My Thoughts on Oil

Here we go again. Let’s take a look at the oil chart (created with SuperCharts by Omega Research):

click to enlarge

Random thoughts:

• Despite US oil inventories at near 20 year highs, simply the notion of global growth has oil prices up over 50% since March.
• US dollar weakness is helping to propel oil (and gold) higher.
• The US consumes around 20 million barrels of oil a day and imports roughly 65% of it. The amount of oil the US consumes is equal to the output of the world’s two largest oil producing nations (Saudi Arabia and Russia) combined.
• All OPEC countries together recently produced about 24 million barrels per day, only 4 million barrels a day greater than the US alone consumes.
• Should we drill? Obviously. Can the US make up its 12 million barrel a day oil production deficit by drilling? Considering the US oil production deficit is greater than the entire output of world’s largest oil producer (Russia – 10 million BPD), drilling alone won’t solve our oil crisis.
• China is using their financial advantage to finance oil production and delivery projects around the globe (Brazil, Russia, Venezuela).
• The US is not leveraging its best weapons against foreign oil imports: its abundant, clean, and cheap domestic natural gas reserves combined with its 2.3 million mile natural gas pipeline grid connecting every major metropolitan area and 63,000,000 American homes where over 130,000,000 cars and trucks could be refueled every night while their owners sleep.
• Now that Buffett has sold his stake in ConocoPhillips (COP), perhaps now the stock can move higher. Berkshire Hathaway’s (BRK.A) reinsurance business is second to none. However, why would investors make a bet on Berkshire Hathaway’s stock when the company is highly exposed to the consumer and is underweight oil and gas stocks as we enter an era of peak oil? Buffett was as wrong selling COP at the price received as he was buying COP at the price he paid.
• The US hurricane season officially started Monday.
• The US uses 70% of its total oil consumption in the transportation sector. Obama and Chu apparently want to reduce this by use of electric cars fueled by “clean coal”. However, what is more realistic to cash strapped US consumers: buying an expensive new electric car, or converting their existing SUV to run on cheap and clean natural gas?
• One doesn’t have to be an efficiency expert to realize moving a 180 lb human being around in a vehicle that weighs 4-5,000 lb is unsustainable.
• E&P budget cuts by the world’s leading oil companies are setting the stage for the next peak oil spike which could well make 2008’s $145/barrel oil price seem like a good deal.
• The US has 5% of the world’s population and uses ~25% of the world’s oil. Since it imports 65% of its oil from foreign sources, it is more economically exposed to the price of oil than any other country on earth.
• The US’s financial footing is now much weaker than it was in 2008 when oil hit $145/barrel. What happens when the next peak oil price spike hits? Since oil is priced in US dollars, and since the US dollar will weaken going forward, will this supercharge oil prices to an even greater extent than in 2008?
• US policymakers continue in their attempt to address a commodity problem (oil) with financial tomfoolery.
• Will the BRIC countries succeed in their effort to create a new world currency to insulate themselves from wrong-headed US economic and energy policies?
• The US needs a strategic comprehensive long-term energy policy.
• If Obama is sincere about reducing foreign oil imports, why has he not embraced this vehicle and why has he not fired Energy Secretary Chu for saying he is “agnostic” about fueling American cars and trucks with the US’s best energy resource: natural gas?
• Why are people against natural gas transportation just because they don’t like Boone Pickens or believe Pickens will become rich? Do they prefer funding Saudi Arabia, Iran, Russia, and Venezuela? The truth is the top-3 natural gas producers in the US contribute substantially less than 10% of the country’s total US nat gas production. The backbone of US natural gas production is the small independents and thousands of farmers and landowners. Why not fuel our vehicles with natural gas and funnel our money to fellow Americans as opposed to foreign oil producers?

From an investment perspective, foreign oil producers like British Petroleum (BP) and StatOil (STO) pay good dividends and will benefit from a weakening US dollar and higher oil prices. Brazil’s Petrobras (PBR) has locked up Chinese financing and will benefit not only from a weak US dollar and higher oil prices, but also from increasing production as its huge offshore oil fields get tapped. US firms like Chevron (CVX), ExxonMobil (XOM), and ConocoPhillips (COP) are undervalued and are long term buys. Occidental Petroleum (OXY) and Hess (HES) are more directly leveraged to oil prices than are the big three and may well appreciate at faster rates going forward. Oil service firms like Schlumberger (SLB), Transocean (RIG), and Diamond Offshore (DO) will perform well in the era of peak oil as the world continues its unwise addiction to gasoline based transportation solutions.

Disclosure: the author owns STO, COP, PBR, and SLB.

