Friday, December 30, 2005

Play it again, Sam.

Sam Stovall, Chief Investment Strategist at Standard & Poor's, appeared on CNBC a few minutes ago and suggested that overweighting the prior year's most successful sector often leads to further outperformance over the S&P 500 the following year. The top performing sector in 2005 was... hmm, let me take a look here... hey, whaddya know - energy. His statistics suggest this outperformance occurs in 7 out of 10 years, or 70% of the time, which is a rather impressive track record.

I have looked at this also as a trading strategy, and I agree with him.

There is one key though: You must avoid a sector that has completely overheated and is about to crash land.

To be perfectly clear, I am not sure if energy is an entirely safe bet for 2006 based on Sam's idea. Energy has done well over the past 3 years, and very significantly outperformed in 2005. On the other hand, many people are still quite skeptical of the energy story and are underweighted (and may need to buy..). Thus, we may have room to run until everybody thinks energy is the place to be. Keep an eye out for that, it's when you'll know to sell everything.

The key, I think, is to watch your energy holdings very closely and not be afraid to take some off if they trade poorly in 2006. You can always buy them back if you were early.

Additionally, Tom McManus of Bank of America, who had recommended energy at the beginning of 2005, feels that energy may still have some life left in it. He is rather bearish on the rest of the market though.

Have a healthy & happy New Year.

Thursday, December 29, 2005

Room to Rally.

ICON Energy Fund manager J.C. Waller appeared on CNBC this morning and offered his opinion on energy stocks.

Currently, Mr. Waller believes energy stocks in general are trading at 16% below what he considers fair value, and thus his view is that there is "room to rally".

Drilling down (so to speak..) he believes that the most promising sector of energy is oil and gas drilling, which he believes is trading 36% below fair value. He noted that this sector has also shown recent price strength, particularly over the past six weeks. Thus, based on this combination of value and strength, he believes oil and gas drilling to be a "good place for an active bet".

He highlighted three names in oil and gas drilling which he feels are not being recognized as bargains:

DO - believes it to be 38% under fair value
NBR - he has a fair value target of $97

Monday, December 26, 2005

Energy Service in 2006?

When I read things like this, I think so.

MSN: Stocks for the 2006 commodities crunch

Monday, December 19, 2005

Arjun Murti Eyes the Red Pill.

Bloomberg: Goldman's Murti Says `Peak Oil' Risks Sending Prices Above $105.


Goldman Sachs Group Inc. analyst Arjun Murti, who roiled oil markets in March by saying crude may reach $105 a barrel, now says that may be conservative if the ``peak oil'' theory is right and world supplies are running out.

The belief that the world's oil supply is close to an irreversible drop is no longer ``on the fringes'' of the market, said a research report by New York-based Murti, who forecasts oil of $50 to $105 a barrel until 2009. UBS AG analyst James Hubbard, a former oil engineer at Schlumberger Ltd., said an inevitable decline in supply will start sooner and be worse than expected unless investment increases for many years.

A jump above $105 a barrel ``is possible if we don't invest the right amount of money,'' Hubbard said in an interview in London. ``There will be a peak in production earlier than expected, and that post-peak decline will be more dramatic than currently assumed unless there is a sustained increase in investment in oil and gas production, greater consumer efficiency and alternative energy sources.''

Goldman's Murti in March skirted the peak oil debate. In a report last week, the analyst said it's something to monitor.

``It is possible that the peak oil theorists are correct,'' he wrote. ``If so, we think that the duration and magnitude of energy commodity price increases would be likely to far exceed what we are contemplating.'' He couldn't be reached for comment.

Without a peak in production, Murti expects the price of New York oil to fall to about $35 a barrel in New York between 2010 and 2014. That matches forecasts from Schroders Plc for $35.50 by 2010 and is lower than Merrill Lynch & Co. predictions for $40 to $45 by the end of the decade.

The debate and high prices are contributing to an increase in investment in new technologies that will help keep oil flowing, said UBS's Hubbard, who wrote in October that some 3 trillion barrels probably remain to be pumped.

Murti ranked third last year among researchers who cover oil and gas companies, according to Institutional Investor magazine.

Goldman, the second-biggest U.S. securities firm, estimates about $50 billion is invested in its commodity index, where crude oil has largest weighting. The bank's view is that oil will average $68 a barrel in New York next year. Prices may stay close to $60 for ``three to five years'' before falling to ``$45 at the most'' by 2010, Jeffrey Currie, the bank's head for commodities research in London, said in August.

Tuesday, December 13, 2005

Four more years! Four more years!

MSNBC/Reuters: Goldman Sachs: Oil prices to stay high for years.


LONDON - Oil prices, which hit record levels this summer, have entered a "super spike" phase that could last for four more years as global demand booms and supply growth slows, Goldman Sachs analysts said on Tuesday.

"We disagree with what appears to be a growing consensus that crude oil prices reached their peak levels earlier in 2005," said the firm's Global Investment Research.

The analysts said oil demand remained resilient and supply growth lacklustre, prompting them to keep their average U.S. crude price forecast for next year unchanged at $68 a barrel.

They predicted oil prices could see 1970s-style price surges to as high as $105 a barrel during this period.

"With WTI oil prices on-track to average about $57 a barrel in 2005, we think the past phase will be remembered as the first of what could be a four-to-five-year 'super-spike' phase," their report said.

Goldman Sachs first mentioned a super-spike phase in March, five months before U.S. oil prices skyrocketed to a record $70.85 a barrel. Prices have since eased.

U.S. oil futures on the New York Mercantile Exchange have averaged $56.59 so far this year.


The bank expressed doubt that OPEC producers, which supply a third of the world's crude, would be able to quench booming demand.

"It is the seeming insurmountable challenge of OPEC's needing to add real new capacity on a just-in-time basis that gives us so much confidence that we are in the super-spike phase," it said.

OPEC, which has been pumping at the highest rate for 25 years, is set to boost its spare capacity to 3.1 million bpd by the end of the 2006.

Despite hurricanes, high fuel prices and increased conservation, energy consumption in the United States remains strong, as does China and India, the bank said.

"Ultimately, we agree that the energy bull market will roll over once demand destruction really begins," it said. "We simply do not believe we have arrived at that point."

The International Energy Agency, the West's energy watchdog, estimated world oil demand ould grow at an average of 1.8 million to 2.0 million barrels per day through 2010. Last year's demand growth of 3 million bpd was the highest for a generation.

BusinessWeek: Where the Action Is in Energy.


"A good buying opportunity for many investors." That's what Standard & Poor's analyst Tina Vital sees in many oil and natural gas stocks at the moment.

Q: What portfolio weighting does S&P currently recommend for energy stocks?

A: The current sector emphasis for energy is market-weight. Energy as a segment of the S&P 1500 is 9.9%. It had broken 10% some months ago, and several years ago had been down around 6%. So we've seen it increase as a percentage as energy becomes a greater portion of our market. It's S&P's opinion that energy still has legs.

Q: Tina, can you give us your top picks? You mentioned a few earlier.

A: Yes. Starting with the integrated oils, my 5-STARS picks are Chevron, Conoco, Exxon Mobil, Total (TOT ), a French company with big plays in frontier regions, and Valero Energy (VLO ). These integrated oils all offer dividend rates of 2% to 3%.

Now, as far as the exploration/production companies go, there are 5-STARS ratings on Canadian Natural Resources (CNQ ), Chesapeake Energy (CHK ), Devon Energy, and Occidental Petroleum (OXY ). These four E&Ps have dividend rates of between 0.5% and 2%.

We also have some pipeline companies that we're very bullish on, having a 4-STARS rating on Amerigas Partners (APU ), Buckeye Partners (BPL ), Enterprise Products Partners (EPD ), Kinder-Morgan Energy Partners (KMP ), and Magellan Midstream Partners (MMP ). All of these pipeline companies that Roy Shepard covers have dividend rates of 6% to 8%, very high.

Last but not least, there are three 5-STARS oil and drilling companies: GlobalSantaFe, Nabors, and Superior Energy Services. Only GSF has a dividend, around 1.3%.

LOBG Quiz.

When Fadel Gheit of Oppenheimer & Co. was quoted as saying "It's an excellent deal, a fantastic deal," he was referring to:

1.) The fact that you bought lots and lots of energy stocks in 2004 and 2005.

2.) The Tom Cruise / Katie Holmes hookup, of which he is a huge fan.

3.) ConocoPhillips purchase of Burlington Resources.

P.S. More mergers to come?

Thursday, December 08, 2005

Wanted: Cheap, disagreeable investors for LTIR.

NY Times: Today's Energy Stocks May Well Be Tomorrow's.


"Over the near term, I think it's going to be kind of a struggle because we have a lot of uncertainty in the marketplace in terms of G.D.P., consumer demand, geopolitical considerations, rising interest rates," James D. Wineland, manager of the $4 billion Waddell & Reed Advisors Core Investment fund, said of the sector's share-price performance.

But he pointed to the continuing imbalance of supply and demand and added, "If we look beyond that, I think there's a huge future for energy stocks because this is an issue that isn't going away." He has made a big bet on that future, placing about 20 percent of the fund's assets in energy, double the market weighting.

David Spika, investment strategist at Westwood Holdings in Dallas, an institutional portfolio manager with large energy holdings, has similar hopes for the sector.

"Even though we have seen a significant decline in crude, the structural supply-demand imbalance remains," he said. "Obviously you have to expect corrections from time to time."

