Sunday, October 11, 2009

Not to put too fine a point on it..

Re: my last point about there being enough natural gas to help mitigate the most serious impacts from oil peaking. There are issues with this (see bottom), but I'm confident we won't be suffering a "die off", to quote one of the more extreme peak oil sites.

BP sees possibility of 100 more years of natural gas.

Reserve estimates are rising sharply as technology unlocks unconventional resources,” Hayward said in a Buenos Aires speech posted on the London-based company's Web site. “Estimates vary, but the U.S. may now be sitting on between 50 and 100 years worth of recoverable natural gas.”

New Way to Tap Gas May Expand Global Supplies.

Because so little drilling has been done in shale fields outside of the United States and Canada, gas analysts have made a wide array of estimates for how much shale gas could be tapped globally. Even the most conservative estimates are enormous, projecting at least a 20 percent increase in the world’s known reserves of natural gas.

ANALYSIS-Natgas giants still reeling from U.S. shale shock.

And big gas exporters noted that shale gas comes with its own problems, including massive water use and other environmental complaints, as well as the need for constant investment that could limit its impact.

"There's a lot of myths about shale production," said Gazprom Deputy Chief Executive Alexander Medvedev.

"We should not forget what the shale gas production profile looks like. If you stop drilling, production will fall by up to 80 percent in the next year."

Sunday, August 02, 2009

Dr Strangelove, or How I learned to stop worrying and love peak oil.

Okay, I'm totally kidding. Peak oil is a serious problem, and one that I believe looms in front of us in the near future.

However, through a combination of conservation, lifestyle adjustments, and the increased use of alternatives, I think humanity will figure out a way to cope with this problem. Natural gas looks promising as something to help mitigate the problem. I worry there's a bit of overpromise here, but we'll see.

In the meanwhile, personally, I've put other items on my front burner.

So, as Douglas Adams once put it.. "So long.. and thanks for all the fish."

Penn Energy: Questar President: Natural Gas is Abundant

The Oil Drum: How Much Natural Gas Do We Have to Replace Gasoline?

Wednesday, February 04, 2009

Charles Nenner says long term cycle bottoms soon.

CNBC: Nenner Cycle Signals Entry Point.

You must also watch the Bloomberg video at his site to understand his full picture though.

See top video link here:

Friday, October 31, 2008

Charles Nenner on Deflation, Commodity Stocks, and THE Market Bottom.

Bloomberg: Charles Nenner Sees Opportunity in Commodity Stocks: Video.

Note: To view the video, click on the link towards the right side, under the heading "Related Video and Graphics".

Sunday, October 26, 2008

Fear and Loathing in Closed End Funds.

Closed end funds are like ETFs (exchange traded funds) in that they are traded on an exchange like stocks, and are made up of a bundle of other securities. Closed ends funds are unlike ETFs in that ETF shares are created and de-created (for lack of a better term) each day dynamically as demand warrants. Closed end fund shares do not have this dynamic creation/de-creation aspect. The other big difference is that closed end funds often trade at discounts or premiums to their underlying asset value, depending on how the market feels. When everybody wants in, they tend to trade at premiums, and when there is less or no demand, they tend to trade at discounts, sometimes severe.

It's interesting to look at the premiums/discounts that closed end funds have traded at over time. Sometimes it can identify an extreme in market emotion that could signal a panic bottom.

Below I show a few closed end funds and their premium (+) or discount (-) from their net asset value. The data is from Barron's. Notice the extreme swings and readings on the week ending October 13, 2008. It's too early to call the exact bottom in the market, but based on these readings, and the way we traded on Friday (futures limit down, lots of talk of a crash, but a day turned out less feverish than anticipated) suggests the extreme panic point may be behind us.

Premium/Discount from Net Asset Value on Selected Closed End Funds.

BDV = Blackrock Dividend Achievers
BGR = Blackrock Global Energy
GUT = Gabelli Utility
APB = Asia Pacific Fund

WIA = Western Asset Inflation Linked
HIS = Blackrock High Income (High Yield)
BFK = Blackrock Muni Income


04-02-07 -6.3 -10.2 +18.6 -11.7 -10.3 -4.0 +16.4

06-30-08 -12.2 -15.7 +31.1 -9.6 -9.0 -12.1 +3.5

09-22-08 -17.6 -16.1 +44.8 -4.3 -14.0 -25.0 -7.2

10-13-08 -17.7 -23.4 -0.4 -22.2 -23.2 -38.1 -28.3 <-- Fear Itself

10-20-08 -12.0 -11.9 +41.8 -3.3 -14.5 -19.3 -6.1

10-27-08 -9.2 -13.8 +37.6 -13.4 -10.9 -19.6 -4.5

Unfortunately, it's difficult to make those line up very well.

Monday, October 06, 2008

The Panic of 2008 bottoms on Oct 14-15?

I see that Barry Ritholtz has come up with the moniker of "The Great Financial Crisis of 2008", but I personally like "The Panic of 2008" a bit better.

While there are certainly legitimate roots for some of the selling, it is now extending well beyond that into a pure financial panic that is spreading into many corners of the market and around the globe.

I highlight here a recent video from Charles Nenner, who makes market predictions based on history and studying various cycles. Why highlight Charles Nenner? Well, he has a pretty good track record of making market calls, including a call that 2008 was going to be a bad year and one that it would be very difficult to make money in.

Mr. Nenner is now suggesting that we may hit a cycle low around October 14 or 15th, but it's also very important that we hold the lows we made recently. Unfortunately, October 14/15 (i.e. next week) seems a very long way off right now, and it doesn't appear that we will hold the market lows. His work also suggests that oil will go back to new highs sometime in mid-2009. And if next week seems a long way off...

Charles see Fox News video at the top for his latest views.

Friday, October 03, 2008

When good (lefty) papers go bad.

When the New York Times starts bringing up the possibility of global cooling, you know it's about to get interesting. Note the oblique reference to global cooling, "would more than offset the warming effect".

New York Times: Sunspots Are Fewest Since 1954, but Significance Is Unclear.


Scientists are not sure why this minimum has been especially minimal, and the episode is even playing into the global warming debate. Some wonder if this could be the start of an extended period of solar indolence that would more than offset the warming effect of human-made carbon dioxide emissions. From the middle of the 17th century to the early 18th, a period known as the Maunder Minimum, sunspots were extremely rare, and the reduced activity coincided with lower temperatures in what is known as the Little Ice Age.

Compared to the Maunder Minimum, the current pace of sunspots “makes it look like we’re having a feast, not a famine,” Dr. Hathaway said.

Scientists expect that sunspot activity will pick up in the coming months, but exactly what will happen next is open to debate. Dr. Hathaway had predicted two years ago, based on the Sun’s behavior near the end of the last cycle, that the maximum this time would be ferocious.

“I’m getting worried about that prediction now,” he said. “Normally, big cycles start early, and by doing that, they cut short the previous cycle. This one hasn’t done that.”

