Must See TV - Hubbert's Peak Edition.

A number of weeks ago I wrote to CNBC to suggest they do a feature on Peak Oil with guests for and against the idea. I didn't get a response.

On Friday, they ran something like what I had in mind, complete with "Peak Oil Production" banner, mentions of Peak Oil and Hubbert's Peak and Matthew Simmons of Simmons and Co. International on the pro side, Daniel Yergin of Cambridge Energy Research Associates (CERA) against.

The debate is too short, but it's a start.

To view it, go to the MSN video site, point to the "Simmons and Co. International" video towards the bottom right, then click on the "Play" button that will appear. [Note: You may have to kill the playlist it sets up, and you may have to type "Simmons" in the Search box, as the video moved off the top of the list.]

Investing in Energy After the Oil Rush.

An article from the Globe and Mail with a few investment ideas.

Ultra Petroleum and Quicksilver Resources are hot stocks and have already had a lot of attention, perhaps deservedly so, but be careful.

Jim Rogers suggesting sugar and cotton as plays on oil. Gotta love the guy. He's probably right too.

First Annual LOBG Street Protest.

Q: WHAT DO WE WANT?!

A: DEMAND DESTRUCTION!!

Q: WHEN DO WE WANT IT??!!

A: 2007-2008!!!!

Charles Maxwell, oil analyst with Weeden & Co, appeared on Bloomberg TV earlier this week.

His observations:

- More output from OPEC will not solve the long term problems with oil.
- Though the inventory data this week showed an unexpected decline, it's a one week event; you should look at 5 - 7 week averages, which show rising inventories and falling prices.
- He believes we will continue to move across $50, up and down through the summer, but by the end of the summer we will probably be down to $45 or "not a big drop".
- Going into winter, he sees prices going back to $50, generally in the $45-$50 range.
- OPEC, he believes, wants a price in terms of WTI of $44-$54.
- The next big move is upwards. We are running at 98% capacity utilization, with the other 2% being "heavy, nasty, high sulfur crude oil".
- Any modest interruption will bring prices up again; the key is we have to increase capacity, which can't be done in a 6 month - 1 year time frame.
- Liquefied natural gas will start to be important in 2008-2009.
- Oil will see rising prices till then, and possibly demand destruction.
- Gasoline prices, if we have a reasonable summer with no outages at refineries, could go down 5-10 cents a gallon, but next spring we'll be back where we are.
- India's and China's demand for oil continues to grow.
- It's harder and harder to find oil.
- His targets for oil prices: $70 by 2008, $100 by 2010-11.

2005 or 2010?

The debate seems to be focusing now around either this year or 2010 as the point of a possible Peak.

ExxonMobil apparently with 2010: Oil: Caveat Empty

Experts: Petroleum May Be Nearing a Peak

Truer words were never heard:

"The reality is, this thing is extremely complicated," Hirsch said. "My honest view is that anybody who tells you that they have a clear picture probably doesn't understand the problem."

Date debated:

Deffeyes thinks the peak will be in late 2005 or early 2006. Houston investment banker Matthew Simmons puts it at 2007 to 2009. California Institute of Technology physicist David Goodstein, whose book "The End of Oil" was published last year, predicts it will arrive before 2010.

What Happens When the Oil Runs Out?

Quotes:

So perhaps we should brace ourselves for what Professor Deffeyes calls a "hard landing."

"A soft landing is that we get enough new nuclear electric generating capacity, wind energy, high efficiency automobiles on the road by this coming Thanksgiving, or it's a hard landing," he says. "There, we get probably a worldwide recession that's worse than 1930."

That's because of higher prices for everything from fuel to food, as new problems emerge over how much oil is left and who gets to have it.

How about a nice game of chess?

A pretty thoroughly researched piece on oil sands from what looks like a graduate student in Sweden:

Canada's Oil Sands Resources and Its Future Impact on Global Oil Supply.

It's long, and could take a while to read; alternately, you could polish up on your chess skills, in the hope that you might delay the Peak that way.

PS. I ran across this in a comment on The Oil Drum.

Misc.