A chronic imbalance would set energy apart from other commodities, whose prices tend to fall over time when adjusted for inflation, said Jeremy Grantham, chief strategist at the portfolio manager Grantham, Mayo & Van Otterloo. While ephemeral factors can cause cyclical gluts and scarcities of commodities, new production methods help to ensure that supply outstrips demand over the long haul - except in the case of energy, Mr. Grantham has come to believe.

"We're gung-ho about regression to the mean, so when prices rise a lot, we are expecting to go short and underweight," he said about most commodities and the stocks of their producers. Since the shortages of the 1970's, the average price of a barrel of oil has been $36 in today's dollars. Mr. Grantham said he expects the average price to keep climbing as what is left of the earth's supply of oil becomes harder to extract.

"I'm offering oil as an exception to the principle" of mean reversion, he said. "Having hunted high and low and never found a major asset class that went through a paradigm shift, I think oil is it."

If a paradigm shift is occurring, the investment masses are barely noticing. Tim Guinness, who manages the Guinness Atkinson Global Energy fund, among the best-performing equity funds this year, with a return of 61.4 percent through Thursday, points out that energy stocks as a group have doubled since crude oil reached a trough in 1998 at less than $10 a barrel.

At the bottom, he recalled, energy accounted for a mere 6 percent of the valuation of Standard & Poor's 500-stock index, compared with 27 percent at the peak of the oil boom in the early 1980's. Today, with crude around $60, energy accounts for less than 10 percent of the index. Who's a Contrarian? Not Me!


The pilot of Fidelity's huge Contrafund excels by focusing on companies with visionary executives.

With little fanfare, Fidelity Contrafund overtook its sister fund, Magellan, sometime this past September to become the largest stock fund in Fidelity's vast stable. It should have come as no surprise. In contrast to Magellan, Contra has prospered, despite assets that now exceed $56 billion. The record is compelling: Contra easily topped Standard & Poor's 500-stock index over the past 15 years. What's more, it outpaced the index in nine of the past 15 calendar years, including 2005 to October 1. An investment of $10,000 in Contra 15 years ago would be worth $97,400 today, versus $54,000 for Vanguard 500 Index.

We dwell on the 15-year benchmark because the man behind the sterling record, Will Danoff, celebrated his 15th anniversary at the fund's helm in September. A salty product of Harvard and the Wharton School, Danoff claims he's no contrarian -- that Contrafund is just a name. So what accounts for his stock-picking success? And how will he keep Contra moving forward under the weight of all those billions of dollars? For the answers, listen in on our conversation, conducted one fine autumn afternoon above the streets of Boston's financial district.

Q: Where are we in the energy-stock cycle?

A: It's still early. Maybe we're in the fifth inning. We're starting to see the industry raise money, and we're starting to see some speculative deals, such as Norsk Hydro buying Spinnaker. But we haven't yet seen full capitulation by institutional investors. That's when people say, "If you don't own energy, you underperform, and if you underperform, you lose your job."

Q: Now you're starting to sound like a contrarian again.

A: My style is to own what I would call best-of-breed companies. So I'll be slightly contrarian when I move to de-emphasize energy and to emphasize groups that are improving, but I think we're still in the improving stage for the energy sector. Until you see irrational capital spending in the industry, I think we're okay.

Everyone's talking about how big-capitalization stocks are due for a comeback. The surprise may be that the stocks to own are ExxonMobil and Chevron, which are underowned, rather than General Electric and Microsoft, which everybody and his brother owns.

Q: Who has the vision in the energy business?

A: EnCana, a Canadian exploration-and-production company, is one of my biggest holdings. In May 2000, I show up at a meeting of Alberta Energy management. So I start talking with the CEO, a guy with gray hair who looks very experienced. I ask some basic questions, such as "How do you make money in the energy business?" and he starts talking about how it's a capital-intensive business. You want long-life reserves because if you're going to plunk down $1 billion up front, you want that $1 billion to work for you for 20, 25 years. Anyway, I liked the guy -- his name is Gwyn Morgan -- and the company had some good growth prospects, and I bought a little stock. Eventually, Gwyn merges Alberta with PanCanadian, which had this massive acreage in Canada, and creates EnCana. Gwyn is a visionary explorer who's looking for elephantine energy fields that allow him to leverage all his capital and his expertise. He does another acquisition and another, and now he's sort of on top of the world as gas prices go through the roof.

P.S. LTIR = Long term investment relationship.

Investment Advice from Kenneth Deffeyes.

And Warren Buffet too, the sneaky &*%^. You thought he bought PTR only for the currency play, didn't you? (Me too..) World oil production doom scientist decries editors.


PASADENA - There it was, laid out in a simple linear graph for everyone to see: the end of the age of oil.
For anyone who fears oil companies run the White House, fumes at the thought of drilling in the Arctic National Wildlife Refuge or deems global warming doubters deranged, there had to be something perversely gratifying about the picture of doom on display Thursday at Caltech's Beckman Auditorium.

"The peak of world oil production is happening right now," Ken Deffeyes, professor emeritus at Princeton University, confidently declared. "Here is the most important story since the Industrial Revolution."

And when Deffeyes said "right now," he meant it.

According to his calculations, world oil production reached its peak on Thanksgiving Day 2005, and now starts on a steady decline until it reaches zero near the end of the century. Deffeyes, a geologist, bases his conclusions on a production chart developed by M. King Hubbert, a Shell Oil Co. geophysicist who, in the 1950s, accurately predicted the rise and fall of U.S. oil production.

Despite the assuredness with which Deffeyes delivered the news, he is not without his critics.

The U.S. Geological Survey, for one, says Deffeyes has underestimated the world oil supply by roughly one trillion barrels -- roughly equal to the supply of oil that has been pumped so far.

Even among the scientists who accept the Hubbert system, there is disagreement about exactly when the production peak will hit. And there are others who dismiss the entire method as unscientific, unreliable hogwash.

"When you assume changes are due simply to geology, you're going to get it wrong," said University of Texas politics professor Michael Lynch at a conference last year.

One man who attended the lecture Thursday panned Deffeyes' use of a linear graph to chart the production peaks, saying a logarithmic scale is much more accurate.

"Your charts are factually misleading," the man charged.

But Deffeyes remained steadfast. He went so far as to attack news articles for including critical voices, saying attempts at being fair have obscured the truth.

"Editors are one of the great enemies of the people right now," he said.

David Goodstein, Caltech provost and professor of physics, defended the Hubbert method, calling it scientific and devastating in its implications.

"The halfway point is going to be very soon," Goodstein said. "So very soon we are going to start running out of oil."

Goodstein is the author of "Out of Gas: The End of the Age of Oil," a book that challenges the notion that markets will drive the transition to alternative fuels. He has proposed a new Manhattan Project to find a suitable substitute for fossil fuels.

Deffeyes agrees that the world must prepare for the change-over to avoid mass shortages and possible armed conflict. He said the world cannot rely on so-called "blue sky" technologies, such as hydrogen-powered cars, biodiesel or a Manhattan Project.

"How about some old technology?" he asked.

To the dismay of some alternative-energy acolytes, Deffeyes endorsed nuclear power, coal gasification and high-efficiency diesel as intermediate options to wean the world off oil dependence.

"We are going to have to reconfigure things and reprioritize things," Deffeyes said, although he noted he has personally invested in PetroChina Co. in case some new oil deposits are found in the South China Sea.

"That is the last major place on Earth that has not been explored," he said.

Wednesday, November 30, 2005

Peak Oil Now.

Kenneth S. Deffeyes: Join us as we watch the crisis unfolding.


The profits of major oil companies are piling up by the tens of billions of dollars per quarter. They are hoarding cash, buying back stock, and declaring dividends. They are not investing heavily in new facilities. If oil production has ceased growing and is about to decline, nobody needs new refineries, new pipelines, or new tanker ships. Most telling of all, the majors are not increasing their investment in exploration drilling. What I hear all around the oil patch is, "There are no good prospects out there." Of course, there is agitation to open areas for drilling that are currently closed. The implication of the plea is that additional drilling access will "solve" our oil problem. Every little bit helps, but it is incumbent on the companies to show that these are something more than a little bit.

What can we do? I have three categories: actions that we can take immediately, methods whose engineering is already done, and futuristic dreams.

Immediate: A 55 mph speed limit (they’ll hate me in Montana), teach the kids to turn out the lights when they leave a room, open the house windows for cooling or heating when the weather is not extreme.

Engineered: Nuclear power, high-efficiency diesel automobiles, wind turbines, coal gasification (with the carbon dioxide sold for enhancing oil recovery).

Dreams: Hydrogen fuel cells, alcohol from corn, solar cells. Don’t pin your hopes on a Manhattan Project or an Apollo program.

I see no reason to retract my Thanksgiving, 2005 prediction.

Tuesday, November 29, 2005

Energy Stocks For The Long Run.

Jeremy J. Siegel, professor at the Wharton School and author of Stocks For The Long Run, weighs in, suggesting that energy stocks are not in a bubble and still have room for appreciation.

Kipplinger's Personal Finance: Black Gold Still Glitters


Nuts! That's my response to those who say the recent run-up in energy prices is a bubble. Prices for oil, natural gas and oil derivatives, such as gasoline, will remain high for some time. With rising demand worldwide, we've ascended Hubbert's Peak, named for geophysicist M. King Hubbert, who predicted that oil production would peak around the year 2000, causing the world economy to deal with a diminishing supply of black gold.