But many of the other competing predictions — more than 50 over all — pointed to a quieter-than-average cycle. “They do kind of go all over the map,” said Douglas Biesecker, a physicist at the Space Weather Prediction Center who led an international panel that reviewed predictions.

Sunday, September 28, 2008

Warren Buffett invests in Chinese electric car maker.

$230 million is sort of chump change for Warren Buffett, but it's interesting nonetheless. He also recently bought Constellation Energy Group, a US electric provider that got itself in a bit of a financial crunch.

MarketWatch: Buffett powers into electric cars, buying 10% of BYD.


MidAmerican Energy Holdings Co. said in a statement that it would buy 225 million shares of Shenzen-based BYD for HK$1.8 billion.

BYD's Website says the company's 130,000 workers produce information-technology products including nickel-cadmium and lithium-ion rechargeable batteries, mobile-phone displays, keypads and housings; laptop-computer keypads, and more.

On the vehicle side, the company produces electric cars, ranging from economy to luxury models, as well as car molds and car parts.

CNBC: Warren Buffett Invests In Chinese Company Developing 'Green' Cars.


BYD chairman Wang Chuanfu is quoted in the release as saying, "We are extremely pleased and grateful that Berkshire Hathaway and MidAmerican will be our long-term investor and partner, as we bring our electric vehicles and other environmental protection measures to the global space."


Tuesday, September 23, 2008

Warren Buffett: Thespian

Just as things are getting shaky again, and on a day that Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and SEC Chairman Christopher Cox endure the slings and arrows (not to mention helpful guidance) of the Senate Banking Committee [Thank you Founding Fathers for ensuring the separation of powers!] to defend their bailout plan, Warren Buffett, with the dramatic flair of JP Morgan a hundred and one years ago, steps into the breach and invests $5 billion in investment banking firm Goldman Sachs. But he made this deal not without his pound of flesh, as the Goldman preferred shares he is buying yield a juicy 10%, and the warrants he gets are already in the money.

Nice deal Warren, and nice timing too. [Ya big ham - you know they're gonna be talking about this one for a while.]

Does the Financial Panic of 2008 now morph into the Financial Buying Panic of 2008?

Tough call - I'd guess yes, mainly based on observations of an orgy of negativity.

And there are probably a number of people short who have now overstayed their welcome.

Bloomberg: Goldman Gets Buffett's Backing in $7.5 Billion Fundraising Plan.


Saturday, September 20, 2008

Videos of the Week.

CNBC: S&P Head on Downgrades.

Alternative title: Dylan Ratigan Goes Postal!

Dylan Ratigan lets a guy from ratings company Standard & Poor's have it in this first video, and justifiably so. The ratings agencies overrated (**way** overrated, judging by the crisis) debt instruments, and then, in a pure "There's gambling going on in here!" moment, pulled the rug out from companies that dealt and/or now hold them with downgrades based on the toxicity of these instruments. While many people are to blame here, the ratings agencies were supposed to stand above it all as impartial judges, an obligation they completely abrogated.

The quote of the year: "The ratings agencies were directly complicit in the creation of the securities that you now are, like a two year old with a bazooka, blowing people's heads off with."

CNBC: Making Sense of the Market.

Alternative title: Kenneth Heebner Goes Financial!

Perhaps even wilder than the first video, Kenneth Heebner reveals he's got an over 30% allocation to financials (mainly strong banks) in his CGM Focus Fund. And while it sounds nuts, Heebner has a knack for sector calls. I don't know if he's right or early (or WAY early), but gut wise, I like this call.


Tuesday, September 02, 2008

The global cooling debate.

Daily Tech: Sun Makes History: First Spotless Month in a Century.


The event is significant as many climatologists now believe solar magnetic activity – which determines the number of sunspots -- is an influencing factor for climate on earth.

Delta Farm Press: Global cooling gains momentum among scientists.


“Carbon dioxide is not to blame for global climate change, Sorokhtin said. “Solar activity is many times more powerful than the energy produced by the whole of humankind. Man’s influence on nature is a drop in the ocean.”

Canadian climatologist Timothy Ball said, “If we are facing (a crisis) at all, I think it is that we are preparing for warming when it is looking like we are cooling. We are preparing for the wrong thing.”

wattsupwiththat: Livingston and Penn paper: “Sunspots may vanish by 2015″.

Belfast Telegraph: Is there a cold future just lying in wait for us?

On-Line Opinion: Activity is quiet on the sunspot front.


At the time of writing the sun is still spot free. NASA solar physicist David Hathaway points out, quite rightly, that the sun’s behaviour is within major statistical limits - just. The average solar cycle lasts 131 months plus or minus 14 months and the current cycle - the quiet period counts as part of the old cycle - has lasted nearly 143 months. The solar cycle went quiet for years at the beginning of last century before restarting, Hathaway notes, so nothing out of the ordinary has happened - at least, not yet.

Another group at the US National Solar Observatory in Tucson, Arizona, William Livingston and Matthew Penn, believe that there may be a deeper process at work. Sunspots are highly magnetic regions that are somewhat cooler than the rest of the sun’s surface (they appear dark compared to the rest of the sun, but if seen separately would appear very bright) and the two researchers have been tracking both the temperature and magnetic strength of the spots. They found that the spots have been warming up and becoming less magnetic. An average of the trend is a straight line going down which hits the bottom of the graph at 2014. They have concluded that, although sun spots may appear briefly from time to time in the next few years, they will disappear by 2014.

This conclusion is in a paper submitted to the journal Science three years ago but rejected in peer review. With the sun now so quiet the paper has been resurrected from a filing cabinet in the observatory and circulated informally. Dr Livingston told me (by phone from his office in Tucson) that the paper had been rejected on the grounds that it was a purely statistical argument so it would be better to wait and see what happened, and he considered that a fair point. They are now waiting “for the right moment” to resubmit.

But what happens after 2014? Dr Livingston says that as they are using a purely statistical argument, without any theory to back it, they do not know. All they know is that the trend reaches zero in 2014. Conventional theory on the sun’s inner workings never forecast anything like this - in fact, forecast the exact opposite - but has been revised to say that the sun will restart some time next year.


Saturday, August 23, 2008

Buffett: Oil Sands Visit for Info Only.

Warren Buffett is nothing if not a disciplined investor, and he explains that his visit to the Alberta region was for information gathering only, something that he will file away and may use a few years from now. As he explains near the end of the interview, he's now gained knowledge on cost aspects of the business, but the biggest wildcard remains the longer term price of oil.

Note that he already holds $1.5 billion worth of ConocoPhillips stock, which claims to have the "largest position in Canadian oil sands".

It's mentioned that they visited CNQ's new project as well as an unnamed SAGD (steam assisted gravity drainage) site. Since COP has a joint venture with Encana (ECA), and since Encana has SAGD sites in production, my guess would be that they visited an Encana site.

