$125 Oil Not Sustainable for the Time Being 58 comments
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These are the types of things you write and feel stupid about a year later, but I am going to go on the record and say it. Oil is at $125 per barrel and has been as high as $135. Even worse, talk has abounded about it heading to $200 in the next year. Anything is possible and ultimately, yes, oil will get to $200 per barrel. However, before it starts the upward climb to that level, the price of oil is going to level out around $80-$90 per barrel and stay there for a while. As for $200, again, it will happen, but maybe in 5-7 years – and definitely not in the next couple of months.
I am not a commodity trader. I am not very knowledgeable about oil marketplace dynamics. I do not own any oil stocks. And I have no political agenda to force these prices down. Certainly, if we do something bonehead like go to war with Iran, which could happen, just throw this article away. But, all things normal, oil is due for a big correction and to cease its gigantic upward swing that has occurred over the past 10 years.
I am not going to cite graphs about how the price of oil is spiking just as we are seeing a significant decline of gas consumption like one we have not seen for a while. I am not going to cite the elements of the U.S. recession or even a global economic slowdown that threatens to seriously damper demand for petroleum. I am just going to look at some very basic, almost superstitious items that indicate to me this thing is about to blow up.
1. Stupid Headlines
When oil touched $129, a news item had the headline: "Oil closes at $129 – Going to $130." Are you serious? That is just the worst headline ever. It reminds me of the Internet stock days of 2001 where people were posting these insane price targets on companies like Yahoo, Qualcomm, and others. The price targets were basically suggesting that the stocks would go up forever and ever. Impossible and many investors got caught holding the bag.
Remember this headline about Qualcomm (QCOM) in December, 1999? Qualcomm jumps on $1,000 price target. The stock was basically at $700 per share, split adjusted, back then. Where is it today? $392 split adjusted. As for $1,000, it never came close.
With the stupid headline of oil hitting $129 and then saying it was going to $130 and nothing was stopping it, well, that is just irrational stupidity. This is where the average retail investor finally gives in and buys oil stocks to ease the pain at the pump – just to get massacred. Of course, oil did breach $130, but the stupidity was further amplified when oil was at $135 and the entire Fast Money crew suggested betting the ranch on going to $140. It never hit $140. It may, of course, but when the entire world thinks it is going up, it may be time to look the other way.
2. Yields Getting High
If you own a stock that pays a dividend, it has a dividend yield. If a stock pays $1 in dividends per year and is at $40 per share, that stock yields 2.5%. I will let the math majors take over. It is akin to the interest rate you receive on your savings or money market account. Pfizer (PFE), for instance, is at 6.6%; Merck is at 3.9% (MRK).
If you want crazy yields, turn to the BP Prudhoe Bay Royalty Trust (BPT) that will earn you 11.2%, Penn West Energy Trust (PWE) that is yielding 13.2%, or Permian Basin Royalty Trust (PBT) at 10.1%. That means, assuming the dividends held steady, you would be earnings a near 'guaranteed' 11.2%, 13.2%, and 10.1%, respectively, on your money.
That sounds easy. You can borrow money on margin for 6%-7% or even run up your 0% intro rate credit card and just earn the difference. Yields are great, but the reality is, investors have always been told to be wary of high dividend yields. The trusts, of course, are supposed to pay out a higher rate of return. They are high risk investments as the amount of their payout is totally related to the price of oil – the higher the price of oil, the higher the payout.
For instance, BPT used to be under $10 per unit back when oil was at $10 per barrel; it has come close to $100 per unit. There is no question that BPT has been good to patient oil investors, but the party may be over. Take a look at the 5 year and 10 year average dividend yields of these trusts and others. For instance, BPT is at 11.2%, but the past 5 years, is at 9.8%. PBT sports a 5-year average yield of 8.2%. If you go back 10 years, you will find these average yields are even lower. What does this mean?
