Nawar Alsaadi

Who Ends Up With the Oil? We Do.

As long as oil is the backbone for economic growth, and as long as the US economy continue to grow while importing expensive oil, the net effect is a positive for the US economy, the US is exchanging dollars for oil, which is the life blood of the economic growth in this country and the world, those who think in terms of transfer of wealth forget that this oil is not just imported and burned in a statuesque, it is imported to power the growing engine of the US and world economy, perhaps the net benefit from oil is less today compared to when oil was at $20, but the equation is still a positive one.

Regards,
Nawar

Oil Prices, Global GDP, and Net Oil Exports

Your observation Mark is right on target, I believe many analysts focus on oil production rather then oil exports, while it is oil available for export that determine the oil price in the international markets and not oil production.

Often we see a decline in oil exports after a country production peaks, such as in the UK, Mexico and Norway, however a more troubling trend is the decrease of exports in countries with growing production such as Oman, due to high internal consumption, Oman oil production grew by 5.1% in the first five months of 2008, however oil exports dipped by 5.1% due to the economy growing at a fast 12.9% due to high oil prices:

www.tradearabia.com/ne...

A more significant player which experienced a dip in oil exports of late is Russia, Russia now is experiencing a flat to slightly decreasing oil production for the first time in 10 years, Russia has played a key role in supplying the world markets in the last few years, however flat to decreasing production will have a major impact on Russia’s oil exports, as internal consumption roars ahead, an example of that, is Russia becoming Europe biggest car market (ahead of Germany) for the first time ever, due to 40%+ car sales growth in 2008.

Regards,
Nawar

The Oil Bubble Will Meet the Same Fate as Tech, Housing

What the bubble prophets continue to ignore is a simple fact: Oil is a finite commodity, unlike internet stocks (manufactured in wall street), or housing (built and stays there), or Gold (extracted and remains there), or food (grown year after year), oil once used is gone forever, what the fundamental oil guys are saying is that the “easy” oil has been extracted used and burned, what remains is a harder to tap, harder to refine and harder to transport oil, thus a possible oil shortage will happen in the next few years as supply of sweet crude does not catch up with demand.

However the market is doing its trick, the market have risen so much as to align oil supply with crude demand, the goal of a rising oil price is: demand destruction, this is how markets function, this is their function, their function is to match supply with demand, and they have done their magic.

The question now is not about how high oil will go, the question is for how long oil prices will remain elevated?, as long as supply remain tight, prices will remain elevated, since lower prices will lead to more demand and quickly reverse oil prices higher again, for the oil price to push higher $150+ either supply need to decline further, or demand need to increase while supply remain constrained.

The world of sub $100+ is gone and probably gone for ever, as the world continue to consume 3 barrels of oil for each barrel is discovers, thus it is logical that the remaining reserves will continue to gain in value as the scarcity premium grows with time.

Further more it is worthwhile to remember 2 things going forward, world oil reserves in the middle east are questionable, as many countries such as Saudi Arabia, Kuwait, UAE and Iraq arbitrarily raised their reserves to gain a bigger OPEC production share (in the 1980s OPEC allowed you to produce more oil if you had more reserves), the second issue is that world oil demand in the developing world and oil exporting countries themselves is exploding, for the developing world it is economic advancement and the launch of Ultra Cheap Cars such as the Nano by Tata, while for the oil exporting countries oil demand is cutting exports as more oil is kept to service the internal economy, thus it is vital to look at total available oil for exports and not just production to gauge future oil prices.

Finally, it seems ever the late 90s tech bubble rook place (and the bubble concept become more wide spread), everyone became a bubble expert, whenever something rises, the bubble people go out screaming: it is a bubble, with total disregard to fundamentals, for some reason the bubble logic has replaced basic economic theory.

Regards,
Nawar

Oil Price: $100 Before $150 - But $200 Before $50

Increasing NYMEX margins work both ways, shorts will also have to increase their margin, and since longs are deep into the money, the ones that will have a cash shortage if margins are increased are the shorts, which in turn mean shorts will have to cover as margins get increased, while longs position get strengthened by holding a bigger portion of their longs in cash vs margin.

Having said the above, speculators are responsible for noise in the oil markets, the real trend is driven by oil supply peaking, and as long as demand outstrip supply prices will keep moving higher, so far global demand keep growing (check the IEA July 10th report), this means we need much higher prices for demand to truly stall and reverse.

The easy demand destruction has already taken place, such as cuts on discretionary driving, and cut in airlines excess capacity, however the next wave of demand destruction will hit the their real CORE users of petrol, and this also require much higher prices then current prices.

Regards,
Nawar

China North East Petroleum: Strong Growth, Clear Visibility

This is an excellent article, it is as good as it gets on seekingalpha, thank you for taking the time to share your findings and analysis on the website.

I have substantial investment in CNEH, which I have undertaken in the $4.5 range, I believe this company has the potential to cross the $10 mark within the next few months, strong oil prices and a strong growth profile will both undermine the move, while the float will probably amplify the upward move.