Does this spell disaster for the U.S. economy, hooked as we are on cars, air conditioning and other energy burners? The answer is no, although there certainly will be pain in the short run. I believe that retail Christmas sales could be soft, and I estimate that falling consumer spending could pare as much as two percentage points from economic growth in the fourth quarter.

But in the long run, the outlook is rosier. Because the recent price surge has hit us where it hurts, we have more time to solve the energy crunch. Remember the spurt in energy prices in the 1970s? That caused a burst of conservation and efficiency improvements that lowered the energy content of U.S. output by 50%. So to produce a dollar of economic output, we need use only half the energy we did a generation ago. That will happen again.

What does this mean for the average investor? The prices of oil and natural-resources stocks, as well as exploration and technology-oriented firms, are already up sharply. The energy sector now makes up 10% of Standard & Poor's 500-stock index, versus just 6% a few years ago. But that is still far shy of the 30% reached during the energy crisis of the 1970s and early 1980s.

We won't see a 30% share again, nor should we. Energy stocks, especially those related to oil exploration, became dramatically overpriced in the '80s and subsequently collapsed (the large integrated oil companies, such as ExxonMobil, did much better).

But I don't believe energy stocks are overpriced, as a group. Earnings are high and will remain high as long as oil prices stay firm, which appears likely. You should not dramatically overweight the sector, but it is not unreasonable to hold 10% to 20% of your stock portfolio in energy and natural resources.

Wednesday, November 16, 2005

Tis the season. Winter's Chill May Warm Energy Stocks.

If you look at this chart from the article, it looks like, on average, the time to be in energy service stocks is December 1 through April 30.

Which corresponds pretty well with the "Sell in May, and go away." seasonal timing theory that some people use for the market as a whole.

Amusing, but, as they say, your mileage may vary.

Tuesday, November 15, 2005

Always a good time at The Oil Drum.

A great interview with Matt Simmons, an article about a petroleum engineer arguing Matt's wrong about Saudi Arabia, and a further article from Resource Investor that goes into greater detail.

A rig shortage till 2010? Thinking oil service?

MS: We won't bring on that new capacity, we're out of drilling rigs. It's too bad people didn't realize we're running out of rigs and we won't resolve the rig problem until well after 2010. But to call it a field-by-field bottoms up and then just have a notional idea... if a field does not have a name today, it won't be done by the end of 2009. We just would not have time. The whole thing is typical of the analysis they did when they assured all of their clients that we had abundant robust natural gas, all these pessimists about natural gas are just flat wrong. And they did a bottom-up study then too. And they did the bottoms up story then, too. And they turned out, unfortunately, to be as wrong as me promising that there is a Santa Claus, and you finding that there wasn't.

Raising GM Rating.

I'm raising General Motors (GM) from Dead Man Walking to Bye Bye Bye.

Why is this thing in a death spiral?

Let me count the ways:

- Company perpetually unable to combat, nee, even contain it's shrinking market share.

- Demographics of GM buyers versus it's competitors are not promising.

- Product is improving, but the competition continues to remain firmly a generation or two ahead.

- Junk debt rating means no cheap financing, thus dealers are hamstrung. GM can only continue to sell cars by selling them cheaper and cheaper, while it's costs inexhorably rise.

- The "healthy" part of the business? GMAC mortgage lending.

AP: GM Bankruptcy Fears Rising on Wall Street.

Thursday, November 10, 2005

Boone Pickens says prices headed lower.

Dallas Morning News: Pickens says prices headed lower.


One of the oil market's most prominent bulls, Boone Pickens, has turned bearish – at least for the coming months.

Mr. Pickens said Wednesday that oil is headed toward $50 a barrel and natural gas may have hit its peak even before the winter arrives.

A weaker economy and mild weather so far this fall could translate into falling demand. Though Mr. Pickens doesn't expect a recession in 2006, "it's not going to be one of our better years," he said.

Mr. Pickens, who manages more than $2 billion in investments at his Dallas-based BP Capital, has accurately predicted trends in commodity prices since oil was around $40 a barrel in the spring of 2004.

His latest projection, that oil would hit $70 before $50 again, proved true in August when crude reached $70.85 a barrel.

Oil for December delivery fell 78 cents Wednesday to $58.93 on the New York Mercantile Exchange.

Demand should pick up in the next nine to 12 months, pushing oil back toward $60 a barrel, Mr. Pickens said.

Over the long term, Mr. Pickens remains bullish on oil because of what he sees as a peak in global oil production.

"I don't think you can get supply much beyond 85 million barrels," he said, which is just above the daily global oil production today.

Tuesday, November 08, 2005

For Whom The Bell Tolls.

MarketWatch: Bell 'Toll-ing' for housing market?

This is kind of an obvious observation, but large plots of land are generally only available these days further out from most cities, thus many of these homebuilders are building where length of commute (and thus gasoline prices) becomes a factor. Then add in the size of these new homes; say, I wonder how much it costs to heat or cool that?

So with those thoughts and higher interest rates to boot..

Charles Maxwell's latest.

From 321 Energy: The blood of capitalism -- oil.


Next, what about the blood of capitalism -- oil? I just received a report from my old friend, Charlie Maxwell (Maxwell@Weeden). Charles is one of the top, of not THE top, oil analyst in the nation. Here are some of Charlie's latest comments.

"Today, we are in a new period of tightening oil supplies along with correspondingly-high oil prices. Our situation is now seen to have its principle origin in geologic realities that have been only recently recognized. This 'energy crisis' may not go away in a year or even in five years. Perhaps not in my lifetime. Crude oil is more difficult and more costly to find every year because easy-to-access oil has already been exploited. Demand around the world keeps rising, some 1.5% to 2.5% per year. We are using 31 billion barrels annually now, and finding 8-10 billion barrels at the most.

This is the old crisis story -- made permanent. We are in a new era, all right, and I project that one will support a continued average WTI (West Texas Intermediate)crude oil price above $50 per barrel going out in time. And I anticipate prices will move (generally) higher until we reach Hubbert's Peak perhaps in the 2015-2020 period.

"Closer to home, what should we expect as a pattern of oil price over the next five years? It can only be a guess. My rounded WTI numbers are set out below. A = average, E = estimate.

2003A $31
2004A $41
2005E $57.
2006E $54.
2007E $56
2008E $62
2009E $68.
2010E $75.

"No forecaster can be confident about figures as exact as the ones displayed above. But they are presented, nonetheless, because they constitute what I consider to be a likely trend. I assume that by 2015, WTI oil will be in the $130-160 range. Oil will be too valuable by then to be consumed in many of the common tasks that it is called on to perform today.

"I see energy conservation as not just a way out of our energy dilemma, but at least for the next 20 years, the main way out. No other "source" of energy is proportionately large enough or flexible enough to handle the size of our problem. . . . Crude oil is our largest source and about 39% of our country's energy needs are met through oil products derived from it."

Saturday, November 05, 2005

Big Oil May Heat Up Again This Winter.

I've generally liked what I've heard from Paul Sankey when I hear him on TV or the radio, so I'm willing to give his call here a shot.

Barrons: Big Oil May Heat Up Again This Winter.

Deutsche Bank Securities
60 Wall St.
New York, NY 10005
(Tel) (212) 469-5000

WE PREDICTED UNDER-PERFORMANCE and got a stampede for the door. A vicious rotation made our prediction of a 10% fall in integrated oils between October 1st and December 5th come roaring home in a flat month.

This October just passed was the worst October for integrated-oil stocks performance since "Black" October 1987. If you are feeling a little beaten up, you should be – the stocks fell 8% in a month, with the overall oil group losing around $100 billion of value.

Now we are likely to drift until snow arrives, at which point we expect a ripping performance from the oils into the January fourth quarter earnings-per-share reports.

After a third quarter which saw no impact on our earnings-per-share numbers for 2006 for any name, we have revisited valuations and investment cases.

Particularly, in this note we highlight net asset values (NAVs) that are in line with current equity valuations. That is, the integrated oils are now trading in line with break up value. Corporate raiders should take note. More simply put, the group is discounting $36 oil against a $60 strip. Buy.

Some of the fundamental reasons that the oils sold off:

1) Concern that we highlighted on the arrival of Hurricane Katrina, that high prices would destroy the demand driver which has been the essence of the oil bull call. The international demand case may well be more important, and anyway we are modeling weak demand in our bullish outlook. We only look for 0.5% gasoline demand growth next year, suggesting 1% gross domestic product growth.

2) Windfall taxes that would take away excess profit if demand does not collapse. We do not see windfall taxes as likely although pressure will remain. Watch for a hearing next week called by Senator Frist.

3) Rotation from an oil group, which was up 40% year-to-date with the market, is down 7% by the start of October. The snowball of money leaving the sector has now bottomed out. Major oil stocks are at or around their break-up value. Chevron, ConocoPhillips, Marathon and Hess are now all potentially worth more broken up – trading at or below NAV. We recommend investors buy these under- valued names before the first snow of winter.

Nearly 70 degree weather in New York should continue to pressure the commodity for the next fortnight. Arguably the equities have predicted this move already. We are raising Hess and Marathon to Buy as we expect 20% gains in the next 12 months for the integrated oil group.

Top picks are Occidental Petroleum, ExxonMobil, and ConocoPhillips. These are the names with the highest leverage to high oil prices (yes, ExxonMobil) and best managements.

-- Paul Sankey

Sunday, October 30, 2005

Observation on service vrs producers debate.

From the New York Times Business section, mutual fund performance listings today:

Fidelity Select Energy

1 year = +53.6
YTD = +43.3
4 weeks = - 8.4
1 week = + 5.0

Fidelity Select Energy Service

1 year = +50.7
YTD = +40.2
4 weeks = - 6.7
1 week = + 7.0

Notice that in the past month, Service has started outperforming the Energy fund.