If BPT historically at an 8%-9% yield, how come the units are not trading at $120 (they are currently at $95)? You can see a similar relationship back in the late 1990s when BPT was sporting double digit yields, but everyone thought the price of oil was going to keep dropping to nothing and the price of the units were overly depressed. Nobody wanted oil and the units would pay you handsomely to own them. Now, everyone wants oil and you are getting paid handsomely at the same rate to own them? It just does not make sense. In short, BPT, from a historical standpoint should be at $120, but it is at $95 and the secret is out.
My point is that the price of the units may remain the same, but as the price oil falls, the distributions will decline. For instance, if oil were to hit $200 per barrel in a year, you would estimate the BPT yield to be over 17%!!! Doesn't everyone know it is going to $200? Apparently not because the units are trading as if the distributions should be more in line with $80 oil. At $80 oil, at current levels, BPT would be yielding roughly 8.3%, far more in line with historical numbers.
Now, this is not exactly apples to apples and there are many variables, but it leads me to wonder if the big buying in these oil derivative positions is done. If that is the case, it could suggest that big chunks of money think the oil price party is over.
3. The Rich Are Complaining
When people with incomes in the top 3% of the population are complaining about gas prices, you must take notice. Certainly, nobody wants to spend money, but regardless of prices, there is always a group of people that do not complain because it really does not have a material impact on their finances. When people earning $100,000+ per year are genuinely complaining about how high gas prices is effecting their home life and decision making, that is when the impacts have literally filtered across the board. That is, there is no place the pain of the oil prices have left untouched.
Over the long term, the price of oil will likely continue to rise, but historically, it has risen somewhat in line with what people make and earn. If you were making twice as much, paying double for gas would not be such a big deal. But when your income is stagnant and prices have soared, there are problems. With the high oil prices effecting everyone, further rises in prices are simply unjustified from a marketplace standpoint.
4. The Chrysler Guarantee
Chrysler is offering a three year guarantee of $2.99 per gallon on gasoline. That is, you will pay only $2.99 per gallon of gas for the first 12,000 miles each of the next three years.
Of course, there are restrictions, but let's just do the math. At 25 miles per gallon and 12,000 miles, that is 480 gallons per year. If gas prices are at $4 per gallon and some think they will go to $5, well, that is an extra $500-$1000 per year or $1,500-$3,000 over the three year tenure that Chrysler is on the hook for. Do you really think Chrysler can afford $3,000 per car of just giving money away? Marketing dollars and rebates are one thing – buying something high and selling for less, well, makes no business sense. It is not known that this marketing ploy will work, but it could be a double dip for Chrysler.
If it works, Chrysler sells a bunch of new cars and if gas prices go down to $3 per gallon, there will be far less exposure than $3,000. Chrysler may even count on people not caring about gas at $2.99 if it is at $3.25. If gas goes to $2.75, well, then the marketing ploy is worthless to the consumer. I'd personally rather have $3,000 off my vehicle purchase. Perhaps gas and oil prices may not retreat too far from $4, but gas prices reaching $5-6 per gallon and staying there and causing Chrysler a world of hurt, that is even more unlikely.
I am not really sure what is going to happen – nobody really knows. Prices may remain high during the summer months which is the 'driving' season and with people freaking out about hurricanes. But, all of the intangible pieces for a huge collapse in oil prices are coming together. Hopefully, it will provide some financial relief for consumers and our wallets and frankly, just bring things back to some level of normalcy.
Disclosure: None
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This article has 58 comments:
As a result, you actually make a very good case for investing in these trusts, since your basic premise that production will decline, may well be wrong.
In times like these, one must decide which 'expert' to listen to. Kurt Wulff has been 'spot-on right' about oil prices and further, his selections for income have also been spot-on. I am going to follow his advice, and not someone who admits to having no background or knowledge on the subject.
I should also point out that there well could be another way for the yield to decline on the energy income trusts, both the ones you mention above, and the ones you don't mention..........and that would be for the stock price of the trust(s) to go up, and bring the yield more into line with quoted interest rates. I think that this is the more likely route, and makes these trusts even more attractive as an investment.
IMHO
Anyway, you actually argue that the high-dividend oil trusts are undervalued because they have not kept up with the price of oil. Do a chart at Yahoo to see this, use OIL for the price of oil.
