Bill Miller on Commodities and Peak Oil

From The Globe and Mail's November 21 interview with Bill Miller:

A lot of investors in Canada are obsessed with mining and energy. Why have you been a skeptic on commodities?

Well, we were wrong. There's two things. One of them is the secular case and the other's a cyclical case. Secularly, we have not been fans of commodities, broadly defined. That's because the empirical evidence and theory, both together, would indicate that commodity prices decline in real terms over time.

Extractive companies, by and large, don't earn their cost of capital over the cycle. They can be cyclically attractive-buy them when the cycle's bad and sell them when the cycle peaks---but generally speaking, they tend to be trading vehicles, versus investing vehicles. In trading vehicles, you've got to be right on both sides. We prefer things that we can invest in for five, 10, 15 years and earn large amounts of money.

The question now is, are we at a cyclical peak, or, as the bulls would argue, is it a secular change-that is, energy prices and copper prices and lead prices and wheat prices will now not decline in real terms from here. I think the jury's out on that.

You're still a skeptic on the peak-oil theory?

I'm not a skeptic on the fact that ultimately, production of oil and gas will peak and will go down. I'm a decided skeptic on the notion that we're close to that. This is one of those things you have in energy markets, certainly, and in gold, certainly where you have people who are believers. And they'll get an idea like Hubbert's peak in their heads and then any evidence which is against it, they'll throw out and any evidence which supports it, they are in favour of it.

Cambridge Energy Research just published another field-by-field analysis globally, where they're still making the point that production is going to keep increasing, and you're probably at the earliest 10 years away from a peak.

Comments

[bts]

It's funny that people like Miller still rely on CERA and Dan Yergin. They have been incredibly wrong in their forecasts of production and oil prices over the past few years. For more specifics, go to the oil drum.

[mkreisel]

Bill Miller has been wrong about energy ever since 2002. I doubt he has much credibility with respect to that. On the other hand, one of his most touted stocks, C, looks really ugly now.

[surgcare]

This guy is out to lunch . I heard from one of the companies that run the Alaskan pipe line on CNBC last week .He stated at the begnning around the late 60's early 70's that pipe line production was around 200,000 barrells a day. Now its 80,000 barrells day a quickly becoming less profitale to run . Also OPEC continues to say they can increase output but do not . Why do you think that is, they can't . If they could they would because they don't want the price of oil to raise either because then america and other countries will develope alternate methods of energy ,which they also do not want for obvious reasons. There is no question we're long past peak oil and in the not to distant future we will have an oil shock . GOOD LUCK.

[surgcare]

Additionally , the people who buy oil are not going to admit that there is a shortage for obvious reasons and of course I've stated why the oil sellers won't admit there inability to produce more oil .This is why no body is being very agressive in telling the truth about their trading of oil , leaving those less informed to speculate as to what the true story is .

[rwalling]

"Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day -- from 85 million barrels per day to 101 million barrels a day -- a 20 percent increase." - Daniel Yergin, CERA, July 31, 2005

November 24, 2007 - Two years later, the world is producing 83.92MM (August 2007 - EIA www.eia.doe.gov/emeu/i...) a day with an alleged 1 or 2MM/day spare capacity. Prices are at record highs.

Yergin and CERA is on track to miss the mark by more than two Saudi Arabias in just 3 more years.

Two years later, there has been a decrease in production. If spare capacity is not used during times of record high prices, when is it used?

Perhaps the reason for limited refinery capacity is that no one is willing to build 86MM/day in refining capacity in a world that has peaked at 85MM/day production and will soon be in permanent decline.

Yergin is a great historian and author, but has consistently been incorrect in his oil and gas predictions. Norway has some of the most open reporting of field data in the world. If they missed their decline, what chance do they have of predicting the decline of the Middle East where field data is a national secret.

My money is on Matt Simmons and T. Boone Pickens.

"Let me tell you some facts the way I see it, Global oil (production) is 84 million barrels (a day). I don't believe you can get it any more than 84 million barrels. T. Boone Pickens - May 3, 2005