Thursday, June 29, 2006


Some spectacular moves today, particularly in the coals, the refiners, and oil service.

I highlighted the positive comments of the CFO of Halliburton a little while ago, and now a couple of coal CEOs have issued a similar set of bullish forecasts.

Reuters: New long-term contracts to boost coal miner profits.


Soaring electricity demand and sky-high oil prices are driving up the price of coal and producers are set to benefit as they negotiate new long-term supply contracts, two major U.S. coal miners said on Wednesday.

"A lot of legacy contracts are expiring soon and that has great implications for our bottom line," said Steven Leer, chairman and chief executive officer of Arch Coal Inc.


Considering the prospects of long-term global energy shortages with oil at $70 per barrel, "this is the best environment I have ever seen in more than 20 years.

"I have never seen the coal industry in such an enviable position as a producer. Coal will be the backbone of electricity generation for the next 25-30 years," said Leer.

Sunday, June 25, 2006

Canadian Oil Sands - the Next El Dorado in North America?

Dr. Michael Economides, a petroleum engineer and Professor at the University of Houston, has recently suggested that the Canadian oil sands could be the next El Dorado in North America.

This comment comes, interestingly, from a gentleman who believes peak oil won't hit until roughly 2050 and that both Saudi Arabia and Russia will eventually increase production substantially. His other views: He's bullish on natural gas, believes that Venezuela's Hugo Chavez is the biggest threat to the United States and it's oil needs, and is convinced that Chinese demand, geopolitics and OPEC's inability to raise production in the short term are the main cause of high oil prices, not an imminent Hubbert's Peak of global production.

While his views thus differ substantially from peak oil proponents including Boone Pickens, Kenneth Deffeyes and Matthew Simmons, in seeing huge potential in Canadian oil sands, Dr. Economides joins a chorus of oil industry types, analysts, and investors.

On the potential of Canadian oil sands I highlight, in no particular order, the comments of:

Boone Pickens, Jim Rogers & Charles Maxwell
Donald Coxe
Peter Thiel
Raymond James
Leigh Goehring
Stephen Leeb
Martin Whitman
Henry Groppe
Jim Cramer
BMO Nesbit Burns
CERA (yes, them)

For a list of stocks and a little bit of back story, here's my take.

In terms of technical analysis, the main oil sands stocks [Suncor, Canadian Natural Resources, Canadian Oil Sands Trust, Nexen, Imperial Oil, as well as to a lesser extent Encana, PetroCanada, Opti Canada, Husky Energy] held up well recently and continue to have some of the stronger charts in the energy sector.

For Dr. Economides' recent viewpoints, please see:

Resource Investor: Peak Oil Debate Digresses Into Global Warming Argument.

Resource Investor: Energy GeoPolitics: The Impact on Prices and Supply of Oil and Gas.

PS. After posting this, I went over to The Oil Drum and the top article turned out to be the con argument on oil sands, the problem of the natural gas input requirements. This is a legitimate concern. If you are worried about that, then I would focus on Encana, Canadian Natural Resources, Nexen and Opti Canada. The first two have substantial natural gas production themselves [not necessarily in the same region, but it helps offset the cost pressures if they produce the same product], and the last two are working on a project where they should be able to produce gas they can use from the oil sands itself, thus reducing their need for natural gas input and lowering their costs substantially.

PPS. There's also a water issue, but that never stopped anybody. For reference, see Chinatown.


Noah Cross: Either you bring the water to L.A. or you bring L.A. to the water.


Walsh: Forget it, Jake. It's Alberta Chinatown.

Thursday, June 22, 2006

Kunstler now 'not calling for the end of the world as we know it'.

James Kunstler is the author of "The Long Emergency, Surviving the End of Oil, Climate Change, and Other Converging Catastrophies of the 21st Century", which I consider to be one of the more Apocalyptic peak oil books.

For whatever reason he backpedaled in this interview, saying he is neither calling for an energy Armagedeon, nor calling for the end of the world as we know it.

Perhaps I'm an idiot, but his book and his blog writings appear to call for exactly that. But hey, sit down to be interviewed by a beautiful young lady, and the whole peak oil scenerio doesn't look quite so bad. And heck, the Asian pirates are gonna have a heck of a time making it to Syracuse anyway.

Anyway, on with the show..