You forget that current dividend yields are based on the trailing price of oil, i.e. $80 a barrel over the past year. If oil falls back to this level, they are now fairly priced. If not, their yield will move up further, drawing more interest, thus pushing up the stock price.
In your worst case example, you worry that their dividend may fall to 8%. Given that stocks pay less than 2%, I will not lose any sleep.
Ordinarily you might rely on the charts--if supply were adequate. But it's not.
PWE, for instance, has been lashed weakly by perennial lightweight David Bui..even though..wink..wink..he... a PWE investor! It's Trust structure..as well as Linn Energies PTP (Publically traded partnership) structure allow then to pass thru what would otherwise be huge hoarded cash flows to investors. Bith have very strong sage haven resource bases..but why bother with a few facts when you can just throw some ill informed opinions around! Have a nice day.
Having experienced the oil industry of the late 70's and early 80's, I have seen the business go from boom to bust. I am a small investor (100 share range) and try to buy low and sell higher. I have invested in Williams when it was 3 (2003) and sold in the low 20 (2006), I now live in a house instead of renting. My biggest problem is determining the whens, when to buy, when to sell.
I also follow the oil shipping companies. I have found them to be very cyclical in nature, low in the summer time and high in the winter this normally the same thing with oil and gas trust.
So the question is do you have any insight to when the drop will happen?
My point is when the entire world is acting and thinking that the price of oil will go up forever and ever, well, maybe it is time to quantify the downside. Extreme peaks and troughs in a marketplace are typically characterized by irrational behavior and activity (my above article may certainly qualify) - and the subsequent collapse is often just as chaotic and irrational and often cannot be explained with logical thought.
I don't have the sophisticated data to back up the above - I will let the experts fill in the blanks. If I am wrong in my base assessment, then I am wrong, and best of luck to the oil longs. But if I am right, I take no credit - I just know I won't be holding the bag.
My opinion:As long as demand exceeds supply, futures traders can put te price higher, what is there to stop them? Once supply is greater then demand and the futures traders want to go short in mass then the price will drop.
SF94127, I am thinking that you mean to quote T. Boone as saying Demand is 86 mbpd, and Supply is 85. I would never argue with him........he knows more about this subject than all of the rest of these writers combined, and he is smart enough to not tip his hand.
Hopefully, future articles here will be a little more researched, or reasoned that this article (for lack of a more acceptable term). I agree with Georealist..........Do... anybody preview this stuff before it is posted? Surely someone on the bear side can do better than this. And if not, oil/gas is surely going higher, as there seems to be no logical reason for it act differently.
Zeeko
So how do you reconcile the implication of PWE reducing payout when it was sustained at $40 - $60 versus your pretty resolute $80 - $90 target?
You make some great points on top indicators - I would add to your list what another seekingalpha author brought up - GM and Ford just cried uncle and dumped their SUV and truck production
And unless Chrysler has no risk management department, they are buying the oil futures and driving up the price of oil (making the deal appear even more attractive). So Chrysler's promise makes it seem even MORE likely that we'll see $200/barrel oil soon.
I wouldn't be surprised if other car dealers also soon buy TONS and TONS of oil futures, driving up the price of oil, then making gas price guarantees. The car manufacturers have the money and knowledge to make these guarantees that average American's can't (no money) or don't know how (future contracts, ETF's).
If you bought BPT a year ago (admittedly, a little late to the party) and reinvested the dividends, like I did, your current yield would be 17% now already. And your position would be worth about 50% more than when you bought it, including those reinvested dividends.
If you want an intelligent, detailed explanation of the factors affecting BPT's distributions (and predictions about the next one) go to its Yahoo! message board and read the posts of "roundrobinjack" ( messages.finance.yahoo... ).
"Doesn't everyone know it is going to $200? Apparently not because the units are trading as if the distributions should be more in line with $80 oil."