If you read one peak oil article all week..

make it this article:

Robert L. Hirsh: The Inevitable Peaking of World Oil Production.

Monday, October 24, 2005

Oil prices are headed... that-a-way <--->

Reuters: Oil guru says crude could hit $190 this winter.

The title should really point out that he talks about natural gas or oil.


Consumers should brace for crude oil and natural gas prices possibly doubling or tripling this winter, Matthew Simmons, a best-selling author and oil-supply bear, said on Wednesday.

"Prices are really cheap today and they need to go a lot higher, and they probably will go a lot higher," Simmons said in Ottawa.

"I am very concerned, given the destructive damage done by (Hurricanes) Katrina and Rita, that the United States must be closer to starting to see significant product shortages than we've seen since 1979."

Too much got destroyed and too little has been brought back on stream, the Houston-based analyst said.

He also said that cold weather this winter could bring a very high risk of natural gas curtailment in the United States.

"Either one of those events (oil product shortage or natural gas shortage) could send prices two to three times higher than they are today," he said after a speech in Ottawa.

That could translate into natural gas prices of $40 per million British thermal units from more than $13 now, he said. Doubling or tripling crude would put it in the range of $125 to $190 per barrel.

"Everyone keeps thinking there is a (price) ceiling...There is no ceiling," said Simmons, who wrote in his book "Twilight in the Desert" that Saudi oil output is at or near its peak.

He said he has seen little sign that higher prices so far have done much to reduce consumption.

Simmons said supplies of heating fuel oil were in okay shape, but could drain fast if the weather turned cold. Diesel is tight and shortages of jet fuel had caused some planes to be diverted from some airports.

"It's going to be painful for people to get used to actually paying real money for a really valuable resource," he said.


WSJ: Slowing of Demand Means Crude May Stay Below Peak for the Year.


With so much oil and gas production still offline in the Gulf of Mexico and refineries working to restore operations, crude-oil prices remain subject to considerable daily volatility. Still, many oil analysts say prices are much more likely to fall to the mid-$50s before rebounding to the $60-$65 area for the rest of the year, than retest record highs.

"We could remain weak into early November," said Jim Ritterbusch, president of Ritterbusch & Associates, a consulting firm in Galena, Ill. "By late November and December, crude should move back toward the mid-to-lower $60s."

The main force behind the pullback has been sluggish demand. Just as robust global demand sent oil prices soaring in the past two years, signs that consumption has started slowing in the aftermath of Katrina-influenced $3-plus gasoline prices at the pump have driven prices down, both for oil and refined products. Essentially, high energy prices have hurt high energy prices.

"The theme is ongoing -- you're starting to see consumer resistance to higher prices," said Mike Fitzpatrick, vice president for risk management at brokerage house Fimat USA in New York. "Maybe you weren't seeing it at $45 or $50, but at $60 and higher you start to see a ripple-out effect."

There is little disagreement among analysts that demand has slowed in recent weeks, as some motorists have cut back on discretionary driving or have switched to alternative means of transportation, including mass transit. Just how deep-seated this so-called destruction of demand remains open to debate.

"We're already seeing gasoline demand start to bounce back," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "I think once we get over the seasonal weakness, people will start to realize that supplies are still tight and the market is still very vulnerable to big rallies."

Mr. Flynn, one of the most consistently bullish market analysts, predicts oil prices setting a record of $75 before the year is out, putting him in the minority camp. Mr. Ritterbusch, of Ritterbusch & Associates, while not as bullish, said the onset of winter will push prices higher again.

"We're getting set up for a strong heating-oil market," he said. "Recently, we have seen gasoline push the market lower. By next month, I expect heating oil to pull the market higher."

Mr. Ritterbusch thinks crude oil has seen its highs for the year, although he added: "I can't say the same about next year."

Seasonality doesn't favor the bulls. In 12 of the past 16 years, heating-oil futures have peaked in early October and then sold off into March, noted technical strategist Walter Zimmerman of brokerage house United Energy.

"This is an extremely unlikely time of the year to be thinking about new highs," he said. "By far the most common occurrence is that your winter-demand rally does not exceed the preseason-rally peak."

Resource Investor: Oil Forecasting Legend Discusses Peak Oil, Share Prices.


Unlike some other well-followed thinkers on the subject, Groppe doesn’t see prices exploding to over $100 a barrel, nor is he quite so concerned about the reserves of OPEC members such as Saudi Arabia.

Groppe believes that, “we are at the point where production is peaking and the price required to restrain consumption to match this future available supply is in the 50-60 dollar range on an annual average basis…This or next year might very well be the all time peak year in world liquid petroleum production.”

His view is that, “it’s going to be essential to achieve reductions in consumption because we're forecasting no continual increase in total world oil supplies in the future.” Groppe estimates that, “a price range of $50-$60 a barrel is going to be required in order to in effect cause no growth in total world oil consumption. That we think will be the composite of continuing but slower growth in transportation fuel use of oil, because that consumption grows essentially with the vehicle population in the world. With higher prices there will be pressure toward more fuel efficient vehicles and we’ll see actual consumption decreases in fuel oil where all you’re after is a source of heat, and that’s the way the system will balance itself.”

Groppe finds himself sort of in the middle in terms of the prevailing views on the future, both optimistic and pessimistic. He stated that, “Matt Simmon's view is that we're just on the verge of seeing very significant depletion decline rates and total world oil production will then decline precipitously and were approaching the end of the world economy as we've known it. Major oil companies take the view that it will be relatively easy to continually expand oil production, specifically, they all agree that world oil production can be expanded 50% in the next 25 years and we disagree very strongly with both of those viewpoints. We think there will be a flattening of total oil supply and the high prices needed to constrain consumption to match that available supply.”

From an investment standpoint the answer still seems clear – energy stocks should continue to move higher despite corrections and volatility along the way. Groppe thinks investors need to hold their ground and not be phased by short-term price swings such as those we’ve experienced recently. His advises that, “if you believe in these fundamentals and the type of future pricing environment that I’ve described you need to ignore these short-term variations in equity prices with the fluctuations in oil and gas prices. I've given you my view on the average annual long-term prices, but since you have both of these very important industries [oil and gas] essentially operating at capacity and you've got all kinds of unpredictable events that occur all year long...there will be significant continuing volatility from this point forward and that just needs to be ignored as long as fundamentals remain intact.”

Groppe has 90% of all his equity investments in energy, and 65% of that is in Canadian energy stocks.

P.S. I tend to agree with Matthew Simmons on natural gas - it could possibly spike this winter, and Henry Groppe on oil - $50 - $60 seems to be a range the market 'likes', meaning it's not high enough to bring everything to a halt (like $190 would), but is high enough to curtail some amount of demand. And don't forget, OPEC's president said months ago that $53 was an 'ideal' price.

Sunday, October 23, 2005

Anybody get the number of that truck?

Energy stocks have certainly taken it on the chin in October.

Lots of questions: is is Refco, the shoulder season, real demand destruction, speculative positions blowing out, or even fears of what Avian flu could lead to?

I suspect it's some measure of all of the above.

Will stellar earnings turn it around?

It certainly seems like it should stablize energy stocks, if not bump them up somewhat, but at a moment like this, things don't always work the way you expect, particularly in the short term. But hey, we won't have to wait long to see!

On an administrative note, I'm going to be busy with a few other projects over the next few months, so the posting will be somewhat infrequent during that period.

Some articles of interest:

theStreet: Is Refco Burning Oil?

RIA Novosti: Abolishing Gazprom's 'ring fence' and Russia's big bang.

Motley Fool: Oh, Canada's Oil Sands.

Barron's: Suncor's Oil Patch Advantage.


Reuters: Expert lambastes Canada's massive oil sands play. [Matthew Simmons saying oil sands waste natural gas. He's right..]

Sunday, October 16, 2005

A puzzle wrapped in a mystery inside an enigma.

The company with the the largest hydrocarbon reserves on the planet?

No, not Taco Bell.

Actually, I'm not sure who it is, but Gazprom is way up there. I believe they might be #1. There are two main problems:

A.) What the %&*^ is Putin up to?

B.) The shares available for overseas investors trade at quite a premium to the shares available to domestic investors (Russians) because of certain restrictions on the shares. In the US, they are available via the pink sheets, OGZPF. In theory, Putin Gazprom intends to remove these restrictions once they have rolled up the ownership of most of Russia's hydrocarbon reserves, which should result in the premium disappearing. They are all kinds of swindles going on as overseas investors try to invest at the cheap domestic price via local entities, front companies, etc in anticipation of this move.

Is it something to throw a little speculative money at? Your guess is as good as mine. Probably yes, a small amount.

But you didn't hear that from me.

P.S. This company is sometimes referred to as "The Saudi Arabia of natural gas." Yes, that big.

P.P.S Gotta love those Slovakians.

LA Times: As Gazprom Grows, So Does Russia's Sway.


The government has acted to take firm ownership of 51% of Gazprom. Meanwhile, it is pushing through legislation allowing foreign investors full access to the remaining 49%. Moreover, an initial placement offer of a minority of Rosneft shares is contemplated for mid-2006, according to the Russian Economy Ministry.

"From an economic standpoint, they're liberalizing in a quite dramatic way, compared to any other country in the world," said William F. Browder, CEO of Hermitage Capital Management.

