Effectively, the CME is lowering the cost to trade crude oil, gold, silver, copper, and a few other commodities. So far this has had no impact on prices of the SPDR Gold Trust (NYSE: GLD), United States Oil Fund (NYSE: USO), iShares Silver Trust (NYSE: SLV), nor in the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC).

In the past, margin costs were raised on traders as an effort to curb runaway trading to the upside by making it more expensive for traders and speculators to trade energy and metals.  In short, driving up the cost of poker creates fewer gamblers. So what happens when they make it cheaper to trade?

The full details are here.

JON C. OGG

This is the claim of a report by Bloomberg News. That’s the highest level of domestic production since 1992, and is based on data from the US Department of Energy.

The most startling claim is that the US could “become the world’s top energy producer by 2020.” That makes sense because the US is the world’s top energy consumer, and if we are energy independent, then the US must also be the top producer.

How does the US get there? Expanded production and more efficient consumption. US liquids production in 2011 rose to 5.7 million barrels/day and natural gas production rose to 22.4 trillion cubic feet in 2010. The US consumes about 19 million barrels/day of liquids, and will never produce that much crude, but rising natural gas and coal production could balance out the total number of BTUs produced with those consumed.

Environmental groups will raise objections to the energy independence story because the abundance of fossil fuel resources will lead to a diminished effort to replace carbon-emitting fuels with clean renewable sources.

And if the US can cut its imports of crude, the US trade balance would also get a lift. Bloomberg notes that a reduction of 4 million barrels/day would slice $145 billion from the annual US trade deficit.

The US is already a net exporter of refined products like gasoline and diesel fuel due to automobile mileage improvements and fewer miles driven. As liquids production from the shale fields increases and domestic demand decreases, US refiners could continue to grow exports.

Overall, though, US per capita consumption of crude oil is little changed since the mid-1990s. The US imports about 15.4 barrels of crude every year for every person in the country.

One political benefit of increased US production, regardless of whether or not energy independence is achieved, is the increased flexibility it gives the US in foreign policy matters. In dealing with Iran, for example, the US need worry less about the possible effects of a cut to Iranian crude exports.

One thing the Bloomberg article misses, though, is the price that consumers will pay. Right now, the abundance of natural gas has driven down domestic prices for gas dramatically. If, as seems likely, the US gets involved in exporting natural gas, the domestic price will inevitably rise. Likewise, the link between the price for Brent crude and US pump prices is not likely to be broken, which means US drivers will continue to pay high prices for gasoline.

The US may reach energy independence, or something near it, but all that really means is that what was once a domestic supply source has become internationalized and US consumers will be paying more, even as they consume less.

Paul Ausick

Demand for coal, both the thermal variety used for generating electricity and the metallurgical coal used in steel making, declined in 2011 as coal-fired plants have been shut down in favor of gas-fired plants and demand for steel has dropped.

In the US, gas-fired plants account for about 39% of total generation capacity, but these plants have traditionally been used to meet demand spikes because natural gas was more expensive than coal. With gas prices so low (about $2.49/thousand cubic feet today), coal miners have to lower prices or reduce production or both.

A quick look at coal mining companies’ valuations is enlightening.

Alpha’s share price at around noon today is $23.19 in a 52-week range of $15.49-$61.66. The consensus target price on the stock is $29.50, for a potential upside of 27%.

Patriot’s share price is $9.19 in a 52-week range of $6.92-$27.56. The consensus price target on the stock is $11.50, for a potential upside of 25%.

Peabody’s share price is $38.38 in a 52-week range of $30.60-$73.95. The consensus price target for the stock is $49, for a potential gain of about 28%.

Consol’s share price today is $37.34 in a 52-week range of $30.56-$56.32. The consensus price target is $50, for a potential upside of 34%.

Arch Coal’s share price is $15.39 in a 52-week range of $13.09-$36.99. The consensus price target is $22, for a potential upside of about 43%.

Market Vectors Coal ETF (NYSE: KOL) is down 0.4% at $37.17 and is 52-week trading range is $27.42 to $51.87.

Share price highs for all the coal miners is down by -24% to -64%, with Consol down the least and Patriot down the most. Our pick from among these would have to be Peabody, primarily for its strength overseas. The others are either closing shafts or soon will be.

The boom in shale gas production not only weighs down natural gas prices, but will continue to weigh on coal prices. About the only thing that can help here, is lower natural gas production, and that may be starting to happen.

Paul Ausick

Enerkem noted in the filing, “We intend to take advantage of the abundant supply of municipal solid waste, or MSW, which we expect to be paid to use as feedstock, to profitably produce cellulosic ethanol, a second-generation biofuel. We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable sources of energy, while also addressing the challenges associated with waste disposal and greenhouse gas, or GHG, emissions.”

The company also noted that its pilot facility in Sherbrooke, Canada has been in operation since 2003 and has a throughput capacity of 4.8 metric tons per day.