Most oil stocks, not just royalty trusts, are trading as if oil were at $80 per barrel. That's because of two things, in my opinion: most of those who were most bullish on oil have been buying the commodity itself (as Jim Rogers had been suggesting) instead the stocks, and because most stock market money still agrees with the writer of this piece that oil is heading back to $80 per barrel any day now. Look at the multiples on oil stocks. That's why there's probably more upside in selected oil stocks at this point than in oil itself, due to the inherently leveraged relationship of commodity-producing company profits to increases in the prices of the commodities themselves.
A simplified example: consider a hypothetical oil production and exploration company that had costs of $40 per barrel last year. When oil prices were at $70 last year, its profits were $30 per barrel. What happens to those profits when oil doubles in price to $140? Do they double also? Assuming costs remain the same (they don't really, but this is a simplified example) the E&P's profits go from $30 per barrel to $100 per barrel, so they more than triple. When the market starts pricing in $120 and higher oil into oil stocks, you will see earnings estimates start going up and share prices rising accordingly.
It goes without saying that when (not if) demand destruction takes place, the price fall will be equally dramatic. Intuitively, you might even think it will be MORE dramatic when you consider the high leverage ratios of the players in this market.
The U.S. currently drinks about 25% of the world's oil. Almost all of that is used for transportation in some form, and about half of it goes into our gas tanks (What's in a barrel of oil? ...easy google). Looking at the American driver's habits as recently as last year, how much of that is truly necessary? Put another way, can a significant chunk of that fat be carved away?
I would suggest that it not only COULD be carved away, but that it's being done even now. Data is showing that people are driving less. Fewer people are buying SUV's. More people are taking mass transit. Further, internationally countries are reducing citizen fuel subsidies. Finally, all of these things are happening at the same time. These adjustments will probably bring demand back under global production capacity, and the price of oil should make an imminent pullback (...within the next three months? ...tomorrow???). Again, given the leverage available in this market, the pullback will be painful.
The absolute denial of the current reduction in demand amazes me. All deference due to T. Pickens, his comment that demand is CURRENTLY exceeding supply is self-serving. The price spike happened no later than the instant demand exceeded supply, and probably before. The obvious implication is that any reduction whatsoever will bring us back in line, and the price will react accordingly. He is certainly not ignorant of current demand trends, but don't believe for a second he's going to advertise that fact to you.
Short term: sharp pullback. Long term: one or two years after the pullback demand increases again, but this time there won't be as much fat to trim and it will be a lot harder to bring back down.
Long term oil super bull here, but for God's sake don't buy today.
No one is denying that Americans are driving less; the issue is that the growth of global demand is still exceeding the growth of supply. Yes, Americans are driving about 4% less after a doubling in the price of oil, but in its last short-term energy outlook, the EIA estimated that global demand would still grow by 1.2 million barrels per day this year, despite the decline here. They also estimated taht global supply would increase by about .6 million barrels per day (net).
The EIA will publish its next short-term energy outlook on Tuesday. Give it a look-see.
Sorry guys and gals, but I have to ask: Are you an Obama supporter? An Environmentalist maybe? Belong to the Flat Earth Society? Believe that Man never landed on the Moon? Still trying to save the habitat of the Snail Darter? or All of the above.
Oil will hit $200 or more before BHO takes office. If McCaine wins, I withdraw the prediction.
I expect the Israeli's to hit Iran's uranium enrichment facilities, Iran to try to block the Straits of Hormuz.
Or did everyone miss Iarael's statement that such an airstike was "Unavoidable". The guy who made that statement is expected to be Israel's next PM.
Clinton talked to the North Koreans during the Mid-90's, 10 years later they were testing missiles and Nucs. Now BHO wants to talk to Iran. The Israeli's won't wait for him to get into office.
They don't want to drill on the shelf.
They don't want to drill in Anwar.
They don't want to build more nuclear plants.
They don't want to build more refineries.
Where do they think the nation will meet its energy needs, windmills? What morons.
Of course what goes up goes down and then up again and then down; but you don't know when and how much. You just have better or worse guesses.