"A lot of people have characterized the Sibneft deal as being some kind of renationalization, or the government stepping into the oil sector. But if you look at it economically, instead of Roman Abramovich owning Sibneft, foreigners and minority shareholders are going to end up being able to indirectly own 49% of Sibneft via that share liberalization of Gazprom," he said. "It seems to me that foreigners are getting more access, rather than less, through this combination of deals."

Yet state control means the Kremlin calls the shots, and Gazprom continues to be available as an instrument of Russian foreign policy.

Thursday, October 13, 2005

Oil producers vrs oil service.

Someone asked the following question a little while ago:

What is your opinion about investing to oil companies vs. oil service companies? During 70's oil service companies were better bet than big oil companies, but do you think history will repeat itself during next decade?

I learned the same thing reading Stephen Leeb's book, The Oil Factor, but unfortunately, he didn't provide much detail behind the statistics. The numbers, according to his book, for 1970's real returns (after inflation) per year:

Big oil cos= 6.8%
Oil service= 23.6%
Independent oil producers= 11.8%

That is some significant outperformance. I have some guesses as to why it happened:

1.) The picks and the shovels argument from the gold rush, i.e. the real winners are the folks selling to the prospectors (oil producers), some of whom end up spending money and find little or nothing, and earning little or no return.

2.) I suspect there are probably fewer oil service companies and they are probably smaller cap than the oil producing companies they service. With fewer stocks and smaller caps, you get a more concentrated, volatile portfolio, and thus probably more 'juice' in a long term upcycle.

3.) I also believe that service is even more boom and bust (i.e. risky) than the rest of the industry. When times get bad for oil producers, they can still sell oil and gas (perhaps very cheaply, but at least money is coming in), but when things dry up for the service co's, they have some very expensive equipment that lies around producing no revenue. So the bad period kills off competition, and when the good times arrive, it takes time for the competition to form, as they both need to buy expensive equipment and hire employees that will demand premium pay. Since stock returns are correlated with risk, the higher risk of oil service can result in higher returns.

In terms of whether I think history will repeat, I don't have a strong opinion. There is an argument that says that since drilling opportunities are now (apparently) depleting, that in total, less oil service will be needed. On the other side of that is the idea that although oil companies are not welcome to participate in all opportunities around the globe as countries retain more ownership, oil service companies, at least for now, are still participating. Additionally, because new technologies tend to be expensive, oil service may benefit as smaller companies lease/rent it rather than buy it to keep capital costs down.

So while I have no strong opinion, my sense is that yes, history could well repeat. But do I feel strong enough about that to own only (or even mostly) oil service? No.

One further point: I was looking at the Vanguard Energy Fund's (which I think is a reasonable proxy for energy mutual funds) semi-annual report the other day. The record for the recent past is:

2004 +36.5
2005 +38.9
2006 +28.7 (this is actually 2005 through July 31)

Those are very big numbers over a 3 year period. We probably need a pause. It could last a while. If you think that's likely, you may just want to set up your dollar cost averaging with a 2-3 year time horizon and take advantage of the pause.

Monday, October 10, 2005

Clear and Present Danger.

Jack Ryan aside, it's probably not the time to be a hero.

John Hussman: Wednesday's Breakdowns.


Seriously, although CNBC inexplicably blamed last week's decline on the hawkish comments of a fairly obscure Fed governor, my impression is that investors were expressing a distinct loss of confidence on a variety of fronts. Wednesday was particularly decisive – to an extent that I closed the bulk of our remaining exposure to market fluctuations in the Strategic Growth Fund about mid-afternoon. There has to be a lot wrong with market action to provoke me to increase hedges when the market is down rather than up. There was a lot wrong on Wednesday – it was singularly the worst technical showing I can recall in years.

Other veteran market-watchers had similar comments. The Dow was down 123 points, which wasn't in itself so unusual, but the internal action was terrible. Richard Russell commented after the close that the action was “a really mean mark today, with my PTI close to a bear signal, and Lowry's also close to a major sell signal. I still get the feeling that complacency rules. Today was what I call a semi-crash day.” On the subject of complacency, Investors Intelligence reports that the majority of investment advisors have been bullish now for 154 weeks, which is the longest bullish stretch in the 42 years the figures have been tracked. Joe Granville described Wednesday as having “the most bearish reversal patterns that I have ever seen in one day,” which is an interesting statement even for a perennial bear.

In short, there was a lot of information in market action indicating that investors have fairly abruptly adopted a skittish view of risk taking.

If you look at how the Russell 2000 has behaved, the speed of the shift is also of concern. Market declines that start with sharp, seemingly relentless vertical declines often turn investors into bag-holders all the way down. Those initial declines often tempt investors to say “the market is already down so much, I can't sell now. How much lower can it go? No, really, how much lower can it go? Sweet Mother of Joseph! How much lower can it go?!??”

At this point, a poor continuation would involve a spike in the CBOE volatility index (VIX) and breakdown in the Dow Transportation index below its August-September lows, which would occur slightly below 3600 on that index.

That said, what I've just described is a combination of what I view as unfavorable and informative market action. It still does not ensure that the market will decline, however. It only suggests that given the current evidence, we don't have sufficient reason to accept broad market risk. Both valuations and market action are unfavorable here.

(Hat tip: US Market Blog)

Alan Abelson of Barrons via the Big Picture:


"Where does that leave the market? Probably right where it was -- namely, shaky. But since that has been our diagnosis for it seems like an eternity, we thought it might be worthwhile getting a second opinion. So we did, from an old pal who has been keeping tabs on the market ever since he was a pup (and that was quite a few years ago). Not the least of his virtues is that he shuns publicity, which means that only his clients (a select, savvy and rich bunch) and the occasional accidental kibitzer (like us) are privy to what he thinks.

OK, OK -- we hear you -- what does he think?

We should note, incidentally, that he's the last of the great contrarians (while just about everyone else was beating the drums for a burst upward, he cautioned that September would see a weak rally -- and so it did). Our friend is one of those strange people with the capacity to read the entrails of the market -- new highs, 200-day moving averages, that sort of arcana -- and what he sees is a mean shakeout this month, followed by a rally that might carry into next year.

Friday, October 07, 2005

The question.

I'm not much of a chart guy, but many of the energy stocks I looked at appear to be right at what I would consider to be the closest support level (they had gotten extremely extended over the past few weeks, which is always dangerous), so hopefully they find support today. But keep an eye on demand.

USAToday: Oil Pumps Up Returns.

AP: US Consumer Apprehensive About Economy.

MarketWatch: Crude bounces back over $62.


Traders are worried that "rising prices are eating into demand, or worse, may have already tilted the global economy toward contraction," said John Kilduff, an analyst at Fimat USA.

"Our view is that the demand destruction we are seeing is real, but it is too early to say whether it will last or not," Ed Meir, an analyst for Man Energy.

Thursday, October 06, 2005

Plunge Protection Team - Activate!

Blame it on the Fed, the drop in gasoline demand (and it's implications), the general droopiness in the indicators, whiffs of stagflation, whatever.. but obviously it's resulted in a rough week.

Let's hope tomorrow doesn't end badly, because it is, after all, October.

Wednesday, October 05, 2005

Of Mice and Men.

As the stock market wobbles it's way into October..

Trader Mike pointing out the fact we've slipped under the 50 day moving averages in the Nasdaq and Dow.

Barry Ritholtz lists the negative headlines building.

Whiskey and Gunpowder predicting the recession of 2006.

Investor's Business Daily counts distribution days [$]: "7 for S&P 600, 5 for S&P 500, 5 for NYSE composite, 3 for Nasdaq since 9-6 market follow through".

Mark Hulbert explains the Hindenburg Omen and appears to be the first media type to use the 'c' word. ['crash']

Jim Cramer on his radio show and on his MadMoney TV show calling for buying more oil and natural gas stocks.

Chris Edmonds explains "What $50 Oil Means for Energy Stocks". [It's good.]


Mouse # 497

Saturday, October 01, 2005

Items of Interest.

Jeff Matthews: Is This The Sign of a Top?

WSJ: Big Oil Firms Curb Pump Prices, Put Squeeze on Competitors. [$]


Major oil companies and refiners, under attack for their soaring profits, are restraining prices at the pump.

The result: Gasoline can be cheaper at branded gas stations operated by companies such as Exxon Mobil Corp. or Valero Energy Corp., the nation's largest refiner, than it is at independent service stations. In essence, these giants are using robust refining margins to challenge their competition.

"We've made a decision to lag [behind] the market," said Mary Rose Brown, a spokeswoman for San Antonio-based Valero. Exxon Mobil, of Irving, Texas, said retail prices are determined by a number of factors, including retail competition.

The move is both helping big oil companies deflect political flak amid record profits and putting considerable pressure on their competition, especially big-box retailers and economy gasoline chains. Consumers are unlikely to feel too grateful, because gasoline prices gained after hurricanes Katrina and Rita, which shut down about 20% of U.S. refining capacity. On top of the storms, strikes in France, a leading U.S. supplier, have dimmed import prospects.

At the same time, industry officials say, oil companies are looking to temper rising political hostility amid gasoline prices that are up nearly 90 cents a gallon from last year, according to the Energy Information Administration. This week, Democratic senators called for an investigation into alleged price gouging. "The majors are practicing de facto price regulation," said Tom Kloza, chief oil analyst for the Oil Price Information Service, an energy-research firm.

But Mr. Kloza says the move by large oil companies to take a hit at the retail level is resulting in gasoline prices "drifting up instead of spiking." In such a climate, he says, economy chains and big-box retailers have three choices: sell well above the average retail price, sell at a loss or shut off their pumps temporarily.