Comments

[Old Wizard:]

Fitz, After reading the immediate above comments, I thought I'd bring the discussion back to energy policy rather than diverting the discussion on the trade-offs of buying domestic as opposed to foreign oil companies in the event of predicted dollar value decline. The discussion is interesting, but I wonder how many purely domestic oil companies there are. Frontier oil comes to mind, but relative to the total value of so called domestic oil companies they are miniscule. The question I'd like to put on the table is what would have happened to our domestic car companies had we embarked on a crash program to convert existingvehicles and those being produced to natural gas driven vehicles. Further what would have been the impact on the existent dealer, parts supply and maintenance facilities and the unemployment picture? What if the country spent 50b starting in Jan.09 implementing this policy, would GM or Chrysler still have gone into Bankruptcy and would this not have served as a better transition to the car of the future than to artificially force a premature transition to plug-in electric vehicles? Even if these companies had to go to chapter 11, is it not still a better way to go than to spend billions more to convert existing plants to electric car manufacture and ,as Ford is already singaling, buy their required batteries from China in order to gain total price parity and time to market with Japanese already unerway competition. I'd be interested in your take, fitz, and the rest of the folks.

Jun 03 12:15 PM

[Michael Fit...:]

Andy: did you compare the oil companies i mentioned? did you notice today when the US dollar was stronger how STO and BP were down more in comparison to XOM and CVX? these stock movements (when the US$ is both up and down) over the past few years prove my point better than any other argument. so, i suppose we agree to disagree.

Crocodillian: glad you brought up chu's exact quote, because it is a perfect example of his wrong-headed thinking and why he should be fired:

first he says he is "agnostic" about using the most abundant, clean, and cheap energy resource in the US (natural gas) for transportation. nothing "nuanced" there. BAD ENERGY POLICY.

second: he wants to develop biofuels. ethanol?? switch grass? terrible use of increasingly vital water supplies not to mention the distortions in the food market resulting in inflation across that sector. didn't 2008 teach him anything? not only that, biofuels is just another way to keep us addicted to *liquid* fuels (i.e. gasoline derived from foreign oil imports) when we should be transitioning to gaseous fules (i.e. natural gas) once again, BAD ENERGY POLICY.

lastly, he uses the same old excuse XOM used to scare the hell out of congress in the 1970's: that using natural gas for transportation will strain the other uses (oh no!! we wont have gas to heat our homes!!). it's like a bush fear tactic! the truth is, US nat gas reserves are abundant, clean, and cheap. for a sitting secretary of energy to not understand the fundamentals behing the US's best weapon against foreign oil imports is almost criminal considering what is at stake. once again, BAD ENERGY POLICY.

*** ENERGY SECRETARY CHU SHOULD BE FIRED ***

oldwizard: to answer your question about auto companies and nat gas conversions, i think you would like to read hefner's book "the grand energy transition" where he describes how we could save the US auto manufacturers, dealers, and hundreds of thousands of jobs by converting existing american's SUV's (investments worth $30-50k) over to natural gas rather than expecting them to just junk them and buy EV's (a ludicrous expectation when all middle class americans are currently suffering mightily due to the oil crisis to begin with! i'm either very dense, or this is simply a no-brainer. it is so clear to me, yet our energy secretary, president, and auto companies just don't see it...one side is very wrong, and one is very right. i've been wrong before, but on this issue, i am like abraham lincoln once said: this is my opinion, and i am sticking with it until someone can convince me i am wrong. well, secretary chu's weak arguments are not convincing to me at all, and i would LOVE to debate him on CNN for a half an hour on the issue. after that half-hour, about more americans would have my opinion that he should be fired and go back to studying particle physics or whatever.

Jun 03 01:14 PM

[user396040:]

That was my initial reaction - but the electric engine is sooo much more efficient - especially for stop and go city driving that the plug in hybrid may turn out to be a compelling solution for suburban commuters. As I understand it, the gasoline engine is about 18 percent efficient(much less so in city driving) and the electric engine is about 88 percent efficient. This compensates for the large loss of energy assoicated with the generation of electricity. It should also be noted that utilities have improved plant heat rates (how many btus necessary to generate a kwh) and may do more in this direction as time passes. Another factor to consider is that electricity can be generated a number of ways and so, as technology develops, new energy sources can be readily harnessed as transportation fuels. I am not sure how this all nets out but I think it is a key question to be analyzed as we go forward.