What is really wrong about is saying that everybody is talking about the oil going up and up. Well... ever since the oil hit $70 I'm hearing from 50% of the "experts" that this price is not sustainable @ $80-90-100-110-120-130... what makes you think 130 is any more specific a number than anything else? of course it will blow some day, when the balance - that nobody really knows - will be surpassed so much that the price will tank; but since nobody really knows the real value/price/balance - no matter what every other expert says - nobody knows when it's overpriced; so until then we live with the 50-50% opinions; so those 50% that are bulls gonna be right until it climbs and those 50% that are bears will be right when it will tank; but don't thing you know it all; I wish gas was cheaper but don't forget that Europe lives with $9/gallon and even the poor E-Europeans pay $8/gallon.
US gas prices have always been a joke and a dream. Now that you finally woke up have a nice sunny day with lots of wind and rivers to flow and waves at the shore if you see what I mean. Yeah, I'm not really interested in the oil bubble but yes again, I'm long solar stocks 'cause the Sun is one huge power-plant and technology is getting cheaper while oil will end when we suck up the last dinosaur... or the last drop of intelligently designed juice... sun sun sunny sunny days...
When the oil minister of Saudi (or was it Syria) spoke two weeks ago, he made it abundantly clear that there is NO LOGIC behind the prices being what they are, and was just as clear that they were laughing all the way to the bank while the insanity was continuing. Smart people all over the world are seeking logical explanations for oil prices being driven by the insanity of irrational human behavior.
FEAR and GREED are the drivers of this market, not peak oil, not the colapse of the US Dollar, not excess demand, not China, not a verbal shot over the bow of the Iranian politboro. The speculators are having a ball getting their daily dose of adrenaline. One day in the not so distant future, this will all correct itself. I am just another bozo on the bus with my better than average education, calling a spade a spade.
There is so much US-egocentrism oozing out on the pages of SA that few acknowledge the pain the rest of the world nations feel in their own wallets when they pump the goo into their tanks. Demand will fall, perhaps not for long, but surely enough to reduce enough fears and enough to knock the greedy specultators off their bubble. More highly educated smart people will lose their shirts thinking they had this whole thing figured out. History will again repeat itself in this scenario.
This bozo predicts oil back at $105-110 by year end.
According to T. Boone Pickens (who I think knows more than most people regarding oil production) quoted by bloomberg.com April 17, 2008 "There is only 85 million barrels of oil globally in the market coming a day and I don't think you can increase that 85 million,'' Pickens said.
We are well past peak oil production and the now difference is being made up by Gas-to-Liquids, Oil Sands, Deep Sea drilling and other technologies that are desperate measures to extract the world's remaining oil.
Current oil prices are not a bubble, but simply Economics 101. Decreasing supplies, increasing demand and an inelastic commodity with no practical substitute.
Even Alan Greenspan recently stated that current oil prices are not a new bubble.
" ... skyrocketing prices for oil and other commodities, notably grains like rice and wheat, do not signify the growth of a new market bubble following the ones in U.S. housing and, earlier, in technology stocks."
See www.canada.com/montrea...
Since our whole nation and economy is built on cheap oil, this will cause a great deal of pain. Total oil reserves are estimated a 2 trillion barrels of which over 1 trillion (the easy half) have been used. Many producing wells are now in decline and any new sources are much harder to get to. World demand is rising and many countries are controlling oil for national purposes. Even Iran knows that oil is limited and needs an alternative source of power. Political situations and competition for oil will itself drive up prices. Out of the remaining amount of oil, we may only get 50% of it because it takes energy to get it out. All of this points to an upward trend. What thing would make it go down? Will there be some massive, easy to pump oil discovery? Will there be a giant slump in world demand? Will the US suddenly get huge sources of alternative energy and have everyone in HEVs in the next 5 years? HEVs will demand more electricity. I don't see much to drive oil down.