CNBC: Buffett/Gates Energy Tour.


Thursday, August 21, 2008

As the World Cools.

In spite of the hub-bub about greenhouse gas linked warming, there are a number of scientists who are convinced that solar activity is a much larger factor. [Some scientists even suggest carbon levels rise after the earth heats up as a consequence, not before/as a cause.] Sunspots are one measure of solar activity, and there is a roughly 11 year cycle in sunspots, as well as some longer ones that we have not nailed down exactly. The current sunspot cycle is delayed, and it's possible this is linked to the bout of cooler weather we are experiencing.

There are scientists who are raising questions about the longer term solar cycle, suggesting that perhaps we are in for a lull in sunspots, and a bout of long term cooler weather. Some have pointed to the example of the Maunder minimum, which was a long period with little sunspot activity where the earth cooled fairly dramatically for those living through it.

While it's too early to draw conclusions, I'm keeping an eye on this story and on the sun's sunspot activity at Spaceweather. According to NASA, it should be picking up this fall. Note that longer than average cycles (above 11 years) are apparently associated with short periods of cooling. I also note that today we have a sunspot appearing, after a lull.

If you really want to go out on a limb, there are some (I think Charles Nenner, though I could be mistaken) who link sunspots with general human activity, and further stock market performance, I'd assume due to some geo-magnetic connection. A new sunspot perks up and it looks like the primary bull market in the investing world (commodities) might be pulling out of it's tailspin. A connection? Who knows.


Yahoo: This year so far coolest for at least 5 years: WMO.


Maine Today: Brrr! Farmers' Almanac says cold winter ahead.


Milenio: Auguring brief era of ice in 2010.


An expert from the National Autonomous University of Mexico predicted that in about ten years the Earth will enter a "little ice age" which will last from 60 to 80 years and may be caused by the decrease in solar activity.


I have more on this topic here, here, and here.


Note: This blog is distributed through some media that doesn't handle links properly, therefore I will list the link address also for people to cut and paste if they wish.


Perhaps I should say "Man bites pandering politicians."

This is great, and amazing. A new poll showing that Americans are smart enough to figure out that windfall profits taxes on oil companies, SPR releases, and gas tax holidays are not going to fix the energy problem. Who'd have thunk it?

Coming soon: Obama on an offshore drilling platform, and Pelosi air kissing Rex Tillerson. (Maybe she ought to kiss-kiss the guy from Devon, he's actually better at finding resources.)

The Wall Street Journal: Voters Want Everything on Energy.


"Voters are telling us they want everything," said Neil Newhouse, a Republican who conducts the poll with Democrat Peter D. Hart. Mr. Hart said the results indicate that the current energy debate between Republican presidential candidate John McCain and his Democratic rival, Barack Obama, "is not the fight that the American public cares about."

The poll found greater levels of skepticism among voters about releasing oil from the Strategic Petroleum Reserve -- an idea advocated by Sen. Obama and many congressional Democrats -- and suspending the federal gas tax, an idea championed by Sen. McCain. Less than half of those polled thought those ideas were a step in the right direction.

"What these voters are saying is that there needs to be a whole new way of looking at our problems, and that they don't want the same old fights and the same old divisions," Mr. Hart said.

After weeks of criticizing expanded drilling, Sen. Obama has said he could support an expansion of offshore drilling, as long as it is part of a "genuine bipartisan compromise" that includes other measures to reduce the country's oil dependence.

Similarly, House Speaker Nancy Pelosi (D., Calif.) announced last week that her party is drafting legislation that "will consider opening portions of the Outer Continental Shelf for drilling, with appropriate safeguards, and without taxpayer subsidies to Big Oil."

Bill and Warren's Excellent Alberta Adventure.

It's been a long time since I've done an Canadian oil sands post. These stocks have been clobbered along with everything else, but these are huge resources that will be producing for a long time. These projects aren't without issues, as it's carbon intensive, needs natural gas input as well as a large amount of water, and makes apparently one hell of a mess, so they need to get the environmental stuff done right.

The classic oil sands stock is Suncor, SU, but Bill Gates and Warren Buffett took a tour of the latest oil sands project, the Horizon project by Canadian Natural Resources, CNQ.

Other oil sands names include:

Canadian Oil Sands COSWF
Imperial Oil IMO
Nexen NXY
Encana ECA
ConocoPhillips COP
ExxonMobil XOM
Shell RDSA
Devon DVN
Marathon MRO
Opti-Canada OPCDF

Because of the size and longevity of these resources, combined with the long term questions about reliable oil supply and peak oil, I have seen Suncor referred to as the "Microsoft of oil", with potentially 50 years of earnings growth ahead of it, as well as comments about oil sands stocks being "stocks to pass on to your grandchildren".

I'm looking forward to see what Warren Buffett has to say in his CNBC interview on Friday.

Financial Post: Buffett and Gates tour Alberta oil sands.

CNBC: Oilsands Stock Soars After Warren Buffett and Bill Gates Visit Alberta Project.

Tuesday, August 19, 2008

Insider buying in energy stocks.

I started looking at this yesterday. Among names that are seeing some buying:


It's nice to see insiders jumping in here, though sometimes they are a bit early. It looks like energy stocks may finally be finding a floor, after a solid month+ of a thorough thrashing.

Wall Street Journal: Oil, Gas Insiders Bet Energy-Stock Bull Is Primed to Resume Run.


Oil and gas insiders are betting big that the historic run-up in energy stocks isn't over.

Since energy stocks crested and retreated in early July, an unusually large number of directors, officers and large stakeholders have pumped money back into their own companies -- a sign, analysts say, that the boom is primed to resume.

Pickens: Not too long under $100.

Using wind for electrical energy generation, shifting natural gas to a transportation fuel, reducing oil imports 50% in 10 years, yada yada yada. Ok, kidding about the yada yada yada, I've just featured Mr Picken's ideas a number of times now.

It's an extremely important issue, this is one guy with a decently sized plan that seems worth shooting for, so I'm personally for it.

Without any kind of plan (say, like the situation we find ourselves in right now..), we're liable to be as *&^%$# as the peak oil doomsters think.

On the oil price prediction of a roughly $100 floor for oil prices, he believes OPEC will actively try to support a floor around that price, which sounds correct to me.

Bloomberg: Pickens Says Crude Oil Isn't Likely to Drop Below $100.

Monday, August 18, 2008

Where is the oil price floor?

I think Tom Petrie might be right - a natural floor might be around $80 to $90 for oil. But I think we don't get there because of the winter (which I suspect will be cold) and because the market is still going to leave a bit of a premium in the mix for the vagaries of the world.

Note the interesting headline flashed, but not discussed:

"Practical peak oil becoming broadly recognized as looming issue"

CNBC: Crude Heading Down to $80 a Barrel: Merrill Executive.


"I think it's pretty clear demand elasticities have been triggered in a way that will take prices lower," Petrie said. "I do think $80 to $90 is probably where the floor is."