On Jun 03 12:12 AM Michael Fitzsimmons wrote:

> isaac: yup, OIH is great and so is FSESX. however, i sure learned
> a lesson wherein on this website, in 2006, 2007 and early 2008 i
> said energy service companies were my single best investment choice.
> and they were...for awhile doing great...and then they dropped what,
> like 65% in 2008? ouch! that said, i didn't sell mine...and i hope
> no one else did. they have been on fire so far this year.
>
> Andy1234: since you mentioned australia, they are a resource "have"
> country along with russia, brazil, and canada. i expect all those
> four currencies to outperform the US dollar in the years ahead. so,
> yes, i agree with you completely..invest in those countries and their
> resources. not only do you get the resource pop, but the currency
> translation as well. and thus, STO, which i don't think you like
> for some reason, but is the same exact scenario.
>
> Jimbo: you're too kind. yes, the dutch and i didn't realize until
> recently how big the italians were into NGVs or at least bi-fuels.
> wrt "weird behavior of Congress", i must say it does appear to be
> a coordinated effort to weaken the US so that it can be raped, pillaged,
> and plundered. i had great hopes for obama, chu, and podesta. but
> alas, when the rubber hits the road (and for me that is reducing
> foreign oil imports), we might as well have bush/cheney in office.
> it will be another wasted 4 years i am afraid. that will make it
> 12 years in a row in which we could have (should have) been moving
> toward natural gas transportation and did not. so all the economic,
> environmental, and national security problems just keep getting bigger
> and bigger...and yet Congress (and president obama) does nothing.
> big dissapointment. huge.
>
> jimboy: sure, oil is priced in US dollars in a worldwide market,
> no issue there. to make my point, take a look at STO's stock price
> in relationship to the US dollar index. last year, when the "flight
> to quality" rush was on (chuckle chuckle...) and the US dollar skyrocketed
> (to my huge surprise), STO just got hammered. now, over the past
> few weeks as the dollar has weakened, look at STO's stock price reaction.
> with respect to norway gov involvement, yet they are involved and
> yes they do tax. however, read Albert Meyer's comment on my recent
> STO article:
>
> seekingalpha.com/artic...
>
>
> on executive compensation. in addition, foreign countries currently
> unfriendly to the US like working with STO. all i can say, i said
> in the aforementioned article. i think STO is a great way to play
> energy and, for US investors, an insurance policy against weakening
> US economics.
>
> user396040: you bring up an interesting issue and perhaps one day
> i will do such an analysis. one thing i can tell you on efficiency
> is that the fewest number of energy translations is usually (but
> not always) the best. in other words, my gut tells me burning natural
> gas directly in the car would be more cost efficient than burning
> natural gas to generate electricity to charge the batteries. there
> you have power loss in the transmission lines, some in the transformers,
> and more still during the charging process (IR drop in the wires
> themselves, etc). however, as i so often mention (i know, i am boring
> and need new ideas...), the BEST transportation solution i know of
> is that nat gas/electric hybrid (toyota camry concept car). think
> prius running on nat gas instead of gasoline (no plug-in). anyhow,
> thanks for the idea and if i run out of stuff to do i might do that
> analysis for the fun of it (i must be getting old to do that for
> fun huh?).
>
> Mmarrkk: well, my dad bought one of the few Fiats in louisiana back
> in the 1970's, and when our neighbors paying out the nose for gas
> to fill up their american made tuna boats, we were getting over 30
> mpg and i don't remember the car ever giving us problems except for
> once the fuel filter needed to be replaced. Honda doubled their production
> of the GX this year, and they are all already spoken for by dealers
> (i got that from NA honda rep). there is already an EPA certified
> kit for the silverado and many other vehicles. see this list:
>
> www.ngvamerica.org/pdf...
>
>
> old wizard: yeah, i didn't think you'd be very happy with chu either.
> i'd fire him in a new york second if i was obama. that said, i wouldn't
> mind if my roof was white (other than it would look freakish) as
> it hit 90 here today and my AC turned on for the first time this
> year (always sad for me when that happens). anyhow, thanks for supporting
> nat gas transportation...i hope you are making these same good arguments
> to your elected officials. who knows, maybe a miracle will happen
> and HR 1835 will pass. speaking of that, i wonder how that bill is
> making its way through committee...?
>
> jan300: your comment was directed at another, but yes, i believe
> i know what "clean coal" means...it means whoever believes in it
> is a moron: first of all, coal is environmentally destructive simply
> to mine it. secondly, there is no way anyone can convince me that
> they have figured out how to pump CO2 into the earth economically
> or practically. the only successful attempt has been in colorado
> where exxon is pumping CO2 into gas fields to optain natural gas.
> i am all for that example, but that is the exception, not the rule.
> plus, they had to build a rather long pipeline to get the CO2 from
> the coal plant to the gas field. thirdly, once the coal is burned,
> the dirty little secret is the "fly-ash" combustion remnants...a
> cocktail of the most toxic metals on earth at very concentrated levels:
> mercury, lead, copper, cadmium, chromium, arsenic, barium...well,
> just read about it here:
>
> en.wikipedia.org/wiki/...
>
>
> now, multiply that "fly ash storage pond" by hundreds all across
> the country. so, yeah, i know about "clean coal". it's a myth and
> an oxymoron and we should convert all coal plants to natural gas
> as soon as humanly possible.
>
> Andyman: you're cracking me up...how much action does the guy on
> the bus get?! bar har har har. thanks, i needed that. what you say
> is true though...chicks, in general, seem to be attracted to energy
> hogs. wrt GDP, it's only sustainable GDP that impresses me...the
> US economy is built on cheap oil in an era of peak oil. that is simple
> uneconomical and unsustainable and we are seeing the warning signs
> of that all around us after 2008's $145/barrel oil.
>
> OilFinder: yup, haynesville seems to just keep growing. now some
> guys are saying it may be the same field in which they are finding
> gas in eastern mississippi. last i read, it could be the 4th largest
> natural gas field in the world! and yes, argentina and south/latin
> america in general has alot of nat gas vehicles (motorcycles too).
> and yup, pakistan is all over it (i get personal emails from guys
> in pakistan on this issue). iran is headed that way too so they can
> sell more of their oil on the open market.
>
> thanks all!

