Tuesday, October 31, 2006

Matthew Simmons at ASPO USA.

A video of the talk by Matt Simmons on Peak Oil from the ASPO USA Conference recently held up in Boston. Found on The Oil Drum.

Monday, October 30, 2006

A lesson in how to trade natural gas.

I'm afraid I've gone a bit coco for natural gas, and along comes this.

By this, I reference the Chesapeake Energy Conference Call, which is resoundingly bullish on the future of natural gas prices in North America, and contains solid insight into their views and recent trading of natural gas.

In addition, their weather analysis indicates a more normal winter is in store for the US, meaning something colder than in the past couple of years. This is different from the consensus that we will have a mild winter, but so far Chesapeake's call for a colder than average September and October have played out as predicted.

TheStreet.com: Inflection Point for Energy Investors.

Q3 2006 Chesapeake Energy Corporation Earnings Conference Call.

Some prior posts on natural gas:

Jim Rogers: Time to buy natural gas.

The Case for Natural Gas.

Unconventional Success in Gas Production (No Yale Degree Required).

Has Aubrey McClendon lost his mind?!

Wednesday, October 11, 2006

Boone Pickens Day.

Boone Pickens in NY and making the rounds of the business media today. [Note for you sticklers, yes, the CNBC studios are in NJ.]

CNBC via MSN Video: BP Capital Founder Boone Pickens.

Bloomberg TV: Boone Pickens.

Key thoughts:

He believes we will see $70 oil again before $50 oil, based on the idea that OPEC, and in particular Saudi Arabia, will remove oil from the market to defend $60+ oil. He also still thinks we will hit $100 oil in the next year based on a geopolitical event, of which there are of course several possibilities.

Thursday, October 05, 2006

Oil prices are falling, but the sky is not.

What a beautiful call Jim Rogers made on natural gas!

See a recent discussion on natural gas prices here:

CNBC via MSN Video: Wild Action in Natural Gas.

You can chart natural gas prices via symbol $NATGAS on StockCharts.

Additionally, OPEC is now indicating that it will pull 1 million barrels of oil a day off the market, as I predicted they would probably have to, based on Boone Pickens call that oil was going down due to a slowing economy. Oil appears to be trading up right now, but this fairly quick action (assuming it happens), also suggests OPEC is seeing some pretty decent weakness in the market.

Another question this raises for me is if the plunge in oil is a result of a US or global recession that is developing, will trying to hold $60 make that situation worse? Assuming the plunge is warning of recession [which is not altogether clear, but has to be on your radar as a possibility], I think $60 is probably too high. But in terms of peak oil and the need to develop alternatives and encourage conservation, it may be for the best.

Finally, Ben Bernanke, Chairman of the US Federal Reserve, yesterday declared that the US was undergoing a "substantial correction" in housing. Which brings me to the following:

The yield curve is inverted, which means that long term rates are actually lower than short term rates, an unusual condition.

Long term rates are driven by the bond market, while short term rates are driven by the Fed. If the yield curve were not inverted, and long term rates had their normal relationship to short term rates, long term rates would be higher, and since long term rates in turn drive traditional mortgage rates, one has to wonder how much more "substantial" the correction in housing would be if those normal relationships were now in place.

This is a long way of saying that the Fed very much appears to have basically no way to go but down with interest rates, it's just a question of how soon.

The bond market has been of the mind that the Fed had no place to go but down for some time now. The stock market is also apparently convinced that the Fed will either hold or ease down soon, leading to a soft landing.

Inflation, by the way, does not appear to be much of a worry to anybody anymore, including the gold market, with the notable exception of the Fed, a former Fed Chair, and Mike Darda of MKM. Obviously, there is inflation out there, but it does not appear to have moved into the labor market in any meaningful way, and debt levels being what they are (generally high-ish), the thought creeps into my mind as I listen to some Fed members that perhaps they are busy fighting the last war.

Along with OPEC trying to negotiate a falling oil price, this is all going to be very interesting to watch.

Does everything fall into place just so, leading to a soft landing? I'm pretty skeptical, but I will try to keep an open mind.

Wednesday, October 04, 2006

Predictions for a warm winter.

I've read a few news items suggesting that energy prices fell yesterday because of a fear of what today's inventories would reveal as well as a rising belief that OPEC won't cut production meaningfully. Perhaps, but the following looks like a more likely culprit to me. Note the reference to 1998, which I'm sure put a chill in any energy trader's heart.

There is a bit of an oddity to this, in that this September was actually rather colder than normal.

SmartMoney: El Nino to Sap Storms, Warm Winter


Blaming faster-than-expected El Nino conditions in the Pacific Ocean, forecasters at Colorado State University on Tuesday repeated their call for below-average storm activity during the rest of the Atlantic hurricane season.

"Typically, El Nino conditions put an early end to hurricane formation in the Atlantic basin," said William Gray, a hurricane forecaster with the closely watched forecasting team at Colorado State. "This year, El Nino has developed faster than almost anyone predicted."

El Nino is a weather phenomenon involving unusually warm surface temperatures in the Pacific Ocean that can have profound consequences for climate, including warm and very wet summers in South America and warmer-than-normal winters in parts of North America.

Gray, in a telephone interview, described the current El Nino as "weak to moderate" compared with 1997-98 phenomenon, which was the strongest on record and helped sink oil prices.

That El Nino, which slashed heating fuel demand in the Northern Hemisphere, occurred just as the Organization of Petroleum Exporting Countries announced an increase in oil production quotas that proved ill-timed as it corresponded with the start of the Asian economic crisis. Crude oil prices plunged to near $11 a barrel and didn't recover for two years.

A top forecaster at the National Oceanic and Atmospheric Administration, Vernon Kousky, said last month, "There is a reasonably good chance that this El Nino will strengthen to a moderate event. For moderate and strong El Nino events, the Northeast (U.S.) has a greater chance of experiencing warmer-than-average temperatures."