Dr. No

Is Oil a Bubble? Part Two

Masters point was that we have a commodity bubble due to an influx of significant financial resources looking for high returns. In fact global assets under management have increased by 50% from 2000 to 2006. What is that money investing in after equities and real estate have become unattractive and debt is not providing 30% returns? Art? Cars? Clothes! Cotton!

To that end a myopic oil view isn't helpful. The latest commodity bubble being cotton contracts should make people wonder where all of the sudden the cotton demand is coming from. Why are farmers in the South not able to get contracts? Did all of a sudden a new fashion trend explode in going cotton pumping demand? Let me just make up a couple of urban legends:
* Cotton is in higher demand as more countries move out of poperty and desire higher value clothing with cotton.
* China and India has increased the average wardrobe size and now they need to fill it.
* The prolongation of the Iraq war has increased the demand for white tees by our forces.
* China is planning to build the largest Cotton shield for the olympics and that has dramatically added to cotton demand.
* As the polar caps melt, the increase in population in those regions will not wear fur but cotton to deal with the summer heat.

Anybody else wanna have a go ?

Why Is Oil Going Up?

Unfortunately the assertions do not take into account the mechanics of a futures driven market, that is dominated by index/financial speculators in an environment where more and more assets are chasing "unique" investment opps and create positive feedback loops.

KL's assertions would work if there was no such thing as a commodities exchange and if we would have a straight physical market. We don't. In fact the physical market is between 10-25% of trades.

Why Did Crude Oil Spike So High?

I am with sivere: Let's all go pray. That has really worked last time when my portfolio was in the dumps. Also, praying helps with any diseases (read the bible if you do not believe) and food, like I pray and there is food. It really works!

Understanding Crude Oil Prices

The article misses the new "buyers": "Index Speculators" if you follow Michael Master thoughts. Those long only financial speculators create demand without physical demand. Very much like CDO buyers, tech stock buyers in previous bubbles.
In fact, since 2000 the global assets under management have increased by 50%, all looking for superior returns, all chasing the same opportunities creating demand without increases in the underlying assets, or did the world economy expand by 50% from 2000 to 2006?
The sad part is that once oil drops back to 50-70, corn to 2.00 alternative energy may not look that attractive anynmore, so the cleantech bubble will pop too.

The Case Against Ethanol

Two thirds of Americans are overweight, one third is obese, worse than any other country. 70% of grain is used to generate animal protein at a 8:1 ratio. There is huge savings potential for grain in a better diet (ie avoiding cardivascular and metabolic diseases) by cutting meat intake. Also, Americans eat twice as much as they need per day - again huge savings potential right on your plate.
Finally, America is the biggest consumer of everything: energy, food.

Make the connection fatzo: eat less - drive more!

Pacific Ethanol: Juicy Details From Tuesday's 10-K

So much hearsay so little facts.

Issues with covenants and automatic defaults are serious because they indicate cash management issues on the slope to chapter 7/11.

However:
Brtitishsteel is wrong with the connection between corn for fuel and food prices. Food prices go up because of higher beef demand (eats corn) and oil prices (needed for fertilizer and tractors).

BM1087 should less believe in PR hype and go for a treasure hunt to find one (1 only!) succesfully operating cellulosic or gasification/FT type ethanol plant, checkback when you found it and good luck!

Questioncorn needs to figure out where cane is grown (savannah) and where the rain forest is (equator, not savannah). More geography in school could help.

Those concerned with high food prices should eat less meat. 70% of corn goes into burgers the conversion is 1:8 and as 2/3 of Americans are overweight and 1/3 is obese maybe they could shed their weight pass the fat on for biodiesel and lower transportation cost due to lower weight. Then, as in the US we produce and stuff twice as much food into ourselves than what we need, we could also be healthier by eating less and making that less available for fuel. Problem solved: Eat less - its good for you and your tank!

That said, the financial conduct of PEIX isn't very promissing and not understanding commodity risk is the death knell for ethanol plays.

Ethanol Update: Crush Spread Plunges, Bush Expresses Concern

Well if you think cellulosic ethanol all the way through, and consider that turning forested areas into agricultured will release tons of GHG (just read the two recent science papers in a biggr sense), is cellulosic ethanol from wood chips still such a great idea ???
Because as you turn the wood into ethanol your land needs to be dealt with and you all of sudden created agriculture, which is exactly what the science papers were attacking.

