Price Spike Open Thread...

let's discuss...
Hope no one minds that I have moved up comment to more-appropriate new open thread. MMS now soliciting comment on rulemaking for alternative energy sitings on outer continental shelf. Via Rigzone:

http://www.rigzone.com/news/article.asp?a_id=28214

Those of us who are in favor of windfarms and other types of alternative energy generation might send comments to the MMS to show that we care about making it easy for alternate energy providers to obtain the permits they need to begin operations.

That's a great idea, maybe we should work up a whole post about this. It seems like a major issue for alternative energy - will it be treated like big oil, which has been banned by many offshore NIMBY efforts, or will it be seen as something good that needs to be promoted.
Offshore oil was banned by rich property owners of scenic beaches, ie, California and Florida, but not Texas, Louisiana, and Alaska Cook Inlet.
I expect times will become more interesting now that the holidays are over.  No more gasoline imports from Europe to artificially hold down prices.  The natural gas constraints are becoming more and more obvious, and they will affect oil, since many commercial users can use both, and choose their fuel based on which is cheaper...or available.  

In the U.S., many people will be getting their first real heating bills of winter this month.  They'll also be facing up to a quadrupling of their minimum credit card payments, and many of those who signed adjustable ARM mortgages will see their minimum payments rise.  We'll find out how strong the economy really is...  

Leanan is correct. The tension on this rubber band of an economy has reached critical mass. The idea that we will just shrug it off and make do is insane. The time of reckoning is near. No amount of American can-do is going to spare this economy from a dreadful fall.

Good luck to all in the next six months. May your families be safe.

C

I expect crude oil to shoot past $70/bbl
and head to $80/bbl as the driving season
starts in April - May.  Until then we will
likely see it range bound $55 - $70.

The strategic reserve will need to be refilled.
European gasoline shipments are over.

Special Canadian natural gas shipments are
also over (1/1/6).  The weather is the
big factor for nat gas.  If it gets real cold
we will see $20/mmbtu nat gas!

The FED is pumping the economy full of liquidity.
the credit card problem will be quite manageable.
the housing bubble will slowly deflate.
prices will be soft for years, but no crash.

GM and Ford will file for bankrupcty, but
continue to operate.  This will still be a big
negative, but not a crash.

Why would GM with $20 billion cash reserve file a chapter 11? To paraphrase an old saying; What's bad for GM is bad for America. When push comes to shove the politicians will go to great lengths to prevent a GM or Ford collapse. I'm thinking maybe a GM-Toyota merger with Tokyo calling the shots.
While I agree with the general political coverage.....

Delphi employee liability   aprox 7 billion
Burn rate with Delphi strike    1.5 billion/month

and they're already loosing billions/year on continuing operations.

I also don't think Toyota would want them...

I don't understand the sudden price jump to $63+/barrel.  Is it speculation or the winding down of the european pity imports?

Someone should call me a waaahmbulance;  now I have to get gas payment cards from my credit card rewards rather than best buy  gift cards ;-)

I think there are two main factors for the spike:

  1.  The Russian-Ukraine thing.  It's raised people's political anxieties.

  2.  Huge blizzard in the northeast.  They're predicting a foot of snow today.  Traders in NY have suddenly been reminded that it gets cold in winter.  ;-)
What's weird is that NG is falling and oil is climbing! I think that traders are overreacting over the Russia-Ukraine dispute. I expect a big correction within the next few days.
To keep things in context - oil was up $2.15 today, (and has dropped about 40 cents since the NYMEX close). Looking at the last calendar year the average daily move is 93 cents with a 74 cent standard deviation, meaning todays move is really not even a 2 standard deviation event.

In the past 6 months the average daily move is over a dollar with about a $1 standard deviation, meaning $2 moves will happen almost 1 day in 3.

For you trivia curious, last 6 months of nat gas have an average 32 cent move with 21 cent standard deviation.

So Crude oil daily moves last 6 months are 1.6% with 1.55% sd and Nat gas daily moves average 2.48% with 1.6% sd. Nat gas is about 50% more volatile than CL.

Looks like everyone's gotten their daily helping of james kuntsler.  Slightly unrelated to the price spike i was wondering if everyone saw this...