The number of grocers and big-box discounters, which entered the gasoline business during the late 1990s, is increasing at about 20% a year, according to Energy Analysts International, a consulting firm in Westminster, Colo. Economy chains such as Love's and QuikTrip also have experienced enormous growth.

Jenny Love Meyer, a spokeswoman for Love's, which has about 160 retail gasoline outlets, said the company so far had declined to pass all costs on to consumers.

A play to consumers and a little shot over the bow of the competition. I'm sure this will raise politicians ire too. You know how they always want it both ways..

MarketWatch: Profits after the deluge.


At least the energy sector won't have any explaining to do. Analysts are projecting oil and gas companies to generate the highest growth rates by far of any sector of the economy, adding 72% over last year's third quarter, according to a survey by Thomson Financial.

WSJ: Still Stoked About Energy. [$]


The manager of the BlackRock Global Resources Portfolio says those who fear an energy stock bubble are a bit dim. He thinks the same of those focused obsessively on short-term commodity prices and on a new U.S. energy law.

About energy bears, he says simply: "They don't know what they are talking about."

Q: Are your fund's fortunes directly tied to oil prices?
A: I don't want to be too glib, but we don't spend any amount of time -- zero -- trying to predict where oil, gas or coal prices are going to be over the next six to 12 months. That short a time period is just the incorrect way of looking at the sector.

Q: Why?
A: The only valid way of approaching energy is, what will prices be, on average, for the next five to seven years.

Q: So what do you think about long-term prices?
A: We believe that oil prices will be at least $45 per barrel, and we don't see evidence that oil would be below $55. But energy stocks are only discounting $40 oil. And the futures prices to 2011 are $62 a barrel. For every $5 increase in oil, there is roughly 25% upside for stocks.

Q: Some people think energy investing is a bubble that will burst like the technology bubble.
A: Well, they don't know what they are talking about. This is a sea-change event in the energy market. The market just can't react fast enough. Back in 2000, the long-term price assumption built into stocks was around $19 a barrel for crude oil for the infinite future. I guess people think it is a technology bubble because the stocks have acted so well. P.S., They are discounting a $40 long-term oil price.

Q: How does an investor play it?
A: I think instead of trying to rifle shoot, they have to use the shotgun approach [presuming] a bunch of takeovers in a sector discounting $40 oil. Anyone can buy a company and hedge forward at $62 oil. That is how easy it is. That's why this is not a tech bubble. This is the real-world cash market.

Dow Theory Letters: Richard Russell on Oil.


The correction in oil that "could" be coming up will provide us with an opportunity to accumulate oil and energy stocks and preferably Exchange Traded Funds (ETFs). I've already mentioned -- namely, VDE, XEL and the closed-end fund, PEO. Then there's the D-J Energy Sector IYE. I'm suggesting these funds rather than picking individual oil or energy stocks. There's another ETF that I like as a long-term holding, it's the Goldman Sachs Natural Resources ETF -- symbol IGE.

The cycles of financials and tangibles (including commodities) tend to extend for many years. I believe that the cycle of financials started around 1980 and ended around 2000. I believe we're now in the early part of the cycle in tangibles, and also at the beginning of the decline in the cycle of financials.

The cycle of financials was built on an explosion of junk paper money. Once the world went completely off gold in 1971, the platform for the bull market in financials was laid. Twenty years of an increasing ocean of fiat paper followed.

But now we see gold moving up past all paper currencies. We see commodities (without agriculturals) surging higher. Oil has now joined the parade of rising tangibles. Diamond prices are through the roof, as are many collectibles (a Picasso just sold for over $100 million). The Sotheby's and Christy's auction catalogues are stuffed with collectibles at high prices. Real estate is going wild, particularly on the two coasts. Condo-mania rules, and one sector after another shows itself as the bull market in tangibles heats up.

You can live without a Picasso or a second home or a high-priced condo -- but oil, that's another matter. The Chinese and Indians may not be wild about Matisse paintings or million-dollar condos in Las Vegas, but they are most definitely interested in gasoline with which to run their fast-expanding population of cars. So today's oil story is very different from previous oil "crises." This time one third of the population of the world has entered the battle for oil. Therefore, today's rise in the price of oil is not just another speculative spike, it's the next higher zone or level for oil, just as 450 and above represents the next higher level for gold.

So say "Bye" to the age of paper money, and say "hello" to the new age of the real, the tangible, the solid. The Fed can create $30 billion of M-3 liquidity in a week, but they still can't make a quarter-carat diamond or an ounce of gold or a lousy pint of oil. So if oil or gold corrects here or if oil or energy ETF's sink a bit, don't complain. Treat such action as an opportunity.

Friday, September 30, 2005

Who knew?

Well, unfortunately not GM's chief market analyst.

USAToday: Many reduce gasoline usage.

Americans have cut their gasoline use notably, an apparent response to the high prices that pre-dated Hurricanes Katrina and Rita and shortages that followed.

Small, fuel-efficient cars were 15.7% of new vehicle sales last month, according to Power Information Network, up from their typical level of about 14%. More important, owners of every type of vehicle - even SUVs and minivans - traded for small cars more often last month than they did a year ago, according to the PIN data. PIN is a unit of J.D. Power and Associates.

"People say, 'I used to go out and eat, go out to the movies. I don't do that now. I stay home and watch DVDs or HBO.' Soccer moms tell me they're no longer using their SUVs. They're in VWs," says Bill Douglass, CEO of Douglass Distributing, based near Dallas.

He operates 14 large convenience-store gas stations and supplies brand-name gasoline to 165 others in Texas.

The drop in gasoline use was noted in the U.S. Energy Information Administration's weekly petroleum report Wednesday. It says gasoline consumption the past four weeks averaged 8.8 million barrels a day, down from 9.1 million a year ago. That's a 3.3% drop.

Adding credibility to that, EIA also reported that gasoline inventories rose 4.4 million barrels last week, rather than declining, even though energy operations in the Gulf of Mexico were not running because of leftover damage from Katrina Aug. 29 and new disruptions from Rita, which hit Saturday. In fact, 100% of Gulf oil production was down Wednesday, the U.S. Minerals Management Service reported in a daily update.

Douglass says gasoline demand in his area has dropped 10% below last year's, starting in August. It's "a huge change" that he previously thought would take years.

Factoring out the few days of panic buying after Katrina, demand for gasoline has "been down 6% to 15%, depending on the store," says Jay Ricker, president of Rickers, a chain of 33 convenience-store stations in Indiana. "When we crossed the $3 threshold, that was a defining moment, getting people to think more about their driving."

Washington Post: Smaller Cars Enjoy New Chic.

John Mathews of Universal Toyota in San Antonio has witnessed the day that auto industry executives in Detroit said would never come.

"We are seeing people who are driving $40,000 Suburbans trading them in on $15,000 Corollas," said Mathews, who manages a dealership in a state where big trucks and sport-utility vehicles rule the roads. "The last 30 days have been unlike anything I've ever seen in the automotive industry."

Nationally, Toyota Motor Corp. officials say the Corolla, one of the Japanese company's smallest and most fuel-efficient passenger cars, had 8.7 days' supply of inventory at the end of last week. In the industry, inventory of 50 to 60 days' supply is seen as adequate. Honda Motor Co. officials are struggling to keep up with demand for the Civic, of which there is nine days' supply. "Inventories are as low or lower than they've ever been for the Civic," said Sage Marie, a Honda spokesman. "They're basically being bought right off the truck."

Paul Ballew, GM's chief market analyst, said the level of consumer interest in small cars is being overplayed. He said Japanese automakers are benefiting most because of their experience in the segment, particularly in their home market.

FoxNews: High Gas Prices Changing Auto Market.

"The (large) SUV segment, I predict, will be 25 percent of what it once was in the next 24 months," said Peter DeLorenzo, publisher of the closely watched industry Web site (

"People are going to abandon (large) SUVs in droves," he added. "We are a faddish nation, from hula hoops to pet rocks and absolutely (large) SUVs were fad and fashion."

"Right now a full-size SUV that gets ... 16 miles per gallon doesn't look very good," said David Cole, chairman of the Center for Automotive Research.

To address that, Japan's Mitsubishi Motors Corp. (search) on Wednesday said it would offer U.S. consumers one year's worth of gasoline with its vehicles in a new incentive program.

Bloomberg: Oil, Gasoline Rebound on Concern Refineries May Be Shut Longer.

After Hurricanes Katrina and Rita, American consumers are facing sticker shock over gasoline prices, said James Cordier, president of Liberty Trading Group in Tampa. ``The talk is truly conservation right now,'' he said. ``The radio stations here -- you call in to win gasoline. That's how bad it is.''

Bloomberg: Volkswagen U.S. Sales Soar as Oil Prices Shift Demand.

Volkswagen AG's U.S. sales of its namesake brand rose 72 percent in the first 10 days of September as record gasoline prices prompted buyers to trade in sport-utility vehicles for small cars and demand more diesel models, the brand's top U.S. executive said.

The U.S. unit is seeking more diesel engines for the new Jetta car than planned because gasoline price increases and scattered fuel shortages caused by hurricane Katrina are prompting buyers to ask for diesel cars, Len Hunt, the top U.S. executive for the Volkswagen brand, said in an interview. Diesel engines can get 40 percent better fuel economy than gasoline motors.