Sunday, August 03, 2008

Got shale?

Alternative title: Taking the edge off peak oil.

Oil is unlikely to go back to $30, even with this potential boom in shale gas production in the US, but it's looking like we actually have something workable here, mid-term.

The peak oil doomsters are really not going to be happy about this development.

The answer, as always, was somewhere in the middle.

CNBC: Nat Gas Plays.

Star Telegram: Natural gas stocks take big drops since July 1.


XTO Chairman Bob Simpson told the paper that the shale-gas fields popping up across the country are proving to be "discoveries the size of which you haven’t seen for 50 years in our business."

He called the Barnett Shale "one of the greatest gas fields ever found" and suggested that the huge natural gas finds could boost demand because they suggest that there will be ample supply.

The actual reserves from the nation’s shale-gas fields are mostly speculative because the formations are relatively new and haven’t been fully explored.

The Barnett, discovered in 1981, is relatively mature, but others, like Louisiana’s Haynesville Shale and Appalachia’s Marcellus, are sparsely drilled.

That didn’t stop Friedman, Billings Ramsey analyst Rehan Rashid from working up his own estimates of the fields’ reserves, which he presented Wednesday in Houston. Rashid told Oil and Gas Investor magazine that he figures that the Barnett Shale holds 55 trillion cubic feet of recoverable gas.

But he pegs the Haynesville at more than twice that, or 120 trillion cubic feet, and the Marcellus at 68 trillion. Arkansas’ Fayetteville Shale follows the Barnett at 25 trillion, and Oklahoma’s Woodford Shale weighs in at 14 trillion.

He said he expects those fields to greatly boost the values of the companies that have staked holdings there.

CNBC: Peak Oil Theory.

CNBC: Drilling for Profit.

CNBC: Peak Performance?

Pickens Plan.

Wednesday, July 30, 2008

Sunday, July 20, 2008


Stephen Leeb makes the interesting suggestion that we re-think "BRIC" - Brazil, Russia, India and China and substitute "BRAC" - Brazil, Russia, Australia and Canada, i.e. substitute emerging countries with resource rich countries.

I like the idea for diversification as well. You never can tell who's about to nationalize, seize, go carbon-bonkers, or drink themselves silly (that would be the Australians, though come to think of it the Russians also qualify).

There are some well run, resource rich stocks in BRAC, among them Petrobras, Lukoil, Woodside Petroleum, Santos, Suncor, Canadian Natural Resources, Imperial Oil, or, as the article highlights, the country ETFs: EWZ, RSX, EWA and EWC.

istockanalyst: Changing BRIC for BRAC.


"The currencies of countries rich in essential resources—oil and other fuels, metals, agricultural products—are in strong demand," says long-standing market expert Stephen Leeb.

The editor of The Complete Investor explains, "Brazil, Russia, Australia, and Canada are awash in natural resources. And in a world of growing shortages, these countries can't miss."

"The acronym 'BRIC—standing for Brazil, Russia, India, and China—is in vogue as shorthand for the emergence of the developing world.

"But we’re herewith proposing an emended version: 'BRAC'—standing for Brazil, Russia, Australia, and Canada.

"That’s because these four countries are the ones most brimming over with essential natural resource, with each one a net exporter of fuels and other natural products. In a world where resource shortages will only get worse, these countries will stand out from the pack.

"Don’t get us wrong. China and India remain the largest and fastest growing emerging economies and still face exceptional futures.

"But their major resources are cheap labor, which will become less cheap as their economies keep growing. Indeed, labor costs in these countries already have begun to rise relative to the rest of the world.

"Meanwhile, continued gains in commodities mean that Australia and Canada are gaining relative to the rest of the world. It’s hard to overstate just how important relative resource independence is in a world where resources are becoming ever more scarce and expensive.

Thursday, July 17, 2008

Is the oil bull market dead?

CNBC: Oil's Biggest 3-Day Drop In 5 years.

I'm surprised there was little mention in this video of the supply and demand factor. Yesterday we saw a big build in crude and today a decent build in natural gas. The huge move in oil and natural gas that started early this year was about supply and demand, as a colder than average winter cut into natural gas supplies and pulled on heating oil supplies, which, combined with demand for diesel, pulled up crude prices.

We are now facing the other side of the supply demand equation, the one where supply is starting to build instead of declining. And price wise, neither natural gas nor crude looks like it's ready to make a stand today, they look like they have further to drop. Chart wise, I'm guessing natural gas could pull back to $9.50 and oil to $120, though crude at $110 wouldn't shock me at all. On the other hand, looking ahead further, if we get another cold winter, I think we revisit the highs.

This summer feels like a mild one, and I think back to this quote from a few posts ago:

The question Coxe raises, and one we cannot answer, is whether the lack of sunspot activity in this cycle portends a trend to cooler weather, shorter growing seasons, and increased space heating demands – or is it just a statistical fluke?

Investment Implications

Coxe argues that if the lack of solar activity is not a statistical fluke natural gas would be a ‘pure play' on this event due to the huge amount of natural gas used for space heating in North America . Natural gas is a very efficient and non-polluting heating fuel.

We would tend to agree with his assessment, but note that the incremental use of natural gas as a summer electrical generation ‘peaker plant' fuel may decline if air conditioner loads are significantly reduced.

Pure play natural gas and oil E&Ps are bearing the brunt right now, while big oil (XOM, CVX, COP) and big service (SLB, HAL, WFT) have paused. That suggests people are shedding excess exposure, but holding the core.

SLB reports tomorrow, apparently. How the market trades it will probably be a significant tell.

To answer the title question, while I don't think the bull market is dead, I do think that the huge move this year ate up a lot of our bull's "energy", and was a little too "easy". When it's that easy, it's often a sign that you're about to encounter trouble. Lesson learned.

Monday, July 14, 2008

Roque: Own commodities instead of stocks.

I'm a bit of an agonistic on gold, but you can't bury your head in the sand and ignore it. Compounding financial crisis, inflation, printing money... gold is in.

CNBC: Commodities Explosion.

Sunday, July 06, 2008

Haynesville Shale. CEO: Haynesville Shale is fourth largest in the world.


The Haynesville Shale is likely to become America's largest natural gas field and perhaps the fourth largest in the world, Chesapeake Energy Chairman and CEO Aubrey McClendon disclosed Wednesday in a conference call with its newest partner, Plains Exploration and Production Co.

See, among others:


Encana & Royal Dutch Shell



HP (driller)
XTO & Hunt
BRY & O'Brien
COG & undisclosed

Did I forget anybody? Probably.

Saturday, June 28, 2008

The consequences of higher oil prices.

This is an interesting discussion of the impact of higher oil prices from the newspaper of record in the heart of car country, the Los Angeles Times.