Jun 03 02:38 PM

[elcopone:]

Very interesting article and comments. Thanks.

To me it's all very sad that our elected officials are still acting in the best interests of special interests and not for the country as a whole. Obama promised change. Each and every day that is turning into an empty promise. Not that I think McCain would have been one ounce better. Both parties really have much more in common than they would lead on - self preservation and special interests drive all their decision making.

How much longer can this go on? When will a legitmate alternative to the Blues and Reds come along that will actaully receive public support. It's all very disheartening.

Jun 03 05:51 PM

[Sovestor:]

Traders should watch the inventory level of oil and natural gas carefully not only in US but also in other countries. Inventory has been rising.

Jun 03 06:03 PM

[Crocodilian:]

Crocodillian: glad you brought up chu's exact quote, because it is a perfect example of his wrong-headed thinking and why he should be fired:

first he says he is "agnostic" about using the most abundant, clean, and cheap energy resource in the US (natural gas) for transportation. nothing "nuanced" there. BAD ENERGY POLICY.
----------------------...

Did you miss the point: "But remember, if we significantly shift our use of transportation to use natural gas. that will put a strain on natural gas use for industrial uses, for heating and other things . . . it’s a complicated issue.”

The decision to divert natural gas for use as a transportation fuel requires a conversion of our combustion engine architectures and petroleum infrastructure -- with massive costs-- and would put pressures on the activities which are presently supplied by natural gas (heating and electric generation)

I'd submit that while this may (or may not) be a good idea, the numbers aren't there to demonstrate that, and Chu's assessment that "its a complicated issue" is more correct than your assumption that its a simple one.

Jun 03 06:16 PM

[commoinsens...:]

agree but Mexico or Russia? either way it's not revenue in the us. end of story. Clean coal and ethanol, forget about it. unfortunatley we're not moving on any of the fronts we should be. It will take a much bigger shakeup than what we witnessed with 140 dollar oil to get people to focus. natural gas, elextric, nuclear and more efficient public transporation (i.e. mag lev rail etc..) need to be explored and moved on soon.


On Jun 02 08:42 AM SSALarry wrote:

> An excellent article and I agree on all points. We have had two
> energy bills in the last five years, which were nothing more than
> payoffs to lobbyists and campaign donors. Ethanol is a terrible
> idea that saves almost no energy, and costs the taxpayers a lot in
> subsidies.
>
> I have nothing against clean coal as I believe we should be moving
> forward on all energy fronts, but electric cars and an infrastructure
> to support it are years away. Natural gas for transportation seems
> to me, to be a quicker and easier solution.
>
> I would caution on one point, it is popular to say we import oil
> from countries that don't like us. However, we import the majority
> of our crude oil from Canada and Mexico, which I would consider allies..
> Venezuela and Saudia Arabia also supply a large amount of crude,
> however, we get very little from Russia and even less (maybe nothing,
> I'm not sure) from Iran. So I think it is a bit too simplistic to
> say all our money is going to countries that hate us and our choice
> is to use the bad guys oil or use our own energy.
>
> However, that is a small point, I enjoyed reading the article as
> I do all the authors posts, and agree with his overall sentiment.