Drilling for dollars, an interview with T Rowe Price's New Era fund manager.

Quote:

"We're basically in a good, long, positive cycle for both energy and basic materials," Ober said. "Emerging markets around the world, which are the users of these resources, are in pretty good shape. I see a fairly long cycle with some gyrations along the way, and those are more likely to be buying opportunities."

Alberta Oil Sands Study from BMO Nesbit Burns.

This Year's Girl.

See her picture in a thousand places
'cause she's this year's girl.
You think you all own little pieces
of this year's girl.
Forget your fancy manners,
forget your English grammar,
'cause you don't really give a damn
about this year's girl.

Lyrics: Elvis Costello.

James Howard Kunstler, author:

Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape, 1993.

The Long Emergency: Surviving the End of the Oil Age, Climate Change, and Other Converging Catastrophes of the Twenty-first Century, 2005.

Richard Heinberg, author:

A New Covenant With Nature: Notes on the End of Civilization and the Renewal of Culture, 1996.

The Party's Over: Oil, War and the Fate of Industrial Societies, 2003.


Confucius Say:

"Beware those recycling old fortunes in new fortune cookies."

Peak Oil Awareness.

I was trying to figure out a way to judge Peak Oil awareness among the general public. I've seen people count Google hits and blog mentions, which are certainly a couple of good ways.

[Google hits on phrase "Hubbert's Peak" = 47,100; "Peak Oil" = 602,000]

I decided to track the Amazon sales rank of some Peak Oil books. Obviously newer books tend to do better, but let's recheck in 6 months.

The Long Emergency, J. Kunstler: 208

Twilight in the Desert, M. Simmons: 762

Beyond Oil, K. Deffeyes: 1,091

Powerdown, R. Heinberg: 1,174

The Party's Over, R. Heinberg: 3,620

Hubbert's Peak, K. Deffeyes: 3,716

The End of Oil, P. Roberts: 9,058

The Oil Factor, Leeb & Leeb: 10,571

Out of Gas, D. Goodstein: 32,896

Kenneth Deffeyes Interview.

A lengthy interview with Kenneth Deffeyes, the author of "Beyond Oil", is available from Jim Puplava.

Lengthy, but definitely worth listening to.

I ran across it on The Real Deal.

The Bare Necessities.

Look for the bare necessities
The simple bare necessities
Forget about your worries and your strife
I mean the bare necessities
Old Mother Nature's recipes
That brings the bare necessities of life

Lyrics: The Jungle Book Soundtrack.

I mentioned Stephen Leeb's oil indicator a while back.

That indicator tracks S&P performance after year over year increases in oil prices, but there's something that indicator leaves out: what happens if oil prices simply keep rising for say, 6 years? That can't be too positive either, can it? And at some point, something may have to give.

Six years of rising oil prices is, by the way, pretty much what we've had from 1999-2005, though the prices rose most at the beginning and end of that period. (You remember what happened around the beginning of that period, don't you?)

It's been an interesting year so far. The past couple of weeks have been particularly interesting. There was clearly blood in the water and probably there was a shark hedge fund feeding frenzy as somebody's positions got bloodied and then shredded by eager dining companions.

That sounds like a good explanation for the shaky market, and I have no doubt it's a part of it, but there's a possibility it could be something larger.

One of other Stephen Leeb's other theories is that as oil prices rise higher and higher, we could see either inflation (driven by oil prices as they get passed through to everything else) or deflation (driven by oil prices, as they suck the life out of everything else).

So Richard Russell's observation here about deflation bears some thought and some watching.

Add this to the way the 10 year is behaving...

Natch.

Oil industry sees prices going higher.

Worth a read, a variety of viewpoints on oil.

Jean Laherrere ASPO Presentation.

Jean Laherrere is one of the geologists who's been talking about Peak Oil for a while, including this Scientific American article back from 1998. Here's a new country by country analysis of his, suggesting a total liquids peak in 2010. Since there are other liquids that can substitute for crude oil, total liquids may be a better way to look at the peak rather than purely crude oil.