I believe the share price will significantly benefit should the company undertake an acquisition of further oil reserves, such an acquisition will greatly help the stock price for several reasons:

- Higher valuation due to bigger reserves.
- Higher future revenues as the new assets get drilled.
- The pricing of acquisition growth in the stock price, which will already add to a strong organic growth profile.

CNEH certainly has the potential to overshoot to the upside once the stock moves to the AMEX or NASDAQ, while the stock present a rare investment opportunity, traders and speculators are likely to push the limits of the reasonable in the next few months.

As for a specific comment on the article, you mention the risk of a higher windfall tax, as a matter of fact Petrochina president is expecting a lower tax (he mentioned that in AGM May 15th) Petrochina is expecting the government to up the windfall tax threshold to reflect current oil prices, as well as to stimulate production, which in effect means lower tax for the oil producers on current prices, thus I believe the tax issue will be a positive catalyst for the stock price in the near future.

Regards,
Nawar

How Much Is NovaGold Worth?

Bering, don’t you think Barrick was aware of the difficulty of doing business in the arctic when they decide to offer $1.6 billion for the company in 2006?

Regards,
Nawar

How Much Is NovaGold Worth?

Marco, if my answer your question, even though DC is not bringing cash flow just yet (and not likely for many years), you can not award it a 0 value, resources in the ground do have a value, but usually it is usually heavily discounted, based on a value of $100 oz per share, DC worth to NG is about $1.6 billion, this is if no extra resources is identified, which is highly unlikely in light of the finding at East Acma, management has indicated in March theoretically DC can go as high 40m oz to 50m oz, if management to add extra 5m oz, this alone should add an extra 500m to the marketcap.

Not to mention that Thomas has put $0 value on GC, Ambler, NovaGreen and all their other exploration properties.

Regards,
Nawar

How Much Is NovaGold Worth?

Thank you for the thorough analysis, I certainly agree with you that the stock is extremely undervalued at those levels in light of the amount of resources it hold in the ground, as well as the fact that it is moving into production this quarter.

I believe the issue with the depressed valuation is partially market inefficiency and partially genuine worry about the management credibility in relation to mining, as well as a worry about the level of dilution the stock may suffer in order for GC and DC to reach production.

For the stock to reach its potential value, I believe management need to do the following:

- Produce a realistic plan to develop GC and DC without substantial dilution, a plan could be a combination of hedging, selling of none-core assets, selling some extra equity in the projects ..etc. Management has talked about all of the above, however I believe the market does need further clarification and better understanding of management intentions.
- The company has suffered multiple delays with RC, going forward they need to stick to their projections, and hopefully exceed them; a strong performance at Nome will go a long way in adding to management credibility when it comes to mining operations.

In addition to the above, I have recently written to management, about exploring the idea of a combination with a small/medium producer (something like the New Gold combination), in order to gain the scale necessary to develop the mega DC and GC projects, while assuring a certain cash flow in the mean time, I believe the combination of NG with its massive resources with a producer the size of EGO (just an example) can unlock massive value and catapult both companies market caps to the mid-tire level.

Nawar Alsaadi
Disclosure: I am heavily long NG

The 'Death of Gold' Revisited

Don't forget ETFs, it is much easier today to buy gold then it was in the 70s, I am seeing gold ETFs launched worldwide, the latest being in Dubai last week, being able to purchase gold through ETFs has opened gold speculation to the masses, the 70s high was driven by pros, today gold bull is being driven by pros + the general public, and since the quantity of gold has not increased massively since the 70s, while wealth and paper money has multiplied multiple folds, the Gold high this time will be much much higher.

The fact that gold crossed $1000 an ounce in March has broken an important psychological barrier, where the sky is the limit, much like oil when it crossed $100, Gold has found strong support at its hold high of $850, and there is not telling how high it will go this time, but it will be much higher in my opinion.


Regards,
Nawar

Market Bottom Already? I Don't Think So

Good work, you have done excellent job of explaining the current situation, I also do agree that we are in for more pain, before the situation improves, the kind of debacle the US is going through will take more then few months to work itself through the system, I expect fundamental economic weakness to persist until 2009, the market is already pricing for a rebound by Q3 2008, which I believe is highly unlikely in light of the current economic numbers.

I believe a worthy point to add to your analysis is inflation, as I write this response oil prices are back to their record $109 price level, high energy prices are starting to significantly hurt companies profit margins (Aloca earning last night is a case in point), the continued increase in commodity prices is caused by strong Indian & Chinese demand, meaning a weaker US economy is unlikely to weaken the inflation outlook, which in turn will lead to a period of stagflation, that could prove to be extremely detrimental to the US economy. The FED in my opinion has already given up on its fight for inflation in return for saving the US financial system; while I understand the logic behind their actions, the long term implications of their choice could mean rampant inflation for many years to come.

Regards,
Nawar Alsaadi