Jun 03 10:37 PM

[Michael Fit...:]

user396040: you are right about recent efficiency gains in natural gas electrical generation. however, the thing that scares me about EVs on a grand scale in the short term is that it they would likely require increased coal consumption. when i hear obama and chu repeat "clean coal" as often as possible, it frightens me that they actually believe it is possible. of course it is not. regardless, i'd also be interested in the analysis you're asking for - it would be interesting and valuable.

elcopone: yup, i agree - both the republicans and democrats appear hell bent on destroying the country. my solution: i think the 50 states should come together and call for a constitutional convention. we should tear down the current system, scrap everything but the constitution and bill or rights, and start over with a flat tax, term limits, and elemination of the federal reserve. we also need to kick out everyone in government who used to work at goldman sachs...

sovestor: sure, inventories have been rising. but consider the SPR has less than 40 days of supply. in other words inventory would fall rather quickly if economic activity picked up. demand is down 7.7% or so over the past 4 weeks. if demand picked up, combined with lower rig counts, lower E&P budgets, and reduced OPEC supply, prices will pop again. it's just a matter of time (assuming world economic activity picks up at some point).

crocodillian: i simply don't agree it's a complicated issue. the natural gas supplies are there. that is a proven fact. look at supply growth the last few years. look at the shale reserves discovered over the past few years. so, supply is simply not a problem. for our energy secretary not to understand this, or refusing to acknowledge it because it doesn't fit his "clean coal" agenda is tragic. secondly, sure it will be a large investment to build out CNG refueling infrastructure and convert vehicles to run on natural gas. however, what is more economically viable for most americans - ditch their $40k SUV (which they wont get anyone to buy) and buy an new and expensive EV, or, pay a couple thousand (which costs should come down if we do it in volume) and convert that SUV to run on natural gas? also, home garage nat gas refueling devices should come down to less than $1500 in volume, allowing people living in the 130,000,000 homes currently connected to the nat gas pipeline grid to refuel at home. so, these things are not complicated at all, they just require addition and subtraction skills. now, you talk about the cost of converting to natural gas to the cost of staying addicted to foreign oil. we could convert half our cars and trucks to natural gas within 5 years, saving 6-7 million barrels of foreign oil a day. now, this money for foreign oil would instead go to american energy industrial companies, landowners and farmers as royalty payments, etc. etc. just like the interstate highway system, the inventions from the man on the moon project, the cross country telephone and telegraph projects, switching to natural gas transportation would pay dividends to all americans for decades to come and such a project would pay for itself very quickly with the savings in foreign oil. these are fairly simple calculations, so no, i did not miss the point, chu did. but the thing is, you know a nobel prize winning physicist has the brains to figure out something so simple. so, we know he knows what i am saying is correct. the problem is, the gov has an agenda...and that agenda is to "master" the american people and control us. natural gas transportation and refueling at home would allow american's to remain free, whereas addiction to oil eventually means it will be rationed and we can be controlled. so, don't be fooled by these statements by chu. think for yourself and look at the facts. it is not complicated...they just want you to THINK it is complicated and unsolvable. it's like health care. they act like that is sooo complicated an issue and can't be solved, yet countries the world over have solved it and do have great health care systems that work. bottom line, chu should be fired, but won't be because just like bush/cheney, obama doesn't *really* want to reduce foreign oil imports, he just wants to talk about it (like every president the US has had since eisenhower).

Jun 04 09:39 AM

[Andy1234:]

The problem with our system is every heartbeat has a vote. Those who have little to no stake in society have a vote.....and can literally vote in ways that have effects on people who have large stakes in society.....and this is ass backwards. The people who pay the most amount in taxes should have the higher voting power.

The way the system was intially set up was only male white land owners could vote. I don't agree with this.....but we could set up a voting method where only people who pay taxes would have a vote....and possibly the more taxes you pay...the higher the voting power. I haven't thought in depth about it....

but when you can vote for money....it will be the end of the republic (ben franklin)

The constitution is shit on by government officials.....we need to change government and get a ligit one set in place who actually follows the rules.







On Jun 03 05:51 PM elcopone wrote:

> Very interesting article and comments. Thanks.
>
> To me it's all very sad that our elected officials are still acting
> in the best interests of special interests and not for the country
> as a whole. Obama promised change. Each and every day that is turning
> into an empty promise. Not that I think McCain would have been one
> ounce better. Both parties really have much more in common than they
> would lead on - self preservation and special interests drive all
> their decision making.
>
> How much longer can this go on? When will a legitmate alternative
> to the Blues and Reds come along that will actaully receive public
> support. It's all very disheartening.