``There has definitely been a shift moving away from SUVs,'' said Rebecca Lindland, an analyst for Lexington, Massachusetts- based Global Insight Inc. ``People are also more motivated to learn about the new diesels now. There hasn't been a real reason before in the U.S.''

``There has been a massive interest in demand for the Jetta diesel,'' Hunt, 49, said. ``Initially we thought diesel demand might be 15 percent of the Jetta sales in the U.S. and it's more than 20 percent already and rising. It was under way before, but Katrina has accelerated it.''

Buying trends indicate that people who don't normally consider diesel are switching, Hunt said. Volkswagen was caught short of diesel Jettas with automatic transmissions because traditional diesel buyers prefer a manual gearbox, he said. Many of the new buyers are first-time diesel owners, Hunt said.

In Texas, the state with among the largest U.S. concentration of pickup truck buyers, the percentage of Jettas sold with diesel engines has more than doubled in the last several months, to about 30 percent, Hunt said.

DaimlerChrysler AG's Dieter Zetsche, who will take over as chief executive in January when Juergen Schrempp retires, has said U.S. demand for Jeep Liberty SUV and Mercedes E-Class sedan with diesels was already exceeding initial expectations before the hurricane as gasoline prices rose. Zetsche was head of Chrysler and now leads the Mercedes Car Group.

Mercedes sold 470 diesel versions of the E-Class in August, a ``significant'' increase from the 250 to 300 diesel models it normally sells, U.S. Mercedes chief Paul Halata said in an interview today. He credits the oil shock of the 1980s with helping attracting U.S. buyers to Mercedes in the first place and at one point driving diesels to 70 percent of U.S. sales.

``Diesel has to be part of the answer and this will speed it up,'' he said, adding that he also plans to speed up plans to get more diesel engines in U.S. models. He didn't provide a timetable.

Wednesday, September 28, 2005

This trend is not your friend.

AP: Gas Prices Blamed for Late Credit Payments.


The American Bankers Association reported Wednesday that the seasonally adjusted percentage of credit card accounts 30 or more days past due rose in the April-to-June quarter to 4.81 percent. That followed a delinquency rate of 4.76 percent in the first quarter and was the highest since the association began collecting this information in 1973.

The association's survey also showed that the delinquency rate on a composite of other types of consumers loans, including auto loans and home equity loans, climbed to 2.22 percent in the second quarter, up from 2.03 percent in the first quarter.

The moral weather equivalent of war: The Bush Years.

Reuters: Bush urges gas conservation.


Bush, a former Texas oilman, also said that the back-to-back hurricanes show the need for more U.S. refining capacity to meet gasoline demand.

"The storms have shown how fragile the balance is of supply and demand in America," he said.

In the meantime, American consumers should try to conserve fuel when possible. Federal employees will be encouraged to carpool or use mass transit, Bush said.

"We can all pitch in by being better conservers of energy -- people need to recognize the storm has caused disruption," he said.

Next stop: the natural gas problem, the sweater, and the rooftop solar panels..

Fortune on Operation Alberta Freedom.

Fortune: CRUDE REALITIES: MINING THE FUTURE The Dark Magic of Oil Sands.


"The oil-sands potential is huge," says Frederick Lawrence, a vice president of the Independent Petroleum Association of America. Oil & Gas Journal estimates that Alberta has 174.5 billion barrels of recoverable reserves in its oil sands, enough to meet Canada's needs for 250 years. That figure is second only to Saudi Arabia's estimated reserves of 264 billion barrels. All told, including deposits beyond the reach of today's technology, there could be 1.6 trillion barrels of oil embedded in Alberta.

The race to lock up those riches has begun in earnest. "The oil sands is the most significant development in crude oil in North America and one of the most significant worldwide," says Richard Kinder, CEO of the American pipeline company Kinder Morgan, which last month agreed to pay $5.6 billion for Canadian tar-sands player Terasen. "We've been looking for the right way in for a year." The day after that deal was announced, French oil giant Total put down $1.1 billion for Deer Creek Energy, another Canadian company. Those buys follow a string of new Chinese stakes: Sinopec acquired 40% of Synenco in May, and CNOOC invested in MEG Energy as well as in a pipeline project.

As Robert Esser, director of global oil and gas resources at Cambridge Energy Research Associates, puts it, Canada is the only U.S.-friendly country on earth where lots more oil is expected to come online. The White House's 2001 report on national energy policy, spearheaded by Cheney, called Canada's oil sands "a pillar of sustained North American energy and economic security."

Since the mid-1980s, though, incremental improvements have driven down the cost of production from $30 a barrel to $20, according to Neil Camarta, senior vice president of oil sands for Shell Canada, the lead partner in Albian Sands, along with Chevron Canada and Western Oil Sands, a Canadian company. That's still a lot compared with the $3 it takes to produce a barrel in parts of the Middle East. But with costs coming down, technology improving, and the price of oil rising, the oil sands are becoming downright mainstream. More than a dozen companies are planning to spend $60 billion on new projects and expansions over the next decade.

Bowling pins are to bowling ball as..

Jeff Matthews Is Not Making This Up: “The Rig Devastation is Quite Significant”.


Rowan has its own planes and were thus one of the first on the scene to witness the impact. They say that the rig devastation is quite significant and the pilots reported that in an area where they previously would see about 15 jack-ups there were none visible.

Meanwhile, Rowan sees a more significant impact on their business besides the loss of a few of their own rigs, thanks to the apparent disappearance of so many other rigs in that region: drilling rates in the Gulf should “sky rocket,” according to the Petrie Parkman note.

CNBC: Director spots XTO Energy, Hornbeck Offshore.

[..Gulf of Mexico rigs are to hurricanes?]

Tuesday, September 27, 2005

al-Naimi goes all in.

Hell of a poker game going on here. Can't wait to see the hands..

Bloomberg: Saudi Arabia, Exxon Say Oil Will Last for Decades.

Saudi Arabia, the world's largest oil producer, will ``soon'' almost double its proven reserve base, adding 200 billion barrels to the current estimate of 264 billion, said the nation's oil minister, Ali al-Naimi. Exxon Mobil President Rex Tillerson said the world may still have more than 3 trillion barrels from conventional oil fields, oil sands deposits and other sources.

``There will be plenty of oil available to meet future demand,'' al-Naimi said today in Johannesburg. Prices are high now because ``the petroleum industry faces infrastructure constraints and bottlenecks that are causing market volatility and restricting its ability to bring oil from the ground to the consumer.''

Saturday, September 24, 2005

Items of interest. Oil sands players eye nuclear option.


"The companies that are talking about it are talking very quietly," one person in Calgary said yesterday.

But with the soaring price of natural gas, key to some oil sands operations, such as the kind run by EnCana Corp., the nuclear option is looking increasingly inevitable, industry players say. As gas remains at record highs, everybody in Calgary is scrambling to figure out ways to ease their dependence.

Calgary-based EnCana has most of its focus today on reducing the amount of steam it needs to extract viscous bitumen from the oil sands, trying to inject other solvents into the ground to aid recovery and ease natural gas needs. But nuclear is among the other options.

"We monitor what the nuclear potential could be but it's not something we're actively pursuing," said Alan Boras, an EnCana spokesman.

Alberta Premier Ralph Klein said yesterday he wants all other options explored first, including coal-fired power.

Companies such as Nexen Inc. and OPTI Canada Inc., both of Calgary, are using new technology that is something like a perpetual motion machine, with some of their oil sands production used to power the whole process. The two companies recently announced a massive expansion of their project.

MarketWatch: Refiners rule?


Blue Chip Emerging Growth letter is among the most successful of those followed by Hulbert. (See my July 4, 2005 column)

Blue Chip's technique is a variant of the Modern Portfolio Theory -- or, to put it another way, a form of relative strength approach. This means it supposedly picks its stocks based on a purely technical assessment of their performance.

But I've said before, Blue Chip makes a surprising number of fundamentalist noises.

In a recent promotional pitch, Navellier was positively evangelical about oil -- albeit first tantalizing his readers with the specter of a short-term correction. He wrote:

"Investors who are selling their oil stocks -- or worse, selling them short-in anticipation of a collapse are going to be in for the shock of their lives!

"Shocked as oil prices correct slightly and skyrocket higher... Shocked as they see oil profits explode again... And, perhaps worst of all, shocked as they miss out on the next-and most profitable-phase of the oil boom, as visionary investors make a decade's worth of profits over the next two to three years...

"For the past 18 months, as I've been telling my readers how oil stocks would continue to rise higher, my readers have grown significantly richer in a handful of select oil companies.

"However, even these great gains pale in comparison to what lies ahead as the next phase of the oil boom shifts to reward a new set of companies."

I'm surprised to see the scholarly and even geek-like Navellier pounding the pulpit like this.

The Boston Globe: Care to place a bet on oil?


Mutual funds specializing in energy and natural resources are spouting huge gains for a third consecutive year, and few managers in Boston have done better in that field than Dan Rice of BlackRock Global Natural Resources fund. That $1.1 billion fund, which earned 60 percent in 2003 and 47.6 percent last year, is up more than 53 percent so far this year.

Rice's message about energy stocks: Don't get scared off. There's still plenty of room to climb. ''People remember the dot-coms and think the energy market will be no different," he says. ''There's a huge difference."

His calculations don't depend on today's price for a barrel of oil. He looks at what the prices of energy stocks imply about the long-range cost of energy itself, then compares them to his own expectations and those of people buying futures contracts for delivery of oil and other energy resources years into the future.

