Gulf of Mexico No Longer Considered the "Dead Sea" of Oil Exploration

Royal Dutch Shell PLC announced Friday that they had made a significant oil discovery of approximately 100 million barrels, 25,000 feet below the sea bed, in 7,217 feet of water, on the eastern Gulf of Mexico. Six months ago BP PLC announced a "giant" discovery in the Gulf south of Louisiana containing approximately three billion barrels of oil. These discoveries are quite a turn around from years of exploration going back to the nineties of drillers coming up empty in this region and bode well for the success of future production in the Gulf of Mexico.

Until these recent finds, explorers were abandoning the Gulf of Mexico due to strings of unsuccessful drilling projects. Efforts were being focused in foreign waters with much higher operative expenses and much greater geopolitical risks. Oil exploration and production companies will now begin focusing again on the Gulf with a special emphasis on the largely unexplored eastern Gulf.

The recent successes are attributable to new deep sea drilling technologies that have given access to previously unpenetratable depths. Armed with these new techniques a record high 77 companies paid $949 million to the US Minerals Management Service last week for offshore leases.

Although several years will be needed to bring the new production to market, the exploration activity in the Gulf of Mexico is very good news for future US oil supplies.

US Economic Insight of Federal Express and the Federal Open Market Committee

Trading ranges on crude, unleaded gas, and heating oil futures have been narrowing for the past several weeks indicating traders are unwilling to bet heavily in either direction on the next move for the energy complex. Crude bulls made a valiant effort to take out January highs on Friday hitting an intraday high of 83.13, but were rejected by "da bears," confident that energy has had a nice six week run and needs a healthy pull back. Comments next week from the Federal Open Market Committee and the Federal Express conference call need to be listened to closely to understand where the US economy is likely headed.

When markets consolidate, as we have seen the past few weeks in both energy and equities, short and long traders begin getting nervous that either profits have run their course or losses will begin to mount. Putting on new trades or offsetting open trades are not wise until the congestion has cleared and market direction reasserts. Next Tuesday traders will likely receive market moving guidance from the Fed. Interest rates are unlikely to change. However, comments from the Fed Chairman will give better insight as to how well the US economy is improving.

Along with a slew of economic data to be released next week, Federal Express will be broadcasting their quarterly investor conference call. Not only is this company a bellwether for the US economy, the President, Frederick Smith, is a Yale graduate with a degree in economics. Listening to a Federal Express conference call gives valuable insight into the real state of the US economy.

The energy and equity markets feel top heavy, overbought and ready for a decline, but the FOMC and Federal Express may give the bulls the ammo they need to keep charging higher.

Jobs Bill Will Result in Loss of 23,000 Biodiesel Jobs

A jobs bill done properly will create incentives for private enterprise to expand their businesses and hire more employees. With the passage in the US Senate on February 24th of a revised jobs bill, approximately 23,000 biodiesel sector employees in 44 states will actually lose their jobs.

The biodiesel industry has been in a holding pattern since the end of 2009 awaiting the extension for the $1 per gallon tax credit for blenders of biodiesel. The recently passed jobs bill excluded the requested one year extension of the blenders credit. Plants that have been idle will soon be shutting down. Investment in extending biodiesel production infrastructure will soon be suspended unless a longer term tax credit bill eventually is introduced and passed.

Failure to extend the biodiesel blending tax credit has taken the industry by surprise. Since the credit has bipartisan support among law makers, passage of the extension appeared to be certain. However, because Congress dedicated their efforts to moving forward the health care reform bill, they decided not focus attention on the tax extenders package.

Unfortunately thousands of biodiesel employees now will be facing severe cut backs in hours and ultimately permanent layoff looms. It seems rather ironic that a government administration that is trying hard to convince the public that they are pro jobs and pro environment, neglected to include a tax credit extension that would have furthered both causes.