U.S. consumers recovering from record high gasoline costs last summer may now face a nearly 60-cent price surge next year because of stricter environmental regulations, an industry expert said.

http://www.msnbc.msn.com/id/10533856/

Will this be the next public outcry?  I'm dealing with one here in North Carolina as the gas tax gets a great big $0.03 increase and people are all bent out of shape.  Nevermind the 23% increase in the price of gasoline this year here...

Yeah, it's those stupid environmentalists that make people dependent on gasoline!
per gallon i failed to add.
My energy / gold portfolio is up almost 3% on the day. Glad to see it working hard for me.
Speaking of which, if I wanted to educate myself about which mutal funds or even specific energy companies might make sense to role a modest investment into, might someone know where to go?  I got a little bit of $ that sat flat in the stock market that needs a new home.  The problem is that every time I wade out into the dang ole internet I just get advertised to.  I know, I know, no need for disclaimers.  I'm not looking to hold anyone accountable.

Unless I lose money.  Kidding.

I made some of my own recommendations back a few months ago on my old blog.

Gold is still a very good safe investment in my book. Rail, alternative energy, oil/natural gas exploration companies, and commodities businesses are good buys still in my humble opinion.

Perhaps we could have more discussion of financial issues here. I'll list off my favorite tickers here, some of which I own, some of which I would like to get at a lower price:

CSX, ESLR, GLD, LNG, PBW, RAIL, SNG, SU, TGA, TXCO

What's everyone else's portfolio look like?

Long CL Nymex, Dec08,09 contracts use to trade the front of the board as well but this market has changed, If you want to see evolution in high speed watch the futures market survival of the fittest playing out at high speed.

Have been long since Dec o6 contracts where $20.00 (2000) used the profits to set up a low energy imput farm. Farm land prices are going crazey and in my region. Bucking the slow down trend in realestate.

Long gold, Long wheat july 07.

A few others:

Stocks/ETFs: ERF, PVX, XLE, GG
Funds: ICENX

Looking at the new Euro-backed ETF, FXE, as a possible add in the not too distant future.  Definitely a great new tool for small investors.

I'm out of all US stocks - all my money is home in Canada.  Half is in a diversified portfolio that's being professionally managed, the other half is in about 15 Canadian energy stocks.  They're mostly oil/NG E&P's, with some service companies, some oil sands and one uranium stock. It's a volatile ride, but it's showing a ton of medium-term promise.

I figure that we Peak Oilers have about 7 years left to use our insight into what's coming.  We should be able to leverage that insight into enough money to get us through a few years of the decline.  I expect that as oil/gas supplies get tight a lot of money is going to pour in from other sectors to support Hail Mary drilling programs.  Those who are already invested stand to make a lot.

I've got some metal to hedge against a U.S. dollar crash but as far as energy investments here's my problem.  Won't NG stocks have trouble once Joe public/Joe trader understands that the depletion rate looks like a cliff?  If I'm in a mutual fund with NG might the same thing not happen?  And then eventually oil as well?  I mean isn't Ford and GM trouble just a precursor to gasoline companies taking a beating?  Or will the increased price of oil make profits soar and make up for the demand reduction?  Oil companies have been doing well, very well for themselves.  Solar and similar sustainable technologies look good but don't look like they'll have the excellent returns of the hydrocarbon-based companies until we're really slip sliding down the backside.  Every time I mention anything like this to my banking friends (Charlotte NC) I get this look like I'm from another planet.  I guess I need a financial adviser who's Peak Oil Aware.  In line with that last statement any suggestions for someone with modest cash but a will to listen and a want to learn?  I mean other than just reading George Ure each morning?  
I figure there will be a one to two year period during which everybody figures out that energy is the place to be due to rising energy prices, but haven't grokked the endgame yet.  My plan is to watch the markets and get out before that realization hits.  I figure that's five years out or a bit more, given that PO happened last year or this year.  I think similar rules will apply to NG and oil.  I view an investment in uranium mining as a longer-term hedge for the time when the pressure for energy sweeps away our common sense.  I think you're right that alternatives will only take off once everyone realized we're hosed.  At that point biodiesel might be the place to be, especially algal biodiesel.

As for investment advice right now, I don't have any except for the really basic rules I used for myself.  Diversify within the energy sector, pick a range of company sizes and niches, check out their track records and fundamentals, do their charts, but plan to stay invested for a few years.  For me the energy sector is too volatile to make it comfortable for day trading, though people who can stand the bumpy ride will make more money than I will.