While I don't feel sorry for Ms. Carver and her Palmdale to Commerce commute (that was a bad idea even with cheap gas), lots of other assumptions from a world of cheap oil are going to be turned on their heads. India and China's stock markets have both been clobbered this year as being oil short (and generally food and resource tight) and manufacturing, export, and remote service long maybe doesn't look so good. Russia and Brazil, on the other hand, are holding up pretty well. As, until recently, was the US.

Los Angeles Times: Envisioning a world of $200-a-barrel oil.

Friday, June 20, 2008

There's a little black spot on the sun today.

There's a little black spot on the sun today.
It's the same old thing as yesterday,
That's my soul up there.

I have stood here before in the pouring rain
With the world turning circles running 'round my brain.

The Police: King of Pain.

Floods in Iowa, a record cold winter in China, global temperatures suddenly dropping in the last year, it's all quite possibly linked to sunspots.

The Market Oracle: Solar Sun Spot Cycles Impact on Crop Yields, Energy Use and Weather Patterns.


Last month we listened to Donald Coxe's weekly presentation to institutional investors. Coxe is the Chairman and Chief Strategist of Harris Investment Management. He has been a bull on the commodity markets for some time now and has correctly pointed out numerous investment opportunities in the energy, metals, and grain markets.

Since the performance of so much of our portfolio is driven by the weather – especially companies in the energy and agricultural sectors – and since Coxe notes the current sunspot cycle may point to lower global temperatures, we decided to examine the issue. Other long term forecasters we follow have not raised the issue to date.


Coxe pointed out that we are at the low-point of the 11 year solar cycle (see chart above) – at the end of solar cycle 23 and at the start of solar cycle 24. Sunspot activity was expected to pick up significantly the last few months, with experts concerned about the impact of the powerful bursts of radiation on satellites, the electrical grid, and telecommunications systems.

But according to Coxe solar activity has been almost nil. He points out this has happened in the past. From 1645 to 1715 very little solar activity occurred after a normal series of cycles. Solar activity also declined from 1790 to 1830.

It is normal for the sun to have quiet periods between solar cycles, but some experts claim we've seen months of next to nothing activity-wise. While the start of solar cycle 24 seems to have materialized it “then abruptly disappeared.”

These historical periods of solar inactivity – dubbed the Maunder Minimum and Dalton Minimum after the astrologists who studied them - coincided with an irregular periods of rapid climate shifts. The climate cycles brought intensely cold winters, although periodically intense summer heat waves would also appear. The Maunder cycle is often referred to as the "Little Ice Age" – but climate experts claim the period is punctuated by both cold weather and rapid climate shifts.

These periods of low solar activity were also periods of sustained weather driven crop failures. Coxe notes that solar scientists strongly suspect there is a link between the Maunder and Dalton Minimums and the cold weather - but the exact mechanism remains elusive.


The question Coxe raises, and one we cannot answer, is whether the lack of sunspot activity in this cycle portends a trend to cooler weather, shorter growing seasons, and increased space heating demands – or is it just a statistical fluke?

Investment Implications

Coxe argues that if the lack of solar activity is not a statistical fluke natural gas would be a ‘pure play' on this event due to the huge amount of natural gas used for space heating in North America . Natural gas is a very efficient and non-polluting heating fuel.

We would tend to agree with his assessment, but note that the incremental use of natural gas as a summer electrical generation ‘peaker plant' fuel may decline if air conditioner loads are significantly reduced.

The Daily Galaxy: The Sunspot Enigma: The Sun is “Dead”—What Does it Mean for Earth?


Athough periods of inactivity are normal for the sun, this current period has gone on much longer than usual and scientists are starting to worry—at least a little bit. Recently 100 scientists from Europe, Asia, Latin America, Africa and North America gathered to discuss the issue at an international solar conference at Montana State University. Today's sun is as inactive as it was two years ago, and solar physicists don’t have a clue as to why.


Dana Longcope, a solar physicist at MSU, said the sun usually operates on an 11-year cycle with maximum activity occurring in the middle of the cycle. The last cycle reached its peak in 2001 and is believed to be just ending now, Longcope said. The next cycle is just beginning and is expected to reach its peak sometime around 2012. But so far nothing is happening.

"It's a dead face," Tsuneta said of the sun's appearance.

Tsuneta said solar physicists aren't weather forecasters and they can't predict the future. They do have the ability to observe, however, and they have observed a longer-than-normal period of solar inactivity. In the past, they observed that the sun once went 50 years without producing sunspots. That period coincided with a little ice age on Earth that lasted from 1650 to 1700. Coincidence? Some scientists say it was, but many worry that it wasn’t.

Geophysicist Phil Chapman, the first Australian to become an astronaut with NASA, said pictures from the US Solar and Heliospheric Observatory also show that there are currently no spots on the sun. He also noted that the world cooled quickly between January last year and January this year, by about 0.7C.

"This is the fastest temperature change in the instrumental record, and it puts us back to where we were in 1930," Dr Chapman noted in The Australian recently.

If the world does face another mini Ice Age, it could come without warning. Evidence for abrupt climate change is readily found in ice cores taken from Greenland and Antarctica. One of the best known examples of such an event is the Younger Dryas cooling, which occurred about 12,000 years ago, named after the arctic wildflower found in northern European sediments. This event began and ended rather abruptly, and for its entire 1000 year duration the North Atlantic region was about 5°C colder. Could something like this happen again? There’s no way to tell, and because the changes can happen all within one decade—we might not even see it coming.

More at a later time.

Prisoners of the Sun I.
Prisoners of the Sun II.

Wednesday, June 18, 2008

Ken Heebner hearts Petrobras.

Ken Heebner is a mutual fund manager at CGM Funds and was recently dubbed "America's Hottest Investor" by Fortune Magazine.


"How do you explain genius?" muses Douglas Pratt, a former Invesco fund manager who was an analyst at Loomis. "Ken just sees things others don't."

A league of his own

Spend some time with Heebner, and it becomes clear why. His brain is wired differently. His ideas come faster, his focus is more intense, and his ability to sift through massive quantities of information and zero in on what matters is downright spooky. Pity the Salieris of the investing world who have to compete with this guy.

CNBC: Market Outlook Part 2.


I like companies that are benefiting from an environment where there is a short supply of key commodities, and the big one is energy. I think that, whether it's oil stocks or gas stocks or oil service stocks or coal stocks, they're all benefiting from the fact that demand for energy is growing faster than our ability to find it and deliver it to the marketplace.


I think in a world where the oil price is in an uptrend, this company, Petrobras, which has 12 billion barrels of reserves today, the discoveries that they're developing in the pre-salt, deep offshore Brazil are gonna add between 30 and 100 billion barrels to their reserve base, and five years from now we're gonna be looking at a company 5 to 10 times the size the company is today

P.S. The ticker is PBR.

Monday, June 09, 2008

The horror.

We sure had it nice for a while, didn't we?

Still a lot of conservation to go, apparently.

WSJ: Gasoline Hits Average of $4 a Gallon.


