Marathon (MPC) Margins Could be Pressured

Over the short term it appears Marathon Petroleum should do well, and the company apparently believes that also, recently boosting its quarterly dividend 40 percent to $0.35 a share.

But for the next five years Marathon may come under strong pressure from what could be a big drop in margins. Wood Mackenzie Senior Energy Research Analyst Jonathan Leitch said the margins of the company could fall as much as 40 percent during that period.

This is because of the lighter crude oil being extracted from shale plays around the United States, which is the primary market served by the oil refiner.

Marathon Petroleum has refinery exposure of approximately 50 percent in the heavy crude market, which is the source behind the probably pressure on its margins going forward.

At this time there is an oversupply of refining capacity in that segment of the market.

This shouldn't affect the performance of the stock in the very short term, but over time it is something that must be carefully watched.

Marathon Petroleum closed Friday at $47.04, climbing $1.22, or 2.66 percent.

Goldman Sachs (NYSE:GS) Acquires Nexen (TSE:NXY) Natural Gas Marketing Unit

Goldman Sachs (NYSE:GS) has acquired the natural gas marketing unit of Nexen (TSE:NXY) (NYSE: NXY), the Canadian-based oil and gas producer.

Nexen Vice-President Pierre Alvarez confirmed that has sold the division, but had nothing to say about the details of the transaction.

The tremendous amount of natural gas supplies has cut the need to physically transport the raw material, and so Nexen has been looking to offload the division for some time.

Nexen says it will focus on its core businesses, especially crude oil and shale gas production.

The natural gas marketing unit has never done well for Nexen, and selling it to Goldman Sachs is a good move, as it offloads and asset that does nothing for them, while turning it over to Goldman, who should be able to make it work far better than it has in the past.

Exxon Mobil (NYSE:XOM) Down as Crude Plunges

Crude oil prices continue to plunge, bringing energy companies like Exxon Mobil (NYSE:XOM) down with them. Exxon today fell has fallen by over 2 percent as of a little after 1:30 P.M. EST, and crude oil was as low as $72.60 a barrel on the New York Mercantile Exchange, a 2.4 percent drop.

Much of this is because oil inventories are much higher than expected, implying consumer spending is down in relationship to that.

This could, and probably will continue on through the summer, as the economy continues to sputter, contrary to massaged data where official attempt to paint the brightest economic picture they can.

The sovereign debt crisis in Europe and China battling inflation will continue to pressure raw materials and products as they cut back in order to stop the collapse of their economy, in the case of Europe, and the bursting of a bubble in China.

Oil Drops on Goldman Sachs (NYSE:GS) Fraud Charges

Oil falls on news of fraud charges against Goldman Sachs

It seems almost everything responded negatively to the news Goldman Sachs (NYSE:GS) was being charged with fraud by the Securities and Exchange Commission, including crude oil, which dropped by $2.70 to $82.81 a barrel on the NYMEX.

Equities and other commodities fell as well, with gold prices getting hit hard, dropping by over $24 in mid-day trading.

In what appears to be an over-response to the relatively benign situation, it tells me traders know the market is flying way too high, and with commodity prices, for the most part, at very high levels as well, anything that spooks traders and investors seems ready to put heavy downward pressure on the markets.

Investors are getting leery of the optimism being portrayed by the media concerning the markets, and they know much of it is hype and not based on fundamentals, and the market is poised for a heavy correction, as evidenced by the response to something that shouldn't be taken as that big of a deal.

BP (LSE: BP) Awards Drilling Contracts in Iraq

BP Iraqi Drilling Contracts

BP (LSE: BP) has offered the lucrative drilling contract for the Rumaila oil field in Iraq, the largest one in the country, and one of the largest oil fields in the world, to several drilling companies. BP and its partner won about $500 million in contracts in the oil field, which will be contracted out to Schlumberger Ltd, Iraqi Drilling Company, Daqing Oil Field Co. Ltd and Weatherford International.

At this time 1.07 million barrels of oil a day are extracted from Rumaila, with a goal to increase that to 1.23 million barrels daily by the end of 2010, or at latest, early 2011. Ultimately they want to produce 2.85 million barrels a day. There are an estimated 17 billion barrels in crude oil reserves in Rumaila.

The group of companies will drill 70 wells this year in the oil field to increase production.

BP has entered several deal recently to build a solid foundation going forward, including in the Gulf of Mexico.

BP and its Chinese partner CNPC signed a 20-year contract to develop the oil field last year.

