This week's release of energy inventories from the Department of Energy (DoE) showed that crude oil inventories rose by a huge and unexpected amount.
Wall Street was looking for inventories to increase by 1.55 million barrels. The number reported was actually 6.807 million barrels — the biggest weekly increase in inventories since September of 2012.
This puts current inventory levels near their highest levels of the year compared to the average price for this time of year.
You may have noticed cheaper prices at the pump. I paid $3.29 for regular today.
Expect these prices to continue to fall.
According to the DoE, gasoline inventories also increased a bit this week to 0.149K barrels. The expectation on the Street was a decline by 1.05 million barrels.
A Crude Story
This is great news for U.S. manufactures and for those of us that benefit from cheap energy.
The American energy output is growing so fast, we might have already overtaken Russia.
According to the Wall Street Journal:
The U.S. is overtaking Russia as the world's largest producer of oil and natural gas, a startling shift that is reshaping markets and eroding the clout of traditional energy-rich nations.
U.S. energy output has been surging in recent years, a comeback fueled by shale-rock formations of oil and natural gas that was unimaginable a decade ago. A Wall Street Journal analysis of global data shows that the U.S. is on track to pass Russia as the world's largest producer of oil and gas combined this year — if it hasn't already.
The U.S. produced the equivalent of about 22 million barrels a day of oil, natural gas and related fuels in July, according to figures from the EIA and the International Energy Agency. Neither agency has data for Russia's gas output this year, but Moscow's forecast for 2013 oil-and-gas production works out to about 21.8 million barrels a day.
U.S. imports of natural gas and crude oil have fallen 32% and 15%, respectively, in the past five years.
Keith Nailed It
Our own Keith Kohl has been all over the fracking boom in North America for more than eight years...
His readers have locked down gains of 574%, 478%, and 170%, just to name a few.
As much as I like the producers of energy, the next phase of the market is those companies that can profit from the low cost of energy. After all, natural gas prices have been falling for years.
Dow Chemical (NYSE: DOW), which uses natural gas both as a feedstock and as energy, has climbed from $28 to $40 this year. The company is spending $4 billion in 2013 to build new chemical plants in Texas and Louisiana.
Cheaper natural gas means lower cost ethylene, which is used in countless products, from tires to plastics.
FreightCar America (NASDAQ: RAIL) has climbed from $16.53 in September to $20.87 today as it sells more tanker cars to meet the demand for moving natural gas.
Cummins, Inc. (NYSE: CMI) has gone from $85.88 to $136.47 this year on the back of new fuel-efficient heavy-duty engines, including a 12-liter natural gas engine.
GE Transportation recently announced it would soon be offering retrofit technology that enables locomotives to use both diesel and liquid natural gas. The system allows up to 80% natural gas substitution. The LNG is cryogenically stored in a tender and enables trains to travel further without refueling.
Nucor, a steelmaker, is also building a plant in Louisiana.
The list goes on and on...
And downstream, companies you wouldn't think about will create jobs due to low cost fuel input. These range from glassmakers to producers of table linens.
If you consider lower energy prices to be a stimulus to business — essentially, a de facto tax cut — it will underlie the marginal growth we now have in GDP.
This party is just getting started...
There is money to be made.
Lock and load,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.