"It's just gotten out of hand," said 53-year-old Yvonne Brune of Des Moines, Iowa, referring to the rising cost of gasoline. Because of higher gasoline prices, Ms. Brune, who works for a printing company doing marketing on weekdays and separately as a bridal consultant on nights and weekends, no longer makes the drive home at lunchtime -- a 30-mile round trip -- to spend time with her dogs.

Tuesday, June 03, 2008

Please God, give us one last shale boom.

We promise not to miss it this time.


Haynesville: CHK, GDP, HK, GMXR, PVA.

Marcellus: CHK, ATLS, RRC, ATN.


Service: HP, CRR, WFT, etc.

Bloomberg: Dakota Oil Fields of Saudi-Sized Reserves Make Farmers Drillers.


His new wealth springs from the Bakken formation, a sprawling deposit of high-quality crude beneath the durum wheat fields of North Dakota, Montana and southern Saskatchewan and Manitoba. The Bakken may give the U.S. -- the world's biggest importer of oil -- a new domestic energy source at a time when demand from China and India is ratcheting up the global competition for supplies and propelling average U.S. gasoline prices to almost $4 a gallon.

And unlike the tar from Canada's oil sands, Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light - -almost like gasoline -- and sweet, meaning it's low in sulfur.

Best of all, the Bakken could be huge. The U.S. Geological Survey's Leigh Price, a Denver geochemist who died of a heart attack in 2000, estimated that the Bakken might hold a whopping 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels.

Thin Deposit

The challenge is getting the oil out. Bakken crude is locked 2 miles (3.2 kilometers) underground in a layer of dolomite, a dense mineral that doesn't surrender oil the way more-porous limestone does. The dolomite band is narrow, too, averaging just 22 feet (7 meters) in North Dakota.

The USGS said in April that the Bakken holds as much as 4.3 billion barrels that can be recovered using today's engineering techniques. That's a fraction of the oil that Price said should be there, but it's still the largest accumulation of crude in the 48 contiguous U.S. states. North Dakota, where Bakken exploration is most intense now, won't become Saudi Arabia unless technology improves.

``The Bakken is the biggest thing in oil in the lower 48 right now,'' says Jim Jarrell, president of Ross Smith Energy Group Ltd., a research firm in Calgary. ``And among the least understood.''

Sunday, June 01, 2008

To Fadel Gheit, with love.

Something to think about, though I'd cite Tim Evans as a bigger skeptic, and so far, totally wrong.

MSN Money: The end of the oil stock rally.

When everyone agrees that oil stocks are the thing to own, where is the supply of new buyers going to come from? And without new buyers, oil stock prices will stagnate and then fall.

Fortunately, not everyone is convinced yet. Oppenheimer oil analyst Fadel Gheit, for example, continues to write that, fundamentally, oil shouldn't trade at more than $55 a barrel. To which I say, God bless. The minute the last skeptic turns into a believer and bellies up to buy oil shares, the rally in oil stocks is doomed.

Still, I'm worried there aren't enough skeptics left. Oil stocks have looked increasingly frothy this year. One sign of that is the huge gains being racked up by obscure small-cap stocks in the sector. These are exactly the kinds of stocks that attract the extreme momentum traders as a sector nears a top.


Here's some advice
So what does all this mean to you? Five things:

* If you haven't bought oil stocks yet, I'd wait for a correction rather than chase them here.

* If you own oil stocks, you might want to take some profits in the sector. There's no need to sell everything, but check to see whether your portfolio is out of balance, and trim back your exposure to the sector.

* If you need to add energy stocks to your portfolio, take a look outside oil. Natural-gas stocks, for example, haven't had nearly the run that oil stocks have, and natural gas is still well below its historic peak of $15 per million British thermal units. If you need a suggestion or two in the sector, check out Chesapeake Energy (CHK, news, msgs) and Ultra Petroleum (UPL, news, msgs) in Jubak's Picks. Devon Energy, in that portfolio, is a big natural-gas producer, although not a pure play like Chesapeake and Ultra.

* Remember that the key to making money in the stock market is to buy low and sell higher. It's time to start looking around for unloved stocks in other sectors.

* We're by no means near the end of higher oil prices or of higher prices for oil stocks. Just wait. If oil drops to $110 -- the new floor, in my opinion -- you'll hear a huge chorus of doom saying that $50 a barrel is just around the corner.

That, of course, will be the time to buy.


At the time of publication, Jim Jubak owned or controlled shares in the following companies mentioned in this column: Chesapeake Energy, Devon Energy, Joy Global, and Ultra Petroleum. He did not own short positions in any company mentioned.

Friday, May 23, 2008

Will the real bubble please stand up?

Say goodnight to the SUV bubble and the associated cheap gasoline consumption bubble.

The guy running GM needs to be thrown out. [Mulally at Ford came in from Boeing a couple of years ago and thus gets some slack.]

Wall Street Journal: Ford Stumble Signals Rising Risks.


Ford Motor Co.'s plan to return to profitability got run over by a truck.

The rise of gasoline prices toward $4 a gallon is causing a major shift in the U.S. auto industry that threatens to push the Big Three auto makers and some of their rivals to a new level of peril. In recent weeks, sales of pickup trucks and sport-utility vehicles -- already falling in recent years -- took an unexpectedly sharp tumble.


In a Thursday conference call, Chief Executive Alan Mulally said the industry has "reached a tipping point" and that the falling truck sales represent a long-term shift in the U.S. auto market, not a short-term dip.

"We saw real change in the industry demand for pickup trucks and SUVs in the first two weeks of May," Mr. Mulally said.

Leeb on the oil 'bubble'. Author, chief of investment firm weighs in on oil crisis.


Question: Is what we are seeing with oil prices a pricing bubble, or are high oil prices here to stay?

Answer: With the housing bubble, people were just building and building and building and eventually the supply overwhelmed the demand in the housing case. But here, where is the supply?

You've got oil prices rising dramatically, but there is almost no evidence of increased supply. I mean in the past couple of months we have had both Saudi Arabia and Russia, which are the two biggest oil producers in the world, announce not in so may worlds, but certainly imply, that they have very little room left to increase oil production even going into the future, and that is not what you see in a bubble.

Basically you are seeing the market respond in a very rational way. Oil supplies are limited, and that is a very serious situation.


This bubble talk is ridiculous.

Thursday, May 22, 2008

IEA: Better rethink that Certified Pre-Owned H2.

MarketWatch: Report: IEA set to cut oil-supply forecast.


The Paris-based International Energy Agency is getting ready to issue a sharp downward revision of its oil-supply forecast, according to a published report.

A story in the online edition of the Wall Street Journal early Thursday reported IEA's forecast revision signals growing pessimism about whether oil companies can keep abreast of booming demand.

The Journal reported the IEA is attempting to assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but it is clear that future crude supplies could be far tighter than previously thought, the report notes.