Quotes:

"Annual liquids is modeled with such ultimate and will peak if there is no demand constraint (unlikely) around 2010, but if there is some constraint from the demand (likely depression) the peak will be a bumpy plateau and oil price will be chaotic."

"Demand constraint and exploration cycles lead to several peaks or a bumpy plateau."

"Forecasts of how supply may meet demand need to cover all liquids demands including crude oil, extra-heavy oils, natural liquids as well as refinery gains as synthetic oil as GTL, CTL, and BTL."

GTL = gas to liquid
CTL = coal to liquid
BTL = bitumen to liquid? (tar sands, oil shale)

It's wabbit season. (almost..)

Energy related stocks plunged this week. Did it have something to do with forced hedge fund selling? I'd guess that was probably a piece of it.

Quote from link above:

Hedge funds -- those again -- were believed to be taking large positions. Perhaps it was no coincidence that the price of oil dropped drastically this week at the same time that noises about hedge funds losses circulated. Hedge fund managers, bound by promises to wealthy investors to deliver above average returns, also were rumored to be unloading rich positions in energy and materials to meet their redemptions. Other rumors had funds taking huge losses on steel. No one knows for sure.

Or was it just the seasonal weakness in oil prices (+ many other posts predicting this, read back through archive) we've been hearing about?

Is it time to step up to the plate and buy? Maybe soon..

Analysts see more upside in oil stocks.

Quotes from article linked above:

Jacques Rousseau, an oil and gas analyst at Friedman, Billings, Ramsey, is bullish on the integrated oils because their "sustainable earnings power is a lot higher than people give them credit for."

He predicted 15 to 20% upside in the group's share prices over the next 12 months. He recommended that new investors wait until around June to buy into the group in order to get through the season of bearish U.S. supply data, and long-term investors to hold their shares.

"As long as consumption is growing the stocks will do fine," he said. "There's not enough supply to end the energy story."

I think this chart of historical whale oil prices gives us guidance on what we may experience with crude oil, so you have to be prepared for those sharp up and down moves. And if you're nimble, you may be able to take advantage of them.

(Graph from link on DailyKos. The associated article is also good.)

Matthew Simmons-a-thon.

Nice article titled "Oil Doomsday is Nigh, Tar Sands Not a Substitute" based on a recent interview with Matthew Simmons.

Oh my, he doesn't sound so optimistic here, does he?

As for the investment ideas at the end, I believe those are the authors', not Matt Simmons.

Being Matthew Simmons.

There are now a number of people who have used Hubbert's work to try to project the world peak oil date. Many of them are interesting, and the informed ones bear listening to, but I find Matthew Simmons to be the most insightful, mainly because he is focusing a laser light right at the heart of the matter: Saudi Arabia.

In terms of the date of a world oil peak, we can make all the projections we want, but the reality is that since we don't know the actual amount of reserves in the ground, we probably won't be sure we're correct until a few years after the peak.

Matthew Simmons, on the other hand, says: forget calculating a peak and waiting to see how you did, instead focus right at the big dog with the big reserves; it's basically all about Saudi Arabia. If they are peaking (or past peak), the world is peaking (or past peak).

Unfortunately, getting the data needed to make the proper calculations from Saudi Arabia (and most if not all of the other oil exporting countries) is impossible, as they refuse to release the info.

So by collecting the data he could find on Saudi Arabia and writing his latest book, Mr. Simmons is clearly sending a challenge to the Saudis. Even the title "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" suggests it. You might even say he's trying to provoke them to reveal their data as a way to disprove his theories. (The folks behind this article clearly don't get this.)

I suspect that Matthew Simmons is the one peak oiler who would be thrilled if he turned out to be wrong, which is to say Saudi Arabia came out with their internal data and revealed they have all the oil (and more!) they claim to have.

The world in the end might dismiss his book and two years of his life's work, but I think he'd be rather happy with himself.

Were you listening to me Neo? Or were you looking at the woman in the red dress?

FADE IN:

Interior, murky, faded living room. A thunderstorm rumbles in the background. Morpheus and Neo are seated in red leather chairs facing one another. Morpheus sits back in the chair, twirls a silver case in his hands as he speaks. Neo sits forward in his chair, gripping the armrest as he listens. A table with a tall glass of water stands between them.