The stock prices suggest a long-term oil price in the low to mid-$40s per barrel, according to Rice and brokerage analysts. Crude oil for November delivery cost $66.90 yesterday. Long-term futures contract price oil in the low $60s as far as six years out.

Though Rice thinks prices won't remain as high as current levels, he believes a long-term price of a barrel of oil will probably be in the $50s. Energy company stocks currently trading at prices implying an oil price in the $40s could appreciate by about 40 percent if oil climbs to his longer term forecast, Rice says.

The same kind of price gap exists for stocks working with natural gas and coal as well, he says.

The Christian Science Monitor: Driving 55 m.p.h. is looking pretty good.


But Mr. Bush has shown weak leadership on a more lasting step: Using the White House pulpit to urge Americans to turn down their thermostats this winter, save gasoline by buying high-gas-mileage vehicles and, most of all, to drive smarter.

One energy analyst, John Dowd of Sanford C. Bernstein & Co, told a Senate panel this month that "if, as a country, we were to obey speed limits for the next two months, we would probably conserve more fuel than will be lost by the refinery outages. Reducing speeds from 70 m.p.h. to 60 m.p.h., for example, improves fuel efficiency by 15 percent. If Americans want to know what they can do to limit gasoline price inflation, the answer is simple: slow down."

Consuming oil is so integrated into daily lives that it can be difficult to alter individual habits for a collective benefit. Since the 1970s, the nation has achieved much in energy conservation. But wisely taking such steps as avoiding many car trips, using air conditioning less frequently, and not accelerating a car so quickly are actions that still need to become habits.

As a former oil man, Bush must be more forceful on energy conservation, both to ease the current price crisis and to place energy efficiency at the forefront of energy policy. The era of staking the nation's future on a massive dependency upon one energy source needs to end - long before the oil runs out.

These latest disruptions in oil and natural-gas supplies should serve as a wake-up call that energy policy can't be business as usual.

World Energy Monthly Review: Why Simmons Is Wrong about Saudi Oil.

MarketWatch: Fuel to the fire - Alternative energy is risky play on hot sector.


A couple of days ago on CNBC:

CNBC: "Well, oil has been around $68 a barrel in the futures markets on the disruption concerns about Hurricane Rita, natural gas hit record highs, 9 Texas refineries have been shut as a precaution, as the category 5 storm continues to head toward the Texas coast here. Joining us to talk about how all of this will play out in the energy markets, what we're learning more as Rita heads towards the coast, Dan Yergin is chairman of Cambridge Energy Research and CNBC's Global Energy Expert and you've been attending a conference in New York today, Dan, at Goldman Sachs on, what was it called? The Top 10 Global Risks To The Economy?"

Yergin: "Exactly, and I was really surprised to see actually, oil was right up at the top, 81% of the 300 economists who were surveyed put oil as the number one both short and medium term risk, followed by global terrorism and the twin deficits and geopolitics."

"Really surprised"?

Friday, September 23, 2005

Dude, You're Getting a Recession.

Looks like the odds are starting to tilt towards recession rather than away. Not the way the stock market is behaving though. We'll see. Note that things were shifting before these storms - no surprise, given how long gas prices have been high-ish and rising.

Cash is king? You make the call..

WSJ: Leading Indicators Fell Last Month.

A closely watched indicator of future economic activity declined for the second consecutive month, suggesting that economic growth in the U.S. could slow somewhat in the months ahead, and jobless claims surged in the aftermath of Hurricane Katrina.

The Conference Board said yesterday that the index of leading economic indicators fell to 137.6 in August, down 0.2% from July. That followed a 0.1% decline in July from June. Although the declines in August and July were relatively small, they are significant.

The data for the index were collected before Katrina hit. So the declines reflect an erosion of consumer confidence even before Hurricane Katrina devastated New Orleans and parts of Mississippi. The declining confidence reflected high energy prices and consumers' feeling that the job market isn't as strong as it should be, said Ken Goldstein, an economist with the Conference Board, a private research group in New York.

Steven Wood at Insight Economics said the declines in the leading-indicators index "suggests that the pace of economic growth should gradually slow during the next three to six to nine months." Moreover, he added, "the effects of Hurricane Katrina are likely to push the leading indicators even lower for September because initial claims are soaring and consumer expectations have plunged during the month."

Thursday, September 22, 2005

The moral weather equivalent of war.

I'm sort of at a loss for words, so first, I'll point out that The Oil Drum is doing a great job of discussing Rita.

Secondly, I think we all have to ponder the reality that global warming may well be involved here, and the further implications of that [and there are several..]. One theory on global warming is that the world's weather events will become more intense; I'm sure as time goes on we'll hear more about this from the mainstream media. Or at least we should..

Finally, I'm sure everybody is aware of how potentially dangerous this storm is at this moment. Under the absolute worst case scenario, we could simulate both peak oil and peak natural gas in the US over the next few months.

CNNMoney: Rita could equal $5 gas.

Katrina damage was focused on offshore oil platforms and ports. Now the greater risk is to oil-refinery capacity, especially if Rita slams into Houston, Galveston and Port Arthur, Texas.

"We could be looking at gasoline lines and $4 gas, maybe even $5 gas, if this thing does the worst it could do," said energy analyst Peter Beutel of Cameron Hanover. "This storm is in the wrong place. And it's absolutely at the wrong time," said Beutel.

The Dallas Morning News: Refineries slow down preparing for Rita.


"It's almost like, what Katrina didn't get, this one's going to," said long-time Dallas oil investor and head of BP Capital, T. Boone Pickens, in a speech Wednesday. Pickens said he expects oil, natural gas and gasoline prices to settle once the storm passes, but to remain high because supply is tight.

CNBC: Stocks Slump on Rita Fears; Dow off 103.


Given than four oil refineries are already down, Rita "really is a national disaster," Valero Energy (VLO, news, msgs) CEO Bill Greehey told Reuters. "If it hits the refineries, and we're short refining capacity, you're going to see gasoline prices well over $3 a gallon at the pump," Greehey told Reuters.

Even if Rita ends up causing less damage than some fear, the U.S. will go into winter with a lot less natural gas in storage than last year, and a colder-than-normal winter could really send prices spiking, Robert Morris, analyst at Banc of America Securities told CNBC's "Squawk Box."

Bloomberg: Oil, Gasoline Rise for 2nd Day as Hurricane Heads to Refineries.


``The Houston area is ground zero of the refining industry,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Tilburg, the Netherlands. ``If it suffers the scope of damage caused to refineries in Louisiana by Katrina, we could see rationing and queues at the gas pump.''

``Rita is developing into our worst-case scenario,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``This is headed right into our other major refining center just after all the damage done to facilities in Louisiana. From an energy perspective it doesn't get any worse.''

``Hurricane paths are like spinning the bottle, you don't know where they're going to hit until about three hours from landfall,'' said Matthew Simmons, chief executive of Simmons & Co., a private investment bank in Houston for the oil and gas industry. ``Anything south of Corpus Christi and we're fine. It could be Pearl Harbor.''

Bloomberg: Oil, Gasoline Jump; Rita Disrupts U.S. Output, Imports in Gulf.

``This basically represents a heart attack to U.S. energy infrastructure and production,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``This country has two main refining centers, two energy alleys. One was hit last month with Katrina. The other one is going to get hit.''

``The potential consequences don't even bear thinking about,'' said Paul Horsnell, head of energy research at Barclays Capital in London. ``There's such a concentration of refineries and chemical plants in a relatively small area that anything of that kind of intensity would be extremely nasty.''

WSJ: With Refineries in Rita's Path, Sector Braces for Second Punch.


The energy industry has never seen anything like the 2005 hurricane season. The potential for two major storms of this strength hitting the offshore industry in one year "is unprecedented in modern memory," said Troy Frame, chief meteorologist for Alert Weather Services Inc., a Lafayette, La., company that provides offshore weather forecasts to the oil-and-gas industry.

As the energy industry rushed to evacuate 40,000 workers from offshore facilities and to begin the painstaking process of shutting down refineries, energy markets grew worried about the supply of gasoline for the next few days and the availability of natural gas for the winter, when the fuel is used to heat homes across the country. About one-quarter of the oil and natural gas produced in the U.S. comes from the Gulf of Mexico, and the coastal communities from Corpus Christi, Texas, to Pascagoula, Miss., host fully one-third of U.S. refining capacity. "The supreme concerns are refining capacity and natural-gas supply," said Raymond Carbone, president of Paramount Options Inc., an energy brokerage in New York City.

The storms have drawn the attention of lawmakers, prompting new discussions of additional energy legislation to expedite permits for new refineries and to open new offshore areas for exploration. At the same time, there is the stirring of political will to find ways to encourage more automobile fuel efficiency, said Robin West, chairman of consulting firm PFC Energy. "The hurricanes are causing the political winds to change in Washington," he said. "And the only way change comes about is pain, and, frankly, the American consumer is starting to feel pain in energy in ways they haven't felt in 20 years."

The potential for a double whammy to the Gulf Coast energy industry has underscored the risk of putting much of the nation's energy infrastructure in a natural-disaster corridor. The refining industry already is so vulnerable in the aftermath of Katrina, "You don't need a worst-case scenario to get a worst-case outcome" with Rita, said Larry Goldstein, president of the Petroleum Industry Research Foundation.

OPEC's decision "is not going to help put gasoline in our car," said Kim Pacanovsky, oil and natural-gas analyst for KeyBanc Capital Markets, a division of Cleveland-based KeyCorp. "This is a huge wake-up call for the American people and the government to add refineries and look at conservation."

Let's hope/pray for the best.