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Top 1268. Sep 27, 2005 3:29 PM

» Normxxx - Richard Russell on Oil

Richard Russell on Oil

By Richard Russell, Dow Theory Letters | 27 September 2005

I want to start with the chart below on oil. After its recent rise, oil has formed the potential "head-and-shoulders top" that you see on this chart. The odds are fairly good that oil will break support at around 62, and if it does break support I have no idea how low it may correct. I'm guessing that there should be some good support at the July 21 closing low (Oct. futures) at 58.

But that's not the point. The point is much bigger than a potential oil correction here. I've just finished four books about oil and energy. The book I read over the weekend is

<img align="left" src="http://images.amazon.com/images/P/0809029561.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> Beyond Oil : The View from Hubbert's Peak
by Kenneth S. Deffeyes

Mr. Deffeyes is a professor emeritus at Princeton University; his previous book, published in 2001, was

<img align="left" src="http://images.amazon.com/images/P/0691116253.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> Hubbert's Peak : The Impending World Oil Shortage
by Kenneth S. Deffeyes

The introduction to this book tells a lot of the oil story. It starts, "We are facing an unprecedented problem. World oil production has stopped growing; declines in production are about to begin. For the first time since the Industrial Revolution, the geological supply of an essential resource will not meet demand. . . Hubbert predicted that annual oil production would follow a bell-shaped curve; the curve became known as 'Hubbert's peak.' The more optimistic of his two estimates in 1969 placed the world's total oil endowment at 2.1 trillion barrels with peak production in the year 2000. My best current estimate puts the total oil at 2.013 trillion barrels peaking in 2005. Whichever of us is correct, or even if we are both wrong, we are not very wrong. Wherever the peak, the view is not good." He adds, "World oil production is going to decline slowly, at first, and then more rapidly."

[Normxxx Here: Nonsense; this supposes 'cheap' oil is not replaceable. But 'cheap' oil is easily replaceable by 'more expensive' and 'most expensive' oil, and a raft of 'alternative' sources of energy. And we will (once again, as the Saudis are well aware) become less profligate consumers of oil— we may even be willing to trade in our SUVs for something half the size consuming a third or less gasoline and, dare I say it, drive a little slower. We may also drive less, and wear sweaters and leave our winter thermostats at 65 (80 in summer). ]

Another seminal and widely-acclaimed book is entitled,

<img align="left" src="http://images.amazon.com/images/P/047173876X.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy
by Matthew R. Simmons

In this book Simmons, for the first time and using original data, concludes that Saudi Arabia's oil has passed its peak of reserves. I'll quote just one sentence from the Simmon's book. "Once oil supply peaks and begins to decrease, the scarcity factor alone will force oil prices to far higher levels than today's perceived 'high prices'."

[Normxxx Here: But not beyond what the (world) economy will bear. As the Saudis are aware, there is a critical balance between the price of oil and the world's consumption of oil; transcend that price, and the consumption of oil crashes as the (world) economy goes into recession. ]

Stephan Leeb ("The Complete Investor" advisory) is a brilliant writer and analyst. He writes, "Your grandchildren will live in a world without oil. In the next one to four years, half the oil that the earth started with will be gone. And IF we kept using it the way we are, every drop would vanish by about 2029. It won't happen quite that way, of course. Long before 2029 oil quality will go from fair to terrible, the extraction costs will become crippling, and you will be paying $12 and $15 a gallon at the gas pump. Life will revolve around oil— or the lack of it. .."

Yeah, I know. We've had a number of oil spikes and oil scares before. And each time the price of oil has come comfortably back down, and the whole oil problem is then put aside. Right, but this time something different has entered the picture.

The difference is the entrance of China and India and the rest of Asia into the global picture. These nations are thriving, making lots of money, and their populations want what we have— cars, loads of cars, millions of cars. And that's going to be the difference this time. There's now a massive DEMAND side to the oil problem. The world battle for oil and oil reserves is on.

Question— Russell, you keep saying that the US public isn't taking the oil situation seriously. Why do you say that?

Answer— I say it because US auto dealers are still selling SUVs, trucks and gas-easters by the tens of thousands. Wife Faye subscribes to five auto magazines. All the mags write about is performance cars, luxury cars, cars that do zero to 60 in 3.5 seconds Check their cover pictures. C'mon, what I see and hear tells me that the US public believes this is "just another oil scare." But it isn''t.

The correction in oil that "could" be coming up will provide us with an opportunity to accumulate oil and energy stocks and preferably Exchange Traded Funds (ETFs). I've already mentioned— namely, VDE, XEL and the closed-end fund, PEO. Then there's the D-J Energy Sector IYE. I'm suggesting these funds rather than picking individual oil or energy stocks. There's another ETF that I like as a long-term holding, it's the Goldman Sachs Natural Resources ETF— symbol IGE.

The cycles of financials and tangibles (including commodities) tend to extend for many years. I believe that the cycle of financials started around 1980 and ended around 2000. I believe we're now in the early part of the cycle in tangibles, and also at the beginning of the decline in the cycle of financials.

The cycle of financials was built on an explosion of junk paper money. Once the world went completely off gold in 1971, the platform for the bull market in financials was laid. Twenty years of an increasing ocean of fiat paper followed.

But now we see gold moving up past all paper currencies. We see commodities (without agriculturals) surging higher. Oil has now joined the parade of rising tangibles. Diamond prices are through the roof, as are many collectibles (a Picasso just sold for over $100 million). The Sotheby's and Christy's auction catalogues are stuffed with collectibles at high prices. Real estate is going wild, particularly on the two coasts. Condo-mania rules, and one sector after another shows itself as the bull market in tangibles heats up.

You can live without a Picasso or a second home or a high-priced condo— but oil, that's another matter. The Chinese and Indians may not be wild about Matisse paintings or million-dollar condos in Las Vegas, but they are most definitely interested in gasoline with which to run their fast-expanding population of cars. So today's oil story is very different from previous oil "crises." This time one third of the population of the world has entered the battle for oil. Therefore, today's rise in the price of oil is not just another speculative spike, it's the next higher zone or level for oil, just as 450 and above represents the next higher level for gold.

So say "Bye" to the age of paper money, and say "hello" to the new age of the real, the tangible, the solid. The Fed can create $30 billion of M-3 liquidity in a week, but they still can't make a quarter-carat diamond or an ounce of gold or a lousy pint of oil. So if oil or gold corrects here or if oil or energy ETF's sink a bit, don't complain. Treat such action as an opportunity.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

Top 1269. Sep 28, 2005 9:11 AM

» axolotl - Re: Richard Russell on Oil

Fed can't make a quarter carat diamond or pint of oil? Diamonds have benn made for decades and oil can be made from cellulose - all at a price, of course. The Saudis are claiming that they will soon up reserve estimate from 280 billion barrels to as much as 480 billion barrels. No word on who does these estimates. Exxon joins in the "don't worry about supply" chorus. Yes, it is just a matter of cost.

-- posted by axolotl

Top 1270. Sep 28, 2005 3:08 PM

» Normxxx - Re: BCA Research Says: Sell Oil

In response to BCA Research Says: Sell Oil posted by Kirk:

Oil prices and short-term interest rates have risen to levels that could trigger downward momentum in consumer spending. This will ultimately result in weaker crude prices as demand is curtailed. Personal consumption is already showing signs of cracking, with consumer confidence and retailing stocks losing momentum in recent weeks. Cracks are also appearing in house price inflation, which has been the cornerstone of