Morpheus
(speaking slowly, intensely)
Let me tell you why you're here. You're here because you know something. What you know you can't explain. But you feel it. You've felt it your entire life. That there's something wrong with the world; you don't know what it is, but it's there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about?

Neo
(answers slowly)
The end of cheap oil?

Morpheus
(stops twirling, holds case still)
Do you want to know what it is? The implications of the end of cheap oil are everywhere. It is all around us. Even now in this very room. You can see it when you look out your window, or when you turn on your television. You can feel it when you go to work, when you go to church, when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.

Neo
(breathlessly)
What truth?

Morpheus
(shifts forward, leans in towards Neo)
That you are a slave to cheap oil, Neo. Like everyone else, you were born into bondage. Born into a prison that you cannot smell or taste or touch. A prison for your mind.

(leans back in chair again, starts to open case)
Unfortunately, no one can be told what the implications are, you have to think it through for yourself.

(removes pills from case, places one in each hand)
This is your last chance, after this there is no turning back.

(holds out hands, revealing pills as he speaks)
You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes.




The Matrix: End of Cheap Oil.

Cast

Morpheus - Matthew Simmons

Neo - guess who?

Rational dis-exuberance in oil consumers.

Oil prices are remaining stubbornly high as traders anticipate the 3rd and 4th quarters.

Alan Greenspan weighs in:

Separately, Greenspan predicted businesses and consumers would conserve more if they believe energy prices will remain high in the years ahead. Such decisions, he said, could "significantly alter the structure of the American economy over the next decade."

For example, businesses would invest in energy-efficient production and equipment and consumers would buy more energy-efficient appliances and cars.

Above quote from this article.

Slightly more in this article:

Regarding oil prices, the Fed chairman said if businesses and consumers decide energy prices will be high over the longer term, they may opt to conserve energy in a manner similar to the period following the 1970s oil price rises. "They presumably will take decisions and actions, especially with respect to investment, that will significantly alter the structure of the American economy over the next decade," he said, citing the potential for fuel-efficient hybrid cars and other energy savings.

"If these circumstances prevail, the ratio of oil and other energy inputs to constant dollar GDP (gross domestic product) will continue to decline as it has since the 1970s," he said.

Tick, tock.

T Boone Pickens in EV World on Peak Oil.

Quotes:

"The majors, they talk about plenty of oil and that they can produce more, but if you look at ExxonMobile, ChevronTexaco, BP (British Petroleum), all the production (is) going down every year. They don't replace and they don't add to production, but they say there's plenty of oil around.

"Now why would they say that? One of the chief economists with one of the major oil companies... I was at a conference where he was... we were talking and I asked, why do they say that? And he said, can you imagine what would happen if one of these major oil company's CEO's got up and made a speech and he said, 'We're running out of oil'? I said there'd be panic and he said, 'That's right. They're not going to make the statement. They're going to say there's plenty of oil around'".

"I know that sounds rather simple, but that's the best answer I've had... why they keep saying that there's plenty of oil around. I can't tell you positive, but I am just so sure that we have peaked and from here on the demand side that we are going to have a hard time making the trip on fuel. I know demand will come down with price. That will happen".

Pickens went to explain that if he were Energy "Czar", he'd immediately begin to phase out the use of natural gas in electric power generation and encourage the construction of more coal-fired and nuclear power plants. He'd use the natural gas to power transportation instead.

Speaking of the various alternative fuels, he stated, "I don't think any of them can miss. I think some will be further out than others. Hydrogen, I think, is going to take a long time". Speaking before an audience with vested interests in ethanol, biodiesel, propane and compressed natural gas as transportation fuels, he added that he believes all the alternatives will work.

Today's Oil Commentary.

Stephen Leeb
Leeb Capital Management

Stephen Leeb on Bloomberg earlier today discussing utilities and energy. He observed that on balance earnings have been good, and spending on oil service for exploration and development is growing. For utilities, higher energy costs are a mixed blessing. For a regulated utility like Duke with little ability to raise rates, higher energy costs will reduce their earnings. For deregulated utilities that have investments in alternative forms of energy, higher energy costs can give them leverage to improve profits. Two he mentioned positively were Exelon (nuclear) and Florida Power and Light FPL (which has investments in wind farms).