You may not be an expert in the oil sector, but you obviously have a good sniffer for bovine scatology—and it’s swarming all over the place from T. Boone’s false claim that we are using more oil than we’re producing (that’s why he was short oil big time last week in an attempt to hedge his long oil bets) to the all-of-a-sudden huge increase in China and India’s oil usage. (no one knows what China uses or stores, because they refuse to report the figures; every figure you see is a guestimate, and India’s oil usage has actually declined)
What you’ve run into on this blog is an enormous amount of children who’ve swallowed the one-sided Stalinist-like propaganda that the touts at the Big New York Houses have fed them through the one-sided financial media—which tells everyone—as Jim Cramer did the tech stocks just before the crash in March of 2000—to buy, buy, buy, and keep buying, because prices are high now and they’re going higher.
Once the downturn in oil prices gets under way and these touts jump on the sell, sell, sell side—stating then that the world is flush in oil and every nation has cut back its usage—they’ll jump to another sector yelling buy, buy, buy, and the investing public will go for it again.
Last week was an anomaly—oil is due for a huge pull back. It was set to do so last week when, all of a sudden, out of nowhere and for no new reason the Israelis threatened Iran. The Israelis may have been long oil, but this won’t last.
Due to the vast amount of propaganda about the earth’s running out of oil and burning natural fuels causing every disease from obesity to cancer—plus the fact that the American investing public will go for anything (remember the Y2K Con, the Saddam Hussein madman with WMD about to strike the world claim, and more recently the same touts that are now touting an ever-rising, non-stop oil price increase were the ones last spring touting the home builders and the financials?)
It’s the same scam run over and over on the investing public. It’s not really a conspiracy (except at the bottom of the lie), because many touts believe the propaganda—just as most of these young pups do who’re calling you names for voicing a badly needed opinion; but it is a phony story that eventually begins to propagate itself. And the originators of it and the Big Brokerage Houses are the ones that make all the money.
The suckers that fall for it and buy in on top of the early momentum players get slaughtered, just as they did when the Dotbomb exploded in the world's face. (remember when the Big House touts told everyone that things are different this time; the Internet has changed everything, and there's no end to how these stocks can go, even though they're not making any money?)
Obviously, most of the children knocking your article werent' around during those times.
But we’re at a point now that no amount of charts, reason, evidence, and truth will change the perma-oil-bulls’ minds.
Thanks for your opinion: Rebeldog
You've made the most intelligent observation of ALL the posters here. I can't believe how friggin' NARROW-MINDED and in some cases downright ignorant some of you posters are. Some of you haven't even the sense to correctly interpret what the author wrote. Others take his very admission that his opinion is based more on common sense and "metrics" that are not especially popular amongst today's oil "investors" - than on popular techical analysis - and proceed to beat him up for it! Jerks! It's his OPINION, for Cris' sake - and what most of you ignoramuses wrote is no more than opinion, too. What qualifies YOU to even respond? All you do is parrot back what someone else has already said...you don't speak an original thought of your own. At least the author is up-front with his qualifications (or lack thereof) - while you dilberts imply you've got it all figured out. Arrogant lemmings!
Responders on SA are more and more taking on the flavor of the Longs one finds on all the other messgae boards - where anyone who shows ANY sign of doubt that the stock de jour is headed anywhere but up is automatically labeled a "short" - and is severely chastised - AS IF THERE WERE SOMETNIG WRONG/IMMORAL with being short. 95% of what you find on those boards is no more than a friggin' circle jerk - with some posters actually "cheering" every little uptick and "talking" to the stock as if it were a person!
I thought SA was different - but I'm seeing more and more evidence of a migration of these block-headed lemmings to SA. Have you guys ever pondered the significance of the title of this forum? Some of us (used to be MOST of us) are actually trying to reach logical conclusions based on ALL the input we can get. If we don't agree - we usually do one of three things: Ignore, i.e., not respond to material that makes no sense to us - or request amplification - or provide a differing view - ALL THE WHILE RESPECTING the author - no matter how much we disagree.
Why don't you blockheaded lemmings go back to the Yahoo boards and leave SA to those who want to hear ALL SIDES to an issue - not just a regurgitation of what YOU think is true.