Enerkem has applied to list its common shares on the NASDAQ Global Market under the symbol “NRKM” and on the Toronto Stock Exchange under the symbol “NKM.”  Undewriters are as follows: Goldman Sachs, Credit Suisse, and BMO Capital Markets are the only underwriters listed in the prospectus.  See the image below.

JON C. OGG

The good news is that higher oil prices can mask many mistakes.  The bad news is that refining margins are just not what they were cut out to be. Downstream earnings were $425 million before items, while upstream earnings were over $8.8 billion before items.  Oil equivalent production was down 9%.  Total cash flow from operations and with asset sales combined was $17.6 billion with the operating cash flow portion at $10.7 billion.

Buybacks have continued at a feverish pace and the oil giant is targeting some $5 billion in buybacks of common stock in the first quarter.

Investors are not snapping up the news as a buy signal this morning.  So far, shares of Exxon Mobil are down almost 1% at $84.70 and the 52-week range is $67.03 to $88.23.

JON C. OGG

Many will be looking for some secondary trading in Exxon Mobil Corporation (NYSE: XOM) as the true Big Oil here, but Chevron actually has a heavier weighting in the Dow Jones Industrial Average or DJIA (NYSE: DIA).  Chevron is the third highest weighting of all DJIA components and Exxon Mobil is sixth.  The two alone count for about 11.5% of the entire DJIA.

The company noted that sales and operating revenues in the quarter 2011 were $58 billion, up from $52 billion in the year-ago period. This was mainly due to higher prices for crude oil and refined products.  Unfortunately, higher prices have not translated to higher profits and margin pressure in refining may be partly to blame and currency could have been a factor as well.

Chevron noted that worldwide oil-equivalent production was a net 2.64 million barrels per day and for the year it added approximately 1.67 billion barrels of net oil-equivalent reserves.

Wall Street is not very impressed so far and we will wait for the conference call to find out more details only skimmed over in the press release.  Shares are down 1.4% at $105.05 in early trading.

JON C. OGG

The odds that the increase will happen have increased in the past several days. Iran says it may stop oil exports on its own, instead of waiting for sanctions. The country may be unable to support this move for long. At some point, the government will need the money from oil exports to retain its ability to operate. Iran does still have the support of China. The People’s Republic said that EU sanctions against Iran are not “constructive.” China does not have to worry about Iran’s nuclear weapons work, though. And China can ill afford oil prices that could soar. It is the world’s largest importer of oil after the U.S.

The IMF is full of warnings recently. Taken together, they seem to paint a picture of a new recession, probably deeper than that last one. GDP growth in every major country in the U.S. was cut by the IMF this week. Now, it says oil prices may jump by 30%. One problem builds on the other. Sanctions, the price of which will be hard to bear because of oil prices, could be much worse if the trouble in Europe spreads around the world as well.

The price of the convictions of EU members and the U.S. is about to get much higher. And Iran may put more pressure on these convictions by acting first. That may seem irrational, but the Iranian government is not particularly known for rational actions. If the flow of oil stops, prices rise and Iran’s income drops, the question will become who blinks first. That is, if the IMF’s forecasts come true.

Douglas A. McIntyre

The EIA forecasts, among other things, that:

Domestic crude oil production is expected to grow by more than 20 percent over the coming decade.

That prediction relies heavily on increased production from the Gulf of Mexico. The crude is certainly there, but political pressure from environmentalists may block some exploration and production. Logistical problems of drilling in very deep water also could  compromise the forecast.

U.S. dependence on “imported petroleum liquids” will drop as:

… a result of growth in domestic oil production of over 1 million barrels per day by 2020.

The situation will get even better by 2035. Biofuel growth will aid the improvement. So will a moderation in energy use in the transportation sector. Also:

Net petroleum imports as a share of total U.S. liquid fuels consumed drop from 49 percent in 2010 to 38 percent in 2020 and 36 percent in 2035.

America has other energy benefits that will come in the mid-term future. These include a rise in natural gas production and an increase in the use of renewable fuels. These offsets to oil imports are important. The EIA says average crude oil prices will be $142 per barrel in 2035 as measured in 2010 dollars. That is very close to the price oil reached in the summer of 2008. It is amazing it will take so many years to get back there.

What use does the 2012 Annual Energy Outlook have? Many of its observations and predictions are based on dozens, if not hundreds, of events and supply and demand issues that cannot even be accurately gauged over the next two or three months. That renders the document’s contents useless.

Douglas A. McIntyre

High gasoline prices are supposed to be an indication of a prosperous economy. They also are supposed to be a significant threat to future economic prosperity. If that is true, the U.S. economy is in relatively good shape now, but it may not last.

The carefully followed Lundberg Survey showed that gas prices rose 3.48 cents to $3.3944 in the two weeks that ended on January 20. That is $0.28 higher than a year ago. The margin does not seem like much — an increase of only 10%.

The 10% is not much, if real wages in the U.S. had improved over the past two years. That has not happened. And there probably will be no improvement again in 2012. Unemployment is too high and employers are too reluctant to add workers. Also, Americans spent a substantial portion of their discretionary income over the holidays, based on retail industry statistics.