In terms of oil, his comments were similar to his last update, in that he sees 'a month or two' where we could trade in the mid to low $40's because demand is lower and OPEC is producing at 100%. But in the 3rd and 4th quarter he thinks prices could rise sharply. He sort of hopes he's proved wrong, because absent oil he believes there are no other negatives holding the market back, but "oil could overwhelm a lot of positives."

Parting quote: "I fear oil could really move up in a very dramatic way."

Tom Petrie
Petrie Parkman

CNBC ran "Pullback: Pause that Refreshes" as the tagline during his appearance, and Mr. Petrie believes that oil prices have dropped because of profit taking and because we're in the shoulder months of low demand where we normally build stocks/inventories. He believes this pullback will be self-correcting as looking forward there is a big gap between the forward curve oil futures, analyst's estimates, and the supermajor's projections. They displayed a graphic with three data items:

For the oil future's forward curve, from 2005 - 2008, the price line gradually sloped from near $50 down to the mid 40's.

For oil analyst's projections from First Call, the price line sloped from $40 in 2005 down to $30 in 2008.

For the projections of the supermajors (large oil corporations), the price band was $20 - $28 throughout 2005 - 2008.

Clearly there's some major disagreement there, and he was of the opinion that barring an economic slump, higher prices are more likely. He made two stock recommendations, Newfield Exploration (NFX) and Forest Exploration, both of which he said trade for less than 4x cash flow, and have 25-30% upside as they catch up with their peers.

CNBC's article on Tom Petrie's appearance here.

Peter Beutel
Cameron Hanover

Mr. Beutel was of a different opinion on oil prices. He believes we've 'broken the back' of high prices in the near term, and potentially in the longer term as well. He expects that prices will now trade down to around $40. The Saudis, he believes, indicated during their meeting with President Bush that they will not support any cuts in production in the near term.

Demand will start to rise after July 4th, but demand is showing signs of flagging due to high prices and supplies are rising. He made the observation that in the first 4 months of 2005, consumers have spent $15.5 billion more on oil than in the first 4 months of 2004, and that the young ('under 30') and the old are feeling the pinch first, and consequently cutting back their demand.

Dawn of the Dead?

You have to respect Kirk Kerkorian's track record as a value investor, so when he says he likes GM and wants more, it bears watching.

GM needs a change agent dramatically, and maybe Kerkorian will be the guy.

I wouldn't go near it though.

Dead Man Walking.

With regret, we are upgrading our rating on General Motors from "Domino" to our second highest rating, "Dead Man Walking".

We anticipate raising the rating further to our top rating "Bye Bye Bye" as events warrant.

For reference, our rating scale of Peak Oil Calamities, from highest to lowest:

Bye Bye Bye
Dead Man Walking
Domino
Hold
Buy
Buy Like Your Life Depends on It
Buy Like My Bonus Depends on It
Buy Like My Life Depends on It

[Update: Though this editorial doesn't mention their healthcare or bond problems, he's thinking along the same lines otherwise, particularly on their hydrogen gamble.]

Read this other guy's lips.

When you're President of the United States, there's just some things you can't say out loud. (Unless you plan on doing a Jimmy Carter..)

But you can encourage your friends to:

And what does Bush think of Simmons now? “He tells me to keep speaking out loudly and honestly about our energy situation,” Simmons replies.

From the article "Out to shock the world over Saudi reserves" about Matthew Simmons and his questions about Saudi Arabia's real reserves.

We are living in a materials world.

This article from SmartMoney.com is from a month and half ago, but if in fact this turns out to be a longer term bull market in commodities, a month or two won't matter so much.

There is sensible advice here: Dollar cost averaging into a respectable mutual fund. Dollar cost averaging is a great way to smooth out the bumps in the road.

T Rowe Price New Era fund, which contains metals, oils, timber, etc and has very low fees, lets you get in with a $50 a month automatic deposit.