The IEA has predicted previously that supplies of crude and other liquid fuels will keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently, according to the report, which added that the agency now is concerned that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

The decision to rigorously survey supply reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs, according to the Journal.

The report quotes Fatih Birol, the IEA's chief economist and the leader of the study, as saying "the oil investments required may be much, much higher than what people assume. This is a dangerous situation."

Short covering rally?

This last move in oil does have the feel of a short covering rally. If so, it will be interesting to see where it settles out when it's over. $110 would be my guess for a floor, but that's a long way down. That price still makes oil companies a lot of money.

Bloomberg: Blame Wall Street for $135 Oil on Wrong-Way Betting.


Oil's rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.

The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.

Wednesday, May 21, 2008

Somebody's a little off here.

I'd guess the guy in the middle.

Bloomberg: Oil Rises Above $134 on U.S. Supply Drop, Bank Price Forecasts.


``What we have here is a situation where essentially higher prices aren't generating any more supply,'' Paul Sankey, an analyst at Deutsche Bank Securities in New York said in an interview with Bloomberg radio. ``What we have to do is keep pricing the commodity higher until demand starts falling,'' which ``is around $150 a barrel.''


The price of oil should be ``somewhere between $35 and $65 a barrel,'' John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell, said at the hearing yesterday. Other executives said prices should be as much as $90 a barrel.

Financial Times: Shortage fears push oil futures near $140.


Adam Sieminski, chief energy economist at Deutsche Bank, said: “The price is going to go up until governments that subsidise oil consumption in Asia and the Middle East can no longer afford it.”

Separating the men from the boys.

CNBC: $12 Gas and Rationing? Possible, Says Expert.


"The prices that we're paying at the pump today are, I think, going to be 'the good old days,' because others who watch this very closely forecast that we're going to be hitting $12 and $15 a gallon, and then, after that, when world oil production goes into decline, we're going to talk about rationing," Robert Hirsch, Management Information Services Senior Energy Advisor, said on CNBC's "Squawk Box." "In other words, not only are we going to be paying high prices and have considerable economic problems, but in addition to that, we're not going to be able to get the fuel when we want it."

Hirsch argued that the maximum in world oil production has already been hit.

"The idea is that [world oil production] would hit a sharp peak and then drop off, and what's happened is, we've hit a plateau in world oil production, and that plateau has been ongoing since about the middle of 2004," he said.

Those who argue that new technology and new types of energy will solve the problem aren't on solid ground, Hirsch suggested.

"There's no single thing that's going to solve this problem, because it's as massive as one can possibly imagine," he said.

Wall Street Journal: U.S. Military Launches Alternative-Fuel Push.


Some Pentagon officers have embraced planning around the "peak oil" theory, which holds that the world's oil production is about to plateau due to shrinking resources and limited investment in many of the most oil-rich regions of the Middle East. Earlier this year, they brought Houston investment banker Matthew Simmons to the Pentagon for a presentation on peak oil; he warned that under the theory, "energy security becomes an oxymoron."

MarketWatch: Crude futures top $130 a barrel.


The Bank of England on Wednesday became the latest to signal their fears, with the central bank saying in minutes of its last meeting that tight supplies rather than speculation is driving prices higher.

"According to the Bank's market contacts, speculative purchases did not seem to be the prime cause of the recent increases in the oil price," the central bank said, referring to the rise in oil prices during the month of April.

"More fundamental demand and supply factors had probably been at the root of its steep rise during recent months, and there remained considerable uncertainty about the oil price outlook," it said.

New York Times: The Cassandra of Oil Prices.


Mr. Murti falls into the camp of oil analysts who believe that supply is likely to remain tight because of geopolitical factors. These analysts predict higher prices because production is declining in non-OPEC countries like Britain, Norway and Mexico.

The analysts who predict lower prices say there are supplies of oil that the bullish analysts are missing. “This year will be a year in which supply will be put into the market by stealth by OPEC and by countries we call black-hole countries,” said Edward L. Morse, chief energy economist at Lehman Brothers. China is one example, he said.

But while oil and gas prices have been rising for a while now, Americans have only just begun to reduce gasoline consumption, so their efforts to conserve have not dragged down oil prices.

“The fact that the U.S. gasoline demand can be down and that the U.S. gasoline consumer is no longer driving world oil prices is a monumental event,” Mr. Murti says. He spends most of his time talking to money managers and analysts, many of whom keep asking him if oil prices will stay high if speculators abandon the market, and says he applauds investors for driving up oil prices, since that will spur investment in alternative sources of energy.

High prices, he says, “send a message to consumers that you should try your best to buy fuel-efficient cars or otherwise conserve on energy.” Washington should create tax incentives to encourage people to buy hybrid cars and develop more nuclear energy, he said.

Of course, if lawmakers heed his advice, oil analysts like him might one day be a thing of the past. That’s fine with Mr. Murti.

“The greatest thing in the world would be if in 15 years we no longer needed oil analysts,” he says.

MarketWatch: Oil of oy vey.


As a trader, I'm not as concerned with the ultimate destination as much as the path that we take to get there. I've generally avoided the energy space this year and focused my attention on the financials and select technology, taking what the market gave me while preserving capital and keeping my powder dry.

Toward the end of last week, I began building short-side exposure in the energy realm. Catching cusps is a dangerous proposition, whether it's grasping at a falling knife or getting in the way of parabolic frolic. It's a generally accepted trading axiom that money is made between the twenties and we should avoid the red zone whenever possible.

With that said, I share these thoughts with two caveats. First, I'm typically early, which is as damaging as being wrong if you're not there to cash in your chips. Second, while a seismic structural shift could occur at any time, my motivation is to simply capture a trade.

The bull case for energy is loud and proud as a function of the price action. There are supply constraints, emerging market needs, incremental demand from China (following the earthquake), pressure on the U.S. dollar (the price of socialization), unreliable alternative sources, psychology (furthered by a recent Goldman Sachs report) and perhaps the biggest risk, in my view, the potential for geopolitical tension in Iran.

On the other side of that ride, we have political agendas into the election, incessant (unconfirmed) chatter that margins on crude futures will be raised, faltering demand by an already strapped U.S. consumer and the unfortunate truth that all roads will ultimately lead to debt destruction through deflation.


Again, the single biggest caveat to the short energy thesis, in my view, is an uptick in Middle East acrimony.

As the market is a prescient beast, that unfortunate thought would certainly explain the incessant bid we've seen to date.

[I think he's wrong there. It's Chinese demand and the idea that we'll have another cold winter that I think is driving this relentless move upwards. But I've been thinking about reducing positions too, though not actual shorting. So much focus on oil smells of some kind of top.]

CNBC: Fast Money Final Trade.


"Short Hess."

CNBC: OPEC Oil Supply Rising in May: Petrologistics.


OPEC oil supply in May is expected to rise by 700,000 barrels per day (bpd), led by higher output from members including Nigeria and Saudi Arabia, an industry consultant said on Wednesday.