Jun 04 03:17 PM

[Andy1234:]

you must be talking about thermal efficiency......an internal combustion engine is around 36-40% or so from the numbers I have heard and read.

an all electric system might add complexity to the system and may or may not be more efficient.......I guess it depends on what the electric cars look like....and what fuel is being burned/used for electricity....because I highly doubt that all energy could be gathered from alternative sources in any meaningful way.

I suggest becoming more efficient.....it seems being more efficient in anything is always a benefit........with little to no downside. Forcing people to change or doing something completely different based on faulty reasoning or logic may not be the answer. I am not convinced of global warming causes.....while the earth may very well be warming.....what makes us so sure of the causes of the warming? Its difficult enough to prove simple problems in the engineering world....yet you take something very complex and draw direct correlations to something......yet its quite possible that CO2 is a byproduct of global warming...not the cause. Methane and other CO2 molecules are trapped in snow and ice....yet when this is melted its released into the earth. More and more CO2 is released from population growth and more cows, auto's etc....but we also have more rooftops, black driveways, roads, wtc radiating heat everywhere......I havne't seriously looked into global warming....but I highly doubt you can draw any conclusions with much confidence in any design of expirements.

On Jun 03 02:38 PM user396040 wrote:

> That was my initial reaction - but the electric engine is sooo much
> more efficient - especially for stop and go city driving that the
> plug in hybrid may turn out to be a compelling solution for suburban
> commuters. As I understand it, the gasoline engine is about 18 percent
> efficient(much less so in city driving) and the electric engine is
> about 88 percent efficient. This compensates for the large loss of
> energy assoicated with the generation of electricity. It should also
> be noted that utilities have improved plant heat rates (how many
> btus necessary to generate a kwh) and may do more in this direction
> as time passes. Another factor to consider is that electricity can
> be generated a number of ways and so, as technology develops, new
> energy sources can be readily harnessed as transportation fuels.
> I am not sure how this all nets out but I think it is a key question
> to be analyzed as we go forward.

Jun 04 03:27 PM

[Andy1234:]

I haven't tracked the difference in oil price and currency exchange difference and drawn any conclusions. Short term price fluctuations mean little significance.....using the stock market for any form of argument should not be used.....because as we know....markets are manic depressive and are often times emotional and irrational. Value investing would never exist...the warren buffets of the world and others investors wouldn't be who they are.....because everything would have a true reflection of the true intrinsic value. What actuality comes about is the market does not know the future like any of us.....and I am 100% sure that todays prices will be different 10 yrs from now...saying that at any static moment the market is 100% of the time wrong....otherwise you would NEVER have a stock move up or down since all cashflows are already reflected in the stock price:)


On Jun 03 01:14 PM Michael Fitzsimmons wrote:

> Andy: did you compare the oil companies i mentioned? did you notice
> today when the US dollar was stronger how STO and BP were down more
> in comparison to XOM and CVX? these stock movements (when the US$
> is both up and down) over the past few years prove my point better
> than any other argument. so, i suppose we agree to disagree.
>
> Crocodillian: glad you brought up chu's exact quote, because it is
> a perfect example of his wrong-headed thinking and why he should
> be fired:
>
> first he says he is "agnostic" about using the most abundant, clean,
> and cheap energy resource in the US (natural gas) for transportation.
> nothing "nuanced" there. BAD ENERGY POLICY.
>
> second: he wants to develop biofuels. ethanol?? switch grass? terrible
> use of increasingly vital water supplies not to mention the distortions
> in the food market resulting in inflation across that sector. didn't
> 2008 teach him anything? not only that, biofuels is just another
> way to keep us addicted to *liquid* fuels (i.e. gasoline derived
> from foreign oil imports) when we should be transitioning to gaseous
> fules (i.e. natural gas) once again, BAD ENERGY POLICY.
>
> lastly, he uses the same old excuse XOM used to scare the hell out
> of congress in the 1970's: that using natural gas for transportation
> will strain the other uses (oh no!! we wont have gas to heat our
> homes!!). it's like a bush fear tactic! the truth is, US nat gas
> reserves are abundant, clean, and cheap. for a sitting secretary
> of energy to not understand the fundamentals behing the US's best
> weapon against foreign oil imports is almost criminal considering
> what is at stake. once again, BAD ENERGY POLICY.
>
> *** ENERGY SECRETARY CHU SHOULD BE FIRED ***
>
> oldwizard: to answer your question about auto companies and nat gas
> conversions, i think you would like to read hefner's book "the grand
> energy transition" where he describes how we could save the US auto
> manufacturers, dealers, and hundreds of thousands of jobs by converting
> existing american's SUV's (investments worth $30-50k) over to natural
> gas rather than expecting them to just junk them and buy EV's (a
> ludicrous expectation when all middle class americans are currently
> suffering mightily due to the oil crisis to begin with! i'm either
> very dense, or this is simply a no-brainer. it is so clear to me,
> yet our energy secretary, president, and auto companies just don't
> see it...one side is very wrong, and one is very right. i've been
> wrong before, but on this issue, i am like abraham lincoln once said:
> this is my opinion, and i am sticking with it until someone can convince
> me i am wrong. well, secretary chu's weak arguments are not convincing
> to me at all, and i would LOVE to debate him on CNN for a half an
> hour on the issue. after that half-hour, about more americans would
> have my opinion that he should be fired and go back to studying particle
> physics or whatever.