BlueFire Ethanol Fuels: Converting Garbage Into Profits

So we intend to hydrolyse the trash with concentrated acid ??? How is that going to end up with what is left over ? Spoiled acid ? Non-hydrolysable stuff ? Where are we dumping that ?

The reason we do not have a better alternative to oil and ethanol from corn is that virtually all of the suggested process do not work economically and they do not work large scale.

Of course once the oil price goes higher, the economics change, we will then also accumulate experience what may work and what not. But let's be fair, the oil price was half of today a year ago and half that the year earlier, we do have a (expectable) dramatic change in prices over a short (in engineering terms) period of time.

Odd is that chemical engineers are such experts in public policy and do not point to the technical issues in the process at hand, which is what they should be experts in... The suggestion to have so many different blends is lunatic as the logistics will not work. You will not place that many different containers in a gas station. Europe tried it since 20 years and is going back due to the cost associated. Ain't working.

Cramer: "Ethanol Is a Fuel That Doesn't Work"

Cramer uses (as the author of this post) the ethanol tag word as a board to jump on a waggon. While there are issues with ethanol, rising oil prices (i.e. 100% from Feb 07 to Feb 08) have a much bigger impact on food and all living expenses than increased use of corn for ethanol. Run the numbers! (so the corn in a box of corn flakes is about 10c, how much does the box sell for ?)

VeraSun Energy: Follow the Ethanol Crush Spread

There are a number of additional commodities to consider that make up the ethanol model: natural gas, electricity, DDG/S and the oil price. While the crush spread is a proxy it is crude as it ignores the other commodities also impacting the P&L.

VeraSun Energy Back on the Gas - Um, Ethanol

Monsanto's chief was just quoted as saying he sees lower corn plantings coming, so that may be beneficial to the corn price as supply shrinks.
The deal with the smaller ethanol plants is more complex as those farmers have made a killing on ethanol previously and the plants are paid off. They on the other side do not need to buy on the spot market, but their calculation is based upon the corn input cost, and then ethanol still may make money for them where it does not for commercial ethanol producers. In addition they are not necessarily your preferred deal partner when it comes to M&A. So M&A will rather occur with small, farm independent ethanol producers, especially those that just got into the business, because their loans hurt.

Covanta’s Irish Eyes are Smiling

Note that the Dublin deal at 300 million Euro / 420 million Dollar is fairly large for a waste to energy project, if not one of the largest deals ever, therefore with huge associated execution risk.
While short-term a Euro denominated deal maybe nice as you will get more dollars for it, this project has a runtime of 25+3 years. You are guaranteed to see swings of the Euro to the opposite end of the parity, i.e. 80 cents per Euro instead of the current 1.40. So you actually have a huge downside risk right now to do a longterm bid on Euro (i.e. a 50% loss risk) which will eat up all and any profits (you will no have more than 30% return). Combine that with the magnitude of the project and you have ... hype.

Archer Daniels Midland's Collaboration With ConocoPhillips Good News For Shareholders

There is a lot of hyped up mumbo-jumbo in this comment that is not really connected to each other but sounds really cool.
Yet, ADM is not anymore the largest EtOH producer (VeraSun is); none of the cellulosic (no "t") technologies are proven large scale, a.k.a. efficient (cost is 3 times conventional EtOH and that is barely profitable); for the farmer there is a choice to make: either EtOH or soy/diesel so it is a trade off always in supplies; there are only 10% diesel cars on the roads and the air pollution rules are not friendly to them; what exactly is biocrude ????

Re: Georealist, yep now new technologies lately - yet, the technologies have been around already since twenty years, no need to reinvent them (except to hype investors about "new" stuff). Just apply them! Oh yeah, Syngas, aka CTL, GTL or BTL is technology from the 1920's, nothing new there and still investors wet their pants when they hear it.

Three 'Busted' Biotech IPOs: Amicus, Jazz, Sirtris

"it is hard to imagine all three will stay below or at their IPO price for too long."

Well, for the not so familiar with biotech, here is the bad news: Most companies that went public recently (i.e. in the last three years) traded at or below IPO.

But maybe some of the Jazz drugs just make imagining the reality hard...

Verenium: Green And Promising Emerging Biotechnologies

Diversa has been add trying to offer solutions using their enzyme and archea solutions since 15+ years now and not really taken off. Celunol is essentially using an old process to produce an energy storage (ethanol in this case, we could do others). The underlying technological challenge is 40 to 100 years old and not much technological imporvement happened. What makes us believe the key advance happened since they merged a few months ago ? What happened ?