out of control government. We’re putting the finishing touches on a critical new financial survival plan. One that you can use to survive and thrive through the challenging times ahead. For full details, click here. WTI vs Brent At the heart of this opportunity is the play between the two major oil-pricing benchmarks - WTI and North Sea Brent. WTI is a light crude oil with low sulfur content. Less than 0.5% sulfur characterizes crude oil as sweet, and WTI contains about 0.24%. Brent, though still considered sweet, has a sulfur content of around 0.37%. The key here is the sweeter the crude, the easier it is to refine into gasoline. So it’s easy to see why WTI is sought after. For the longest time, the two crude oils have ranged between $5 over or under one another - that is, until 2011. For much of this year, Brent has traded at a big premium to WTI. One of the main reasons for this is a glut of oil supplies in Cushing, Oklahoma, a major storage point for WTI, which has caused Texas light sweet crude to trade at a major discount to Brent. The continuing depletion of North Sea oil fields has further exacerbated Brent’s premium, as have events in the Middle East - the major oil supplier for Europe - which have caused fears of supply disruptions in the region. At one point, Brent traded more than $30 a barrel more than WTI. Earlier this year, some analysts claimed Brent would soon top WTI as the new global oil benchmark. However, since October, the Brent premium has evaporated. As the price of Texas light sweet climbed, Brent prices remained stagnant, and the differential between the two benchmark crudes dropped. This correction is perfectly logical. Firstly, the change in government in Tripoli has given the market assurances that Libyan crude will soon begin flowing again. Secondly, and more importantly, ConocoPhillips is selling its stake of the Seaway Crude Oil Pipeline System to Enbridge, a Canadian energy transporter. The pipeline originally took Texas light sweet from the U.S. Gulf Coast and shipped it north into Cushing. Now Enbridge will reverse the flow of the pipeline, and by the second quarter of next year, crude will flow out of Cushing into the refineries and port facilities along the U.S. Gulf Coast to the tune of 150,000 barrels per day (bpd).  Profits from Making Fuel Decrease For the oil industry and the savvy investor, this is a game-changer. The reversal of oil flows will deplete the surplus in Cushing, and the Brent-WTI differential will probably return to either side of flat. At the same time, a funny thing happened as WTI crude rallied and Brent prices remained stable - refining margins dropped for all manner of oil-based products, such as gasoline, diesel fuel and heating oil. For example, refining margins on the production of gasoline from WTI crude have plunged by more than 80% since May. In fact, margins have been squeezed so dramatically, refinery earnings are bound to be impacted. Knee-jerk reactions to higher crude-oil prices often cause investors to run out and buy oil-refining stocks. But savvy investors must look also at the structure of the market for clearer picture of when and where to put their money. Given the drop in refining margins, the stellar earnings of the third quarter are not likely to repeat. The share prices of companies involved in oil refining certainly do not reflect their current margins. The fourth quarter will see these refining companies buying more expensive crude and selling cheaper oil products - and that is not a prescription for increasing earnings! A Few Examples... Last quarter, giants like Exxon Mobile, Shell, Valero and Chevron made a mint by buying cheap WTI, refining it into oil products and selling them to the retail market at extraordinarily high margins. But based on recent developments in the crude oil markets, that is all about to change. Investors must pick and choose carefully. The higher absolute price of oil will directly impact companies involved in exploration and oil services, such as Schlumberger and Baker Hughes - but not the refiners. The Bottom Line... Changes in the structure of the oil market will see the major companies involved in refining crude give up some of their recent gains. It is a no brainer. In the fourth quarter, they will pay more for oil and sell their products for less! However, with higher crude prices, exploration and oil-services companies will benefit. Buy those companies and sell the refiners today. You’ll be glad when fourth-quarter earnings are announced. And, as an added bonus for the consumer, the price of gasoline at the pumps and home-heating oil could fall or at least stay flat, even though crude-oil prices are up. Happy trade hunting... Andy Hecht Editor, Trade Hunter & Commodity Trend Alert Publishers Note: Until midnight on Wednesday, you can test-drive Jeff Opdyke’s Emerging Market Strategist research advisory for just $1. When you do, you’ll get the details on a tiny company that could double your money by July 1st, 2012 as it solves the greatest threat to China’s economy. Get all the details here. >>RECENT ARTICLES 11/22/2011 Chinese Growth Fuels Rising Grain Prices For the more adventurous, the grain futures markets offer investors the opportunity to buy futures and options! 11/21/2011 Two Cheap Currencies About to Get Cheaper The Turkish lira (TRY) and the Indian rupee (INR). 11/212011 The Days of Cheap Energy Are Over Corporate expansion gets brutally expensive from here on out… 11/21/2011 Watch This and Weep The Wall Street Journal has just posted an article on its website headlined “Wall St. Slides on Pessimism over Europe and Deficit...” 11/21/2011 Chart: Silver Wheaton (SLW) Could Crash Soon I’m bullish on silver in the long-term. But the metal isn’t looking so good in the short-term. 3 Investments That Could ‘Crash-Proof’ Any Portfolio We’ve prepared an urgent strategic report on 3 investments that could “crash-proof” any portfolio. In fact, one of these investments could give your wealth the Fort Knox-like security of gold... while giving you the opportunity to double your returns. For the full details, Click here. HOME    |     ABOUT US    |     PREMIUM CONTENT    |    CONTACT US

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