Jun 04 03:34 PM

[Andy1234:]

Corrected below.


On Jun 04 03:34 PM Andy1234 wrote:

> I haven't tracked the difference in oil price and currency exchange
> difference and drawn any conclusions. Short term price fluctuations
> mean little significance.....using the stock market for any form
> of argument should not be used.....because as we know....markets
> are manic depressive and are often times emotional and irrational.
> Value investing would never exist if markets were 100% correctly priced...the warren buffets of the world
> and others investors wouldn't be who they are.....because everything
> would have a true reflection of the true intrinsic value. What actuality
> comes about is the market does not know the future like any of us.....and
> I am 100% sure that todays prices will be different 10 yrs from now...saying
> that at any static moment in time the market is 100% of the time wrong....otherwise
> you would NEVER have a stock move up or down since all cashflows
> are already reflected in the stock price:)


If the market was a good indicator of value.....then we would cease to have moves greater than a couple of percent.

Jun 04 03:38 PM

[Mmarrkk:]

Crocodilian: I have to agree with Fitz on this. Chu is a loser when it comes to energy policy. His concern about diverting nat gas away from power gen, etc. is so outdated its hilarious. Has he checked the gas storage reports lately? Maybe he should start reading those EIA reports every now and then. We have estimates of QUAD's of gas in the Marcellus and Haynesville (not BCF, not TCF but QCF's). Maybe that's getting a bit frothy but the point is we have huge resources. Companies aren't even drilling them right now due to the lack of market demand and storage. Why do you think all of these companies have cut way back on their drilling budgets and some companies are shutting in wells and/or curtailing production?

Chu might be a boy wonder genious scientist, but he's just not very practical nor knowledgable.

I agree with Fitz: Fire Chu Now!! And Fire His Boss Too!!! We can only dream!!!! (sorry Fitz, couldn't pass up a "bash Bobomma" moment).

Jun 05 11:21 AM

[phewtures:]

The only problem with the CNG strategy is that it makes total sense, and Congress doesn't do anything that makes total sense.

A friend of mine - now retired from Schlumberger -- conducted oil exploration for decades around the globe. He says the real numbers are not reported, and that the U.S. is sitting on some of the largest oil reserves in the world. He's seen it with his own eyes. The only issue (apart from the political winds of any given election cycle) will be the drilling capacity, which takes years to ramp up. But those technologies are making nice strides, too.

As for the the oil wars, perhaps the military-industrial complex is simply creating job security. Furthermore, various intelligence departments may be promoting the strategy of allowing other nations to pump out all of their 'cheap' oil until the day they run out. Then, and only then will we tap ours. By then the price will probably be north of $200 (in today's dollars), and Big oil and Uncle Sam will both make a killing. The treasury might even use it to pay down some of the national debt. But wait, ... probably not ... again, that would make way too much sense.

Can't comment on any oil investments; I don't touch them ... or any other stocks for that matter. As for the chart analysis, I'd pay close attention to the 80-90 area. Looks like a lot of resistance could be lurking around that level.

One final thought, there are some game changing technologies being incubated these days. Here are two little tidbits for everyone to ponder. First, if Albert Einstein was right (which he was) and my math is correct (someone should double check it) then E=mc2 implies that 30 lbs of anything contain enough energy to rival the annual output of America's two largest electric utilities, combined. Second, Max Planck, the father of quantum physics pointed the way on this one: one cubic meter of sea water contains enough energy to boil all of the oceans on earth.

And here we are, at the dawn of the 21st century, still fighting over oil.

Maybe I'll just get an all-electric Shelby Cobra with 1000 ft-lbs of torque and a 0-60 time of 3.2 secs. Very little coal here. Our local electric power supplier runs on two nuclear reactors and a host of hydro-electrics dams.