THERE IS NO SHORTAGE OF OIL... IT'S SIMPLY THAT THE DAYS OF FINDING EASY TO DRILL CHEAP OIL ARE FOREVER OVER.
T BOONE said, We're at 85 million barrels consumption PER DAY AND we're going to start a slow drift down regarding supply.
AND THIS SUPPLY WILL NEVER CATCH UP THIS DEMAND.
NOTHING magic is going to bring US back to $2 a gallon gasoline because now what WE ARE doing is just filling the gap.
If you're at 85 million barrels PER DAY now, he said, it's going to start to come down to 82, 81, 80.
So everything that you find now in the ground is going to replace that gap to bring you up to 85 million barrels a day. AND hopefully bring you to 87.
But then you have another line of demand and that's going up.
So THE gaps are getting Bigger and Bigger.
WE need to go drill and get everything WE can, but WE'RE no longer in the situation where we're going to have a Snap Back.
WE ARE IN A CRITICAL ENERGY 911.....!!!!
T BOONE SAID WE HAVE WAITED THIRTY YEARS TOO LATE TO DRILL.
EUROPE IS DRILLING LIKE CRAZY RUSSIA IS DRILLING AND ALL CONGRESS WANTS TO DO IS BLAME THOSE EVIL OIL COMPANIES FOR MAKING AN AVERAGE GROSS PROFIT OF BETWEEN 7 AND 8 PERCENT....
LISTEN I PERSONALLY MADE A VERY COMFORTABLE LIVING IN THE RETAIL FOOD INDUSTRY WHERE GROSS PROFIT ON FOOD IS BETWEEN 33 AND 50%...AND ALWAYS HAS BEEN.(WHERE IS THE OUT RAGE?)
OUR OWN GOVT HAS STOLEN FROM US ON THIS ONE.
THE STATE YOU LIVE IN MAKES MORE PROFIT ON A GALLON OF GAS THAN THE OIL COMPANIES DO...THIS IS WHY THE POLITICIANS KEEP THE GENERAL PUBLIC LOOKING THE OTHER WAY BLAMING ALL THOSE EVIL OIL COMPAMIES...WHAT A CON.........
UNTILL THE DAYS ALT-ENERGY ARE IN FULL SWING AND PRACTICAL I'M OF THE OPINION THAT WE MUST
DRILL HERE DRILL NOW !AND HOPEFULLY WE WILL PAY SOME LESS.
CONGRESS NEEDS TO GET OUT OF THE WAY AND LET THE DRILLING BEGIN...WE HAVE COME A LONG WAY WITH CLEAN PRACTICAL RETRIEVING METHODS...IN THIRTY YEARS
ALT ENERGY SOURCES ARE COMING BUT IT'S GOING TO HURT UNTLL
THEY ARRIVE....BUT UNTIL THEN THERE IS GOING TO BE FAIR PROFIT IN OIL AND IT'S INVESTORS FOR A VERY LONG TIME.
And unless Chrysler has no risk management department, they are buying the oil futures and driving up the price of oil (making the deal appear even more attractive). So Chrysler's promise makes it seem even MORE likely that we'll see $200/barrel oil soon.
I wouldn't be surprised if other car dealers also soon buy TONS and TONS of oil futures, driving up the price of oil, then making gas price guarantees. The car manufacturers have the money and knowledge to make these guarantees that average American's can't (no money) or don't know how (future contracts, ETF's).
The price complainers now need make an effort to understand this fact, move on and decide whether to migrate their ICE to a Tesla or wait for a Volt.
Over and over I hear the statement claiming there are 2 mil. barrels more demand than supply.
Why then are there not shortages at the pumps? Why are there no oil shortages anywhere in the world?
You can buy all the oil and gas you can afford; there is no over demand for either.
If not, where do you find this 2 mil. barrel shortage?
I've looked at every government site and zero. Oil bull T. Boone made this statement and since then I hear and read it every day.
Show it to me, please.
And don't send me to some oil tout's site or article that repeats what T. Boone said.