James Kunstler, as interviewed by CNBC's Erin Burnett:

CNBC: "With oil prices hovering around $70 a barrel, it's clear the words 'cheap oil' may be a thing of the past. But what would we do in an age where we can't get our hands on expensive oil either? Our next guest says 'Brace yourself. That may be what's in store for Americans within a matter of years.' James Kunstler is the author of "The Long Emergency, Surviving the End of Oil, Climate Change, and Other Converging Catastrophies of the 21st Century" and he joins us now. We appreciate your joining us, James."

Kunstler: "Nice to be here."

CNBC: "Alright, I was reading your book, and I wasn't sure what to expect, and I have to say, I've had difficulty putting it down. One thing that you say though, here, on page 20, 'Two hundred years of modernity can be brought to it's knees by a worldwide power shortage.' Is it fair to say you're calling for an energy induced Armagedon?"

Kunstler: "Oh gosh no! What I'm saying is that we're facing a discontinuity in regular life, but I'm not calling for the end of the world as we know it. That's not true at all."

CNBC: "Alright. So what are you calling for though; you are saying that we're gonna run out of oil?"

Kunstler: "Well, I'm saying that we're gonna run into big problems with the complex systems that we depend on, not when we run out of oil, but as we go over the world production peak. That's when the trouble starts."

CNBC: "So, here's what I want to follow up with you on. Because this whole issue of a peak is highly controversial. I mean, last week, here on Street Signs we were listening to Ben Bernanke talk in Chicago, and he said at the end of 2005, in terms of proved reserves of oil on this planet, we had 15% more than we did a decade earlier, at about 1.2 trillion barrels, and he says that doesn't even count the Oil Sands up in Canada."

Kunstler: "Well, that's just not reliable information that he's getting. The US Department of Energy is considered to be the most unreliable source of this information. In fact, global production has been flat since 2004. We've found no significant amounts of oil. The Saudi Arabians have had tremendous trouble producing more oil, in fact, they've failed, even though we've requested them to do it innumerable times. Their own giant oil fields, the Ghawar oil fields, which represent more than half of their production has been in deep trouble for several years now, they're producing more sea water than oil, because they have to pump so much sea water into the ground."

CNBC: "Right."

Kunster: "And you know, it's generally evident that the giant oil fields of the world, the Burgan field in Kuwait, the Cantarell field in Mexico, the Daqing field in China are all past peak and are now entering depletion, and we've got a serious problem."

CNBC: "So obviously, as we've said, it's controversial. But let's just assume that your numbers are right, and that you're right. Is it fair to say, that we have enough time to come up with what obviously the new energy bill here in the United States directly encourages, which is alternative sources of energy, whether it be hydrogen, or nuclear, or solar."

Kunstler: "There's tremendous wishful thinking around this subject, just tremendous. No combination of alternative fuels, or systems for running them, is going to allow us to continue running Walt Disney World, Wal-Mart and the Interstate Highway System. We're going to try everything we possibly can, but it's not even going to make up for a substantial fraction of what we're going to lose from oil. So this is for real."

CNBC: "Alright. Well, anyone who wants to find out more has got to read the book. We appreciate your joining us, thanks so much."

Kunstler: "You're welcome."

Thursday, June 15, 2006

Boone Pickens putting his money where his mouth is.

I guess he didn't hear the one about "never give 'em both a time and a price; just one or the other." And maybe he doesn't need to worry, he's been pretty much nailing it so far.

The Dallas Morning News: Pickens predicting $80 oil.


Boone Pickens, the legendary Dallas oil and gas investor who seems to peer at markets through a crystal ball, issued a new prediction Monday: The price of a barrel of oil will rise to $80 by the first of next year.

Reuters: Legendary investor Boone Pickens likes oil not gas.


Pickens, a long-time backer of companies operating in Canada's oil sands, said he's been buying shares of oil-sands miner Suncor Energy Inc. (SU.TO: Quote, Profile, Research) (SU.N: Quote, Profile, Research) as that company's stock price slipped in recent weeks along with those other energy companies.

"I've been a buyer of Suncor recently on the pullback from $85" a share, he said.

Tuesday, June 13, 2006

200 Days Later.

If you bring up the XLE [energy ETF] or OIH [oil service ETF] on your favorite charting site (BigCharts is one) and draw 100 and 200 day simple moving averages on them, you will see that for the first time in a long time (about 3 years, but who's counting..) the XLE in particular has violated the 200 day moving average, while the OIH is basically right on it.