Anyway, good read.

All the best.

Jun 05 05:51 PM

[Michael Fit...:]

Andy: too bad you haven't looked at the US dollar movement compared to US oil companies and foreign oil company because it exactly proves my point. i don't see why you don't want to look at stock market behavior as an indicator for these investments (since they are in, obviously, the stock market). the girations of the US dollar last week, and the subsequent movement in the prices of these stocks, i think, proved my point. when the dollar was very weak, STO and BP (for instance) outperformed XOM and CVX.

Mmarrrk: hey, no problem, i have been bashing obama too. as i have said, he's way off on afghanistan, energy policy, and the people he is putting in charge of the financial regulation (shapiro, geitner, etc. etc. - same old NYC inner circle that birth madoff and milken and LTCM principals). like i have said in some articles, on the things that matter most (energy, finance, military) he has not made any significant changes from bush. yes, he has done some things on energy, but they haven't reduced foreign oil imports, and won't significantly do so. on finance and military, it's the same old bs. anyhow, your point that chu should read the EIA inventory reports is excellent. funny that guys like you and me should have to tell the energy secretary of the US to read his own departments energy reports. he should also take a look at the EIA's websites on worldwide oil production and consumption as he apparently not only doesn't have a clue about US natural gas, but he also doesn't seem to understand the amount of foreign oil we are importing. unbelievable. perhaps we can schedule him on donald trump's show. then americans might get interested (they love to be entertained) and perhaps we could hear "the donald" say "YOU"RE FIRED!"

phewtures: i have a friend that keeps telling me that the US is sitting on top of a bunch of oil off the east and west coasts. says we have the same kind of fields that brazil does. not sure i buy it, but i don't know for sure. i do know if we are waiting to produce it later, when is later? $145/barrel didn't make the "powers that be" behind this "hidden oil conspiracy" start pumping it...and look at the deep ka-ka we are in now. besides, for the US be oil independent, we'd have to produce the combined output of the two largest oil producing counties in the world: Russia and Saudi Arabia *combined*. now, i just don't know if that is possible..my gut tells me certainly not. and yes, E=mc2 means a few grains of rice has a helluva lot of energy in them which is why humans can exists on very small amounts of food for quite some time. that said, it's harnessing the energy in matter that matters (pun intended). hydrogen fusion would save the world if we could only figure out how to do it. research continues....thanks for the post.

Jun 06 05:08 PM

[longoil:]

Fitz,

I am not surpised with Obama ineptude in regards to energy issues. I suspected it all along (and hoped I would be wrong) since the Democrat debates, but it was confirmed officially when he appointed Steven Chu as energy czar.

There is a multitude of qualified individuals in the USA with a comprehesive knowledge of the issues involved that would have been a better choice by a quantum leap that includes the following people: Robert Hirsch, Matthew Simmons, Richard Heinberg, Kenneth Defeyes, Steven Leeb and Jeff Rubin (I know he's Canadian and would not be eligible, but he ranks with these individuals)

Jun 07 09:51 AM

[Michael Fit...:]

longoil: my choice would be: robert hefner III.

his book "the grand energy transition" deals with the energy issues facing america better than any other book i've ever read. hefner is obviously an expert on natural gas, but he shows a wealth of pragmatic knowledge on all energy sources. he is especially spot-on when it comes to the issues re coal. i imagine this is a result of coal taking over for natural gas in the electrical generation starting back in the 70s. what i don't understand is why john podesta (who wrote a review of hefner's book on the inside cover) doesn't go over and kick chu (and obama) in the butt and say "READ THIS!"

Jun 07 08:12 PM

[longoil:]

Fitz,

I have been trying to order "The Grand Energy Transition". It seems to have been discontinued from Amazon. Where did you get your copy ?

In regards to recent books I have read, I would highly recommend Jeff Rubin's book "Why Your World Is About to Get a Whole Lot Smaller""and "The Party's Over" by Richard Heinberg. Both deal with post-peak oil scenarios and possible solutions. They have a more positive outlook than James Howard Kunstler's books like "The Long Emergency", where he only paints a dire post-peak oil world.

Jun 07 09:25 PM

[Michael Fit...:]

here is hefner's website:
www.the-get.com/
there is a "buy now" link on the top right.
yeah, kunstler is pretty dire, but i can see why he feels that way. with our congress, president, and energy secretary - it's tough to be an optimistic.

Jun 07 10:13 PM

[longoil:]

Thanks Fitz !

Jun 08 05:53 PM