Americans ran out of spare cash three years ago, when the value of  most people’s home equity disappeared. Then, in increasing numbers, people lost their jobs. The recession that began in early 2008 could have been worse than the terrible one that it was. But oil prices that peaked at more than $140 that summer then collapsed quickly to less than $50 in 2009. The relief probably was enough to help in what has been the most modest of GDP recoveries.

There is no hope that gas prices will fall soon, even if the economy should slow. OPEC leaders and senior Saudi officials have signaled that they believe oil prices at about $100 are what they need to support their own economic growth. If that robs oil-consuming nations of some of their recovery prospects, so be it.

OPEC may get its way without much action of its own. If Iran blocks the Strait of Hormuz or political trouble in Nigeria shuts production there, oil prices will shoot higher than $100. And the price of gas will move back toward $4 a gallon. If a drop in crude prices in 2009 helped the global economy, that process could reverse itself soon.

Douglas A. McIntyre

And many Canadian energy firms’ stocks are in the doldrums, fueling talk of takeover bids, which leave many in Ottawa wondering if Chinese venture capitalists, flush with cash, will add to their Great White North portfolios.

Analysts are now speculating that three Calgary energy firms – Encana Corp., Talisman Energy Inc. and Nexen Inc. – are most likely to be in investors’ sights as ripe for takeover, due to a perfect storm of operational setbacks, inept management decisions and plummeting natural gas prices, all of which have depressed their stocks despite oil prices soaring above $100 a barrel.

Chinese-Canadian trade is booming, but as with the U.S., China enjoys a significant trade surplus. In 2010 Canada imported $44.4 billion in Chinese goods but Canadian exports to China were a relatively modest $12.9 billion.

What a difference a mere half decade makes – during the period 2006-2009, there were no major Chinese investments in Canada, while between 2001 and 2010 overall trade between the countries tripled even as Canada actually declined in terms of its overall percentage of China’s foreign trade during the decade.

Accordingly, energy could be the major Canadian export to redress the balance.

Since 2009, China’s state-owned oil companies have invested $16 billion in Alberta’s oil sands along with pipelines and shale oil and gas assets, out of a total of $97 billion sunk into oil sands overall.

Furthermore, China has recently begun taking outright control of Canadian energy companies, beginning with the acquisition by state-owned giant China Petroleum and Chemical Corporation Ltd. (Sinopec) of mid-sized Canadian oil and gas producer Daylight Energy last autumn.

Underscoring China’s rising importance in Canada’s corridors of power, next month Conservative Canadian Prime Minister Stephen Harper will make his second state visit since 2009 to China, with oil sales uppermost in his mind. One of Harper’s top priorities is to build a skein of pipelines to Canada’s western coast for energy shipments to Asia.

This dovetails with Beijing’s interests, which wants Alberta oil if it can get it and wants Harper to continue to push for a pipeline to the Pacific, a situation made much more likely by the 18 January decision by the Obama administration to not press forward with the Keystone XL pipeline.

In a statement released by the White House President Obama said, “This announcement is not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline that prevented the State Department from gathering the information necessary to approve the project and protect the American people.”

In a news release last week to announce his trip to China, Harper gushed about improving Canada’s relationship with China “by focusing on deepening economic ties.”

Harper’s China initiative has the solid backing of Canada’s business community. On 18 January the Canadian Chamber of Commerce released a report, “Advancing Our Economic Ties With China: Three priorities for Canadian business,” arguing that Canadian-Chinese ties are quickly becoming one of Canada’s most important external relationships. Canadian Chamber of Commerce President and CEO Perrin Beatty opined, “There is a clear need for more and better Canada-China trade. Of course, there are barriers in both countries that must be removed in order to open access to the tremendous opportunities ahead and build a partnership of shared growth and prosperity, but we cannot let these stop us from realizing the full benefits of the relationship.”

But pipelines to Canada’s west coast are not yet a done deal, and Harper and Natural Resources Minister Joe Oliver have pushed back hard against Canadian environmentalists fighting the Northern Gateway pipeline from Alberta to the British Colombia coast.

And Encana Corp., Talisman Energy Inc. and Nexen Inc.?

According to one analyst, given their purchase prices, they are probably safe for the moment from Chinese capitalists.

University of Alberta’s China Institute fellow Wenran Jiang observed that while Chinese state-owned oil companies are increasingly eyeing Canadian energy firms, they are unlikely to bid on Encana Corp., Talisman Energy Inc. and Nexen Inc., whose acquisition prices are estimated by analysts to be in the $11-22 billion range, due to both financial and political concerns. Wenran said, “My sense with talking to senior executives on both sides is the Chinese are comfortable in moving forward in the range of $2 to $3 or $4 billion deals, but I think it would quite a different step to move up to $15 billion plus.”

So, gold-plated Canadian energy assets seem safe for Canadian ownership at present, but much obviously depends on Harper’s upcoming dog and pony show in Beijing. If the Great White North isn’t turning red, it’s certainly acquiring a pinkish hue.

By John C.K. Daly of OilPrice.com