The increase comes during a month in which oil has soared to record highs and indicates OPEC is again pumping more than its supply limit after a strike in Nigeria lowered output and Saudi Arabia opted to pump more.

All 13 OPEC members are expected to pump 32.4 million bpd this month compared with a revised 31.7 million bpd in April, Conrad Gerber of tanker tracker Petrologistics, told Reuters.

"There is a strong rebound in supply," Gerber said. "Iraq is having a good export performance and Nigeria is coming back up.

Tuesday, May 20, 2008

Pickens Wants to Move It, Move It to Natural Gas.

Sorry, I just couldn't resist.

CNBC: Pickens: Oil Going to $150, So Move to Gas.


"Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million," he said. "It's just that simple. It doesn't have anything to do with the value of the dollar."

He expects the price of a barrel of oil to reach $150 this year, and he insists speculation has nothing to do with it.


Pickens says natural gas is the only American resource that can reduce oil imports. He claims the effective use of natural gas could reduce oil imports by 40 percent. He dismissed ethanol as an alternative. He added that what reduced demand there has been in the United States has immediately been picked up by China.

"The only way I see that oil doesn't continue to rise [is] if we had a global recession." he said. "That will happen at some point, but I don't see the Chinese stumbling until after the Olympics."

Give me liberty or give me windfall profit taxes.

I sort of admired Barack Obama when I first heard about him, but his idea about windfall profit taxes on oil companies is about the quickest legislative way to get to $200 oil that I can think of. If you want less investment in oil and natural gas production, vote for higher taxes on oil companies, and stand back and watch prices skyrocket. As mentioned below, things are already tight enough in the oil and gas business.

My guess is that John McCain will be the next president, but if Obama gets elected, I will be very interested to see what he does with this idea and what the consequences will be.

Reuters: Schlumberger sees threat to oil, gas output growth.


Less than 25 percent of worldwide reserves are open to private investment, he said, because many states are turning over their fields to government-controlled oil companies.

"This does not mean that (production) gains will not occur, but it does mean that they will take longer than if access had been more open," Gould said.

Schlumberger, the world's largest oilfield services company, and its peers have posted sharp revenue and earnings growth in recent years as energy companies increased spending, and Gould has predicted that trend will remain in place into the next decade.

Oil prices in the United States have jumped to record levels near $128 a barrel in recent days, and natural gas has surged to $11 per million British thermal unit.

For the energy producers, rising costs for raw materials such as steel have also help contributed to a 120 percent increase in exploration and production spending between 2004 and 2007, while the number of new wells drilled has risen by only 52 percent, he said.

High energy prices have also prompted governments around the globe to hike taxes and change investment terms to gain a greater share of producers' profits.

But added to the rising materials cost and the riskier nature of many new fields, "there is a real danger that this will cause underinvestment and simply exacerbate the problems," he said

And what of McCain's gasoline tax holiday idea?

Newsweek: Should You Pay $6 Per Gallon?


Kloza goes a bit further, calling a gas-tax holiday "caca." "It represents pandering. You're not leveling with the American public," says Kloza. "All this talk of energy independence means nothing if you don't have energy discipline. When it comes to our gasoline consumption, we're the morbidly obese of the world. And like the person who weighs 350 pounds, we need to exercise more and consume less." To do that, though, first you have to look in the mirror and admit there's a problem—and it's not the price of gas.

Friday, May 16, 2008

Goldman Sachs: Fundamentals.

MarketWatch: Oil and gas producers lead London higher.


Goldman Sachs on Friday raised its forecast for the average price of West Texas Intermediate oil in the second half of 2008 by 32% to $141 a barrel from $107 a barrel.

"We believe that the market is not defying fundamentals but rather experiencing a structural re-pricing much like it did in 2004, searching for a new equilibrium against an uncertain long-term supply environment," the broker said.

Bloomberg: Goldman Raises Second-Half WTI Oil Forecast to $141.


``Supply constraints and a lack of scaleable substitutes are set to continue driving the long end of the oil curve higher,'' Goldman analysts including Peter Oppenheimer and Jeffrey Currie in London wrote in a report dated today.


The trend in the growth of oil supply has fallen to 1 percent per annum, compared with global economic growth of about 3.8 percent, today's Goldman report said. ``Given this imbalance, long-term oil prices will need to rise.''


The near-term oil market is being driven by ``long-dated'' prices, or the price of oil for delivery 5 years forward, Goldman said. While an increase in U.S. stockpiles and declining demand growth due to the global economic slowdown is creating ``near-term fundamental weakness,'' this is not causing lower prices, according to the bank.

``We do not expect these softer fundamentals to translate into spot price weakness given the strength in long-term prices,'' according to the report. ``We expect the bullish structural market to dominate the bearish cyclical weakness.''

Supply Constraints

Goldman said it was unlikely prices would eventually rise enough to justify large scale investment in alternative sources of fuel, thereby offsetting the discrepancy between supply and demand, because of resource protectionism which constrains supply growth.

Instead, an increase in long-term oil prices is required to suppress demand growth and bring it in line with supply growth, Goldman said. It forecasts the long-date oil price to rise 14 percent to $148 a barrel by early next year.

``Long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth,'' the bank said. ``Eventually a price will be reached which incentivizes significant conservation, new technologies and political solutions which will eventually cap the price rises.''

Thursday, May 15, 2008

Oil price: Speculators or fundamentals?

[Fundamentals = supply & demand.]

I'm with Jerry Castellini. Oil is at ~ $125 mainly because of the fundamentals. If it were primarily speculation driven, there would be a larger inventory build up, which we are not seeing.

CNBC: Market Mavens.

Friday, May 09, 2008

Bizarro Headline of the Day.

Amidst all of the noise, it's easy to forget that the US continues to be one of the world's largest exporters. The strong dollar policy is paying off, and this may be the reason we're not in a full blown recession.

The Wall Street Journal: Container Shortage Frustrates U.S. Exporters.


Surging U.S. exports on a range of goods including corn, soybeans and frozen pork are hitting a bottleneck in the nation's overloaded ports, threatening to crimp profits for U.S. farmers and agricultural processors at a time when it is easier than ever for them to sell their goods abroad.

The problem can be traced to a shortage of once-plentiful shipping containers and other transportation equipment, along with a lack of space on outgoing ships. The shortage is affecting other industries, including exporters of manufactured goods and sellers of scrap metal and paper.

Thursday, May 08, 2008

What's going on with oil?

Seeing CNBC with features on oil all throughout the day makes me nervous we may be at a short term top.

But what's going on with oil?

Everybody suddenly realized just how valuable it is.

CNBC: What's Going on With Oil?

For Hillary - Stand Down Margaret.

Written originally for a woman of a diametrically opposed political view, I'd like to dedicate this song to Hillary Clinton.

She may not be ready to give in, and her opponent Obama doesn't appear quite ready for prime time either, but Hillary is done, as I thought back in December she might be.