Marathon Oil (NYSE:MRO) Drilling 25 New Wells

Marathon Oil Drilling 25 New Oil Wells

Oil wells in the Oregon Basin have been producing oil for close to 100 years, and even though Marathon Oil (NYSE:MRO) hasn't been drilling there for a couple of years, they're poised to start again with a goal of drilling another 25 new wells in the region.

Along with the search for new oil, Marathon will also be employing new techniques to extract known oil resources for existing wells, possibly through the use of carbon dioxide or steam to push the oil to the surface; although that is more costly and will depend on market prices at the time whether it's feasible or not.

Crude in the Oregon Basin is called asphaltic crude, and is used in highway construction. Increased demand and prices make it worth the effort to start drilling for it again.

In general, this type of crude is close to 30 percent in value than light sweet crude, but that has narrowed recently, again, making it economically feasible to puruse by Marathon Oil and other energy companies.

Marathon Oil Drilling 25 New Oil Wells

Crude Oil Prices Going Up

Crude oil prices

Crude oil prices continue to hold at above $80 per barrel, as cold weather continues to plunge America, and other parts of the world in freezing temperatures.

Fridays' close was at $83 a barrel on the New York Mercantile Exchange, as the cold front continues to linger and shows no signs of leaving any time soon.

Over the last couple of weeks since the cold front has moved down the country, light sweet crude oil prices have continue to go up in response to the cold.

Some other energy prices have gone up as weel, with heating oil increasing to over $2.2 a gallon, while reformulated gasoline prices rose to $2.16 a gallon. One bright spot for consumers was natural gas, which lost 0.06 cents to $5.746 per million British thermal units.

Gasoline prices have shot up to $2.727 a gallon recently for unleaded for a national average.

Crude Oil Prices Going Up

Newfield Exploration (NYSE:NFX) Upgraded to Outperform by Wells Fargo

Wells Fargo (NYSE:WFC) announced that it has upgraded Newfield Exploration (NYSE: NFX) from Market Perform to Outperform, and increased its target range from $35-$40 to $56-$60.

According to Wells Fargo, it's decision was based on Newfield's exploration potential, discount of valuation, operational catalysts and growing focus on oil.

Especially noted by Wells Fargo was Newfield's Monument Butte & Bakken programs which are the chief area where it's exposure to oil is located.

Natural gas also continues to play a major part in its valuations, as it accounts for 54 percent of Newfield's portfolio, while crude stands at 46 percent.

It was also felt by Wells Fargo that the Monument Butte asset in the Uinta Basin held by Newfiled Exploration is highly undervalued by the street, another significant factor in its upgrade of the company stock.

Weakening Economy Continues to Drive Down Oil, Gas Prices

Weakening economic conditions continue to put downward pressure on oil prices, which in turn is also driving down the price of gasoline as consumers continue to tighten their wallets and spend only on necessities.

Oil for December delivery fell as low as $60.16 today, and ended up settling at $60.77 on the New York Mercantile Exchange. Brent Crude in London moved in step, falling by $4.44 to settle at $57.43 for December delivery.

Gasoline prices in the U.S. have continued to fall as well, with overnight averages coming in at $2.34 a gallon according to the AAA, and could fall to $2.00 a gallon by the end of 2008.

Commodities Leap the Highest in 2 Weeks; Records for Corn, Oil, Gas

After U.S. government reports confirmed supply for energy and grain can't keep up with the demand, commodities surged the most in two weeks, led by record-breaking prices for corn, oil and gasoline.

"Supplies for a lot of different commodities are dwindling as demand has gained globally," said Michael Pento, a senior market strategist at Delta Global Advisors in Huntington Beach, California, which manages about $1.5 billion. "I'm bullish on all commodities."

Crude oil leaped as high as $112.21 a barrel, while corn ended at $6.16 a bushel, as inventory fell below anticipated levels.

Setting a new record was gasoline futures as well, climbing to $2.8228 a gallon, a reflection of what it costs wholesale.

Commodities Drop in Quarterly Sell-Off

Many commodity prices plunged today as investors partook in profit-taking at the end of the quarter. Another factor was the report by the U.S. Department of Agriculture which said there will be a supply problem in corn, wheat and soybeans this year, as stockpiles around the world declined.

There wasn't a commodity sector that didn't experience strong declines and sell-offs.