In addition, both of these ETFs would, given further moves down, violate the 'higher highs, higher lows' precept that is the foundation of most people's definition of an uptrend.

The next couple of days and weeks are therefore crucial in terms of these longer term signals.

Monday, June 12, 2006

Jim Rogers: "Be very careful."

From this weekend's Cavuto on Business on FoxNews:

Ben Stein: "The world economy is slowing, the growth of demand for oil is slowing dramatically. I think the long term trend of demand for oil is very, very strong, but in the short run, inventories are piling up, even the Saudis can't find anyplace to store the oil, they're putting it in old oil tankers. There is a disconnect here, the price has got to fall with this huge overhang of supply. When it does, it knocks the props out of inflation, the interest rate rising cycle will stop, and stocks will rally."

Jim Rogers: "Well, Ben may be right, the market should rally after this collapse it's had recently, but Ben, we may already be in recession and the markets are gonna be down this year, and probably down into next year, so be very careful."

The ingredients are certainly there: rising interest rates, high energy costs, and what is increasingly smelling like a housing bust. And the whole stock market is stinking up the joint.

Jim Rogers, as far as I am concerned, has good gut instincts. He also ran one of the early hedge funds with George Soros.

Thursday, June 08, 2006

It's Hammer Time!

I'm seeing a fair number of hammer candlesticks in energy land, and, coming after a strong sell off like the one we're having, hammer candlesticks tend to be a good sign that a bottom has been 'hammered' out. You can read more about this particular candlestick formation here ('Bullish Hammer'). Note that we still need confirmation tomorrow, which I'm thinking we'll get.

Update: I was wrong, the hammers went unconfirmed. It looks rather sickly out there.

In the longer run, well, it's nice to read something like this:

Reuters: Halliburton sees earnings doubling in coming years.

Tuesday, June 06, 2006

An argument for uranium.

From Sprott Asset Management, a peak oil aware asset firm based in Canada, comes a new paper entitled "Investment Implications of an Abrupt Climate Change" which argues that an increase in the use of uranium for nuclear power will be one way humans will try to mitigate the introduction of more CO2 into the atmosphere. CO2, or carbon dioxide, is a byproduct of burning carbon based energy (oil, coal, natural gas, etc), and is a greenhouse gas, which is to say that when increasing amounts are introduced into the earth's atmosphere, CO2 leads to increased heat retention.

Cameco (CCJ) is a Canadian producer of uranium with large reserves, and a good entry point these days looks like $36-39.

Boone Pickens plays up the aw shucks bit on TV, but when you get to the part in this paper about water shortages, and you remember that Mr. Pickens other big investment these days is in water rights..

Thursday, June 01, 2006

Boone Pickens: One word - Up.

Boone Pickens was interviewed on CNBC last week on his favorite topic, oil.

CNBC: Pickens' Predictions.

Q: Where are oil prices headed from here?

A: "Up. We could still back off a little bit, but it's trend is up, and we'll be back up in the mid 70's pretty quick."

Q: Where will be around the end of the year, still $70s?

A: "You know last year, I believe we backed off right at the end of the year and then picked up again. The trend is always up, because we're dealing with a limited supply of oil, which I think is 85 million barrels a day, and that's it, I don't think we can get any more out of the system, I'm talking about globally. And when I see the fourth quarter projected for 86.5 million barrels a day, it's gonna get tight."

Q: Will high prices solve high prices? Will we ever hit that point and get back down?

A: "You don't want it back down."

Q: Will demand eventually slow down due to high prices?

A: "Absolutely you will. That's the way you win the game, is that the price gets up high enough that it chokes you, and you start conserving, and you'll cut back on usage, and then you've solved the problem; you start to live with a changing energy picture forever after."

Q: You think that gasoline prices are too low in the US, that they should be higher?

A: "Gasoline prices around the world are a good $5 to $6, and so why are we here at $3? We're here because we haven't taxed our gasoline so much. But oil is the same, pretty well the same, Brent/North Sea, WTI, are basically the same product. Gasoline is different, there should be a global price for gasoline."

Q: What do you say to people who say you are talking your own positions up?

A: "I even had a Congressman come to see me, and said I was doing just that. I said I'm not. I said the fundamentals are the fundamentals, it doesn't have anything to do with my book. I don't think anybody can talk the market up for more than 2 minutes, that's it."