I found that a portfolio of around 15 companies was the right size.  It's big enough to diversify somewhat, but small enough to manage and also small enough not to dilute out from averaging if you make good picks.  To ensure that last point, I rebalanced it a couple of times over the first three months to get rid of the dogs.  Now that I'm happy with my picks I'm just going to let her ride.

My portfolio:

NYSE/NASDAQ: EWZ, CEE, BNI, NSC, EWC, IGE, CCJ, SUNW
Paris: Areva Group
Frankfurt: EasyETF GSCI (commodity etf)

I'm also wondering what will happen to energy company earnings as peak oil hits.  Guiness Energy seems to be peak oil aware (order their energy report); I am counting on them putting investments in the best companies:
gagex - Guiness Energy
umesx - another energy fund I recently dumped; was consistently underperforming gagex
pcrdx - Pimco Commodity Futures - Isn't as heavily energy weighted as Oppenheimer QRAYX but pcrdx is no-load
PBW - Powershares Alt Energy
bni - Burlington Northern
cmc - Commercial Metals Corp - metal recycling
can't bring myself to buy a coal company directly

With the yield curve inverting; the beginnings of a bear market are likely upon us.  These might be the best for a while
bearx - bear market/gold
dodix - intermediate bonds

Some traditional no-loads that I've done well with:

brsix - ultra small cap
braix - aggressive
brlvx - large value
brsvx - small value
RISIX - international

Try McDep.com.....I have never lost a penny on his recos. Been in the biz for many years and knows the various mangements. I buy his deep value plays.
You may want to check out this post
Thanks Bubba! UTS was a great buy last year. I kind of feel like I missed the boat. How do you Buy Canadian?
All of the Canadian companies I mentioned in my post are also either traded on the US exchanges (Suncor, Canadian Natural Resources) or are traded over the counter in the US in US dollar denominated securiteds (UTS, OPTI Canada, etc.)
Worry about the dollar collapsing more than anything, and what it will do to the metrocoastal area property values. That's the big one.
Think 1% of your money in physically possessed silver and gold as temporary emergency funds, 4% in actual cash, both in your home where they can't get grabbed by the government (as happened in Argentina and Russia recently), and one third each left in the stock market (diversified), residential property, and bonds (diversified maturity).
Don't buy commercial, forest, or royalty real estate. You don't know enough to pay a sensible price unless that's your business.
I wouldn't mind buying land that has just been lumbered, though. It's value is very low so it's hard to go wrong.
Oh, the reason you would buy it is that we are eventually going to be telecommuting and somebody will want his cabin in the woods. Lumbered areas are pretty quickly full of low growth saplings that deer find more attractive than full growth timber. Likewise wildlife in general for the back to nature types.

Gasoline prices over the last 6 months for Canada (Red), NY State (Blue) and USA Average (Green)

Look for some movement here in the weeks to come.

look for movement? i had $2.06 a few days ago, and i see it's already at $2.23, my gut feeling says gasoline will continue to climb. by the way, i can see the red on ther chart, but not blue or green.  
Re:  Matt Simmons' 1/2/05 Interview in Barron's

Matt Simmons makes a key point regarding the North Sea.  He predicted that North Sea production would peak between 1998 and 2000; however, the 10 major oil companies operating in the North Sea were confident that the North Sea would not peak until 2010.  The North Sea peaked in 1999, and production is crashing--down about 25% from its peak.  

This is analogous to the major oil companies' response to Hubbert's prediction that Lower 48 oil production would peak around 1970--by and large they thought that Hubbert was nuts.

Based on the Hubbert/Deffeyes P/Q versus Q method, the Lower 48 peaked at 48% of Qt (total estimated cumulative production).   Conventional wisdom was wrong.  Hubbert was right.

The North Sea peaked at 52% of Qt.   Conventional wisdom was wrong.  The Hubbert/Deffeyes method was right.

The world is at 50% of Qt.  Conventional wisdom says that we are not anywhere close to the peak.  The Hubbert/Deffeyes method says we are at, or very close to the peak.  We do know that world oil production is flat year over year.

We also know that conventional wisdom regarding the Lower 48 and the North Sea was flagrantly, 100% and absolutely wrong, while the Hubbert Linearization method was right.  

Simmons also correctly predicted the natural glass cliff, back in 2000. At the time, electricity generating companies still thought it would be cheap and plentiful forever.