Agriculture

While the number of acres dedicated to corn planting this year have fallen, soybeans and wheat, on the other hand are increasing, with 75 million acres projected to be planted for soybeans and 64 million acres for wheat in 2008. That's an 18 percent increase for soybeans and a 5.5 percent increase for wheat over last year's total.

Corn prices increased on the news there would be only 86 million acres planted this year, in contrast to the 93.6 million planted last year; a drop of 8 percent. Corn ended at $5.6725 a bushel on the CBOT.

Metals

Major metals also fell, with gold, silver and copper all dropping as investors assured themselves profits at the quarter's end. Gold dropped by $14.40 to finish at $916.20 an ounce on the NYMEX. Silver fell 62.5 cents to settle at $17.275 an ounce, and copper prices for May declined by 0.5 cent to end the day at $3.8635 on the NYMEX.

Energy

Futures for energy also fell, as crude oil for May delivery finished down by $4.04, ending at $101.58 a barrel on the NYMEX.

Gasoline futures for April plunged by 10.07 cents, ending at $2.6163 a gallon. Heating oil also dropped 5.58 cents to settle at $3.0492 a gallon.

Commodity Surge Here Again

It looks like the commodity market is done taking a breather, and it's on the way again, as not only agricultural products went up in significant amounts, but a number of metals increased along with them.

After the hit commodities took last week, the usual number of the uninformed called the end to the sector: how wrong they were!

Of course this doesn't mean we're going to on huge surges all the time, but I do think overall, we'll see a steady climb in the overall sector, with the occasional dip. Of course it all depends on the individual commodity and its performance, but overall this trend should continue on for some time.

Both corn and soybeans gained the allowable amount on the Chicago Board of Trade. Others like cocoa also had significant increases, with cocoa growing by 6 percent and coffee by 3 percent in New York.

Upheavals in Argentina, with farmers striking ports, caused concerns on what would get out of the country, as well as wet weather conditions in the eastern part of the midwest have slowed down planting dates for corn. It finished at $5.44-3/4 a bushel for the May contract today.

Soybeans also hit their limit for the second straight day, as it reached $13.07 a bushel for May SK8, when hitting its 50-cent limit. Most other contract months on the CBOT hit their limits as well.

Wheat responded to the agriculture rally, as its May WK8 contract closed at $10.67-1/2 a bushel, an increase of 47-1/2 cents.

The rally in corn and soybeans also lifted CBOT wheat for May WK8, which closed up 47-1/2 cents at $10.67-1/2 per bushel.

Light crude in the U.S. increased to $101.22 a barrel, moving up 36 cents. Its cousin across the pond, London Brent Crude surged by 74 cents, to reach 100.60 a barrel.

Others that enjoyed surges were gold, copper and U.S. crude oil.

Watch for Impact of Falling Commodity Prices on Related Industries

According to Citigroup, the ongoing drop in commodity prices will have a strong impact on certain companies within sectors like "agriculture, mining machinery, energy equipment and alternative energy."

While investors will focus primarily on the prices of commodities like gold, silver and oil, those companies providing equipment and other energy sources could also suffer some heavy declines as well. Pressures will continue during this market correction.

Tobias Levkovich, chief U.S. equity strategist at Citigroup, said in a report that "A whole range of stocks seem to be at risk. The notion of unwinding 'crowded trades' could make the decline sharper than probably is justified."

Levkovich added, "The impressive economic development of Brazil, Russia, India and China has spawned a sense of never-ending growth that has stoked speculative juices."

Another long term impact on commodities could be if the Japanese and Europeans decide to sell their currencies in order to combat the weakness of the U.S. dollar, which on the positive side has increased American exports dramatically. It has hurt some of their domestic industries because of the strength of their currencies against the U.S. dollar.

Amex Gold Bugs Index

Last week the performance of the Amex Gold Bugs Index dropped by 15 percent, while the S&P 500 was able to gain a significant 3.3 percent, underscoring the changes occurring in the marketplace.

Amex Oil and Gas Index

The Amex Oil and Gas Index also reflected the current change in market conditions for commodities, as it declined by 4 percent last week.

Where oil, gold and wheat finished Monday

For Monday, oil futures dropped by 98 cents to finish at $100.86 a barrel, after reaching as high as $102.42. Gold also continues to fall, as it shaved off another $1.30 to finish at $918.70 an ounce. That was off from the day's high of $920. Wheat was able to manage a 3.3 percent gain, bringing $10.20 a bushel.

Light Crude Oil Graph up to March 7

Click on graph to enlarge