Rebeldog
All the political and related hype is garbage, and does not belong here on an investment board. The question should be about where oil is going, and whether the companies mentioned are doing well. Since the author's article was published, giving his opinion that '$125 oil is not sustainable' (yes, that is what he says in the title of the article, please read it again just to confirm)..........the price of crude has gone up another $13. One can argue that this should not be happening........but one cannot deny that it is! So far, the author, and those that take his side of the arguement, are on the wrong side of this investment, and those that invested using his thesis have lost money.
My point in my brief post was/is that for anyone, Boone Pickens, or the IEA to suggest there is a static gap between supply and demand is silly. How silly is it that a think tank with PHd's and all can issue an erudite report about what demand will be in 2030 ("demand will be 120 million bbls per day while supplies will be at 100") without mentioning that the price will rise to decrease demand and increase production (one or the other or both). I guarantee you that supply will equal demand at the end of every day in 2030 as determined by price.
Read my post again: I agree with you about global demand.
The U.S. Department of Energy's Energy Information Agency just released its new Short-Term Energy Outlook today. Here are some highlights:
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<b>Global Oil Demand</b>
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<br><blockquo... oil consumption is projected to grow by 1 million barrels per day (bbl/d) in 2008.</blockquote&g...
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<b>Global Oil Supply</b>
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Non-OPEC Supply:
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<br><blockquo... supply growth remains weak despite 6 years of rising prices. Non-OPEC production is expected to rise by 310,000 bbl/d in 2008, down sharply from last month's Outlook.</blockquot...
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OPEC Supply:
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<br><blockquo... crude oil production is projected to average 36.9 million bbl/d in the second quarter, 140,000 bbl/d higher than first quarter levels.</blockquote...
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[...]
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<br><blockquo... crude oil production is expected to increase during the third quarter of 2008, although this is dependent upon how the security situation in Iraq and Nigeria evolves. Iraq plans to raise exports from the north by about 100,000 bbl/d in June if security conditions permit.</blockquote...
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Let's say all of that Iraq comes through with those 100,000 extra barrels per day. Add that to the 140,000 per day increase in OPEC production and the 310,000 increase in non-OPEC production. That's 550,000 additional barrels of supply per day, according to my math. What was the projected global increase in demand again? 1,000,000 barrels per day.
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Oil inventories just released this morning show another 4.6 million bbl drop here in the US, and is the 4th week in a row for a larger drop than what 'analysts' expected. With all the inventory decline, where is all of this 'Demand Destruction' that the 'analysts' (i.e., CNBC, etc), continually project? In addition, refineries continue to run at less than expected rates, with todays report showing a 1.1 percent decline in operating rates, while 'analysts' expected an increase. I know that all of this is confusing, and constantly changing, but I continue to think that the oil related stocks have further to run, and that they are priced at 'oil $80-90', rather than the current price of $135. At some point, they will begin to catch up with the price of oil and natural gas, one would think. Then again, I have been wrong before.
"There is never a gap between supply and demand at the end of any day, there never will be. Price always bring the two together so: Supply = Demand. Both are variable every day, and price brings them together. "
NOT entirely true. A futures cntract in the hands of a speculator is only a reflection of what the ANTICIPATED supply/demand equation will look like at some time in the future. At this stage, there is no "balance". The exchange is "in limbo" until no later than contract expiration - at which time balance will occur.
You need to look at the cirucmstances to see if it is good negative FCF or
bad negative FCF.
In the case of PWE, it is good negative FCF. PWE acquired Vault and Canetec in Jan 2008 and this would explain the negative FCF. Buying assets to replace declining reserves or add to existing reserves is always a good thing and is a sign of good management.
On Jun 11 02:27 PM len811 wrote:
> So, no one thinks the changeover to a negative cash flow is a problem?
Maybe I am the only idiot in the room, but, what's the deal with the precipitous rise in oil the last few months? Is it a supply shortage, nope. Is it a natural disaster, try again. Oh, thats right joe six pack has a few extra bucks in his pocket thanks to his uncle (Sam).
Yes I know demand is up from developing countries, but, its not like everyone in the world just started wanting gas in the last three months.