He has long maintained that oil prices will spike to new highs this Winter, and they will never again be as low as between Labor Day and Thanksgiving 2005. This is due mainly to his theory that Saudi Arabia has peaked, though.

In fact BP recently came up with a "typical depletion scenarion" which fits the N Sea picture absolutely perfectly.  Matt S was spot on but was berated here in Bonny Scotland for being far too pessimistic..

UKOOA - the United Kingdom Offshore Operators Association - insists there is still 20 or 25 billion bbl to recover. It won't happen.  

We have already passed the point where supply is able to keep up with demand. Just look at the ever increasing number of poor countries that cannot afford to buy gasoline for everybody anymore. For them, peak-oil is real.... now.

For us, it will be a matter of years.

I read the Barron's article too. What intrigued me most was the last Q & A:

"Q:Why does ExxonMobil have a different view of where the oil price is headed?

A:I don't have the vaguest idea why they could ever think we are going back to $25 oil other than their business model desperately needs that to happen to have their long-term strategy work. High oil prices are very bad news for big oil. The higher the price, the more proven reserves they've already booked they lose in these foreign concessions, because once their projects hit their payout targets, then the host government's share rises. I think the major oil companies are lost in the wilderness right now."

Can anyone one elaborate on these foreign concessions agreements and how they are typically structured?

Given ExxonMobil's record profits last year, can high oil prices truly be "bad news" for Big Oil?

I second the request for more info on Simmons' point concerning foreign oil concessions and the problem the majors have with high prices. The Japanese state has encouraged its oil firms to amalgamate and go after supply (a reverse of the previous policy of relying on the power of the yen to bring forth sufficient imports). If anyone can explain what Simmons was saying in the Barrons interview, I'd be much obliged.
Look at Venesuella. They increase have just increase taxes for foreing companies. Also they require they require creation of joint ventures with 50% owned by Venesuella.
With high oil prices the countires that own the resources ask for larger share of profits and reconsider old concessions.
Here's what Simmon's meant when he said the majors, like XOM, want lower prices because their foreign contracts will result in them "losing oil" at higher prices:  some foreign contracts apparently give the company a guaranteed rate of return on their investment, after which greater percentages of the production (and therefore by implication the reserves) go to the host country.  Thus, higher oil prices get the company to their target return and therefore to the "flip" point earlier.   At the flip, the company is forced to report fewer reserves to the extent their percentage interest in the field is reduced. Result: minimal additional profit to XOM from the higher prices on the given project plus a reduction in their SEC-mandated stated reserves, which will hurt their stock. That's why, he was saying, they have a vested interest in lower prices.  

I have no idea how many contracts are structured this way, but Simmons' comment implies that it is common.  Of course, the majors have other reasons to want to see oil prices stay low.  They don't want public outrage and the resulting Congressional scrutiny.  Also they want to be able to use their huge cash reserves to buy the most oil they can on the stock market - either their own stock or an acquisition.   But Simmon's comment is a new wrinkle and a brilliant insight, IMO.  

Thank you. This is profound.

If  I understand you correctly, even as XOM's  and the rest of Big Oil's profits rise, their booked reserves decrease. So they will be missing out on any future (probable) increases in price.

Simmons seems to be suggesting that their  "long term strategy" miscalculated the date of Peak Oil; (They) thinking they had several more years to buy up reserves before the inexorable climb in price.

This also explains sekiyu's  point: "The Japanese state has encouraged its oil firms to amalgamate and go after supply (a reverse of the previous policy of relying on the power of the yen to bring forth sufficient imports)."  Which is to say: the govt. realizes - because of scarcity -- that purchasing power can no longer assure supply.

In case no one really gets what oilaholic posted, as Simmons wrote in his book about the 4 American Oil companies that developed the Saudi oil industry, they basically raped the Saudi fields when it came time to turn over the fields to the Saudis. If you look at the history, the Amercian oil companies in Saudi wanted low prices so that they could pump oil longer. This is the same thing that is occuring NOW.

This is a different hook in the industry and would be something that the major oil companies would want to keep under wraps. Not only are prices spiking, April 2007 contracts closed at $66.22 a barrel, but if major oil companies start reducing their recoverable reserves, stock prices will plummet.

Things are only going to get worse.

Time to switch to a Clean, Safe and Unlimted source of Energy, Hemp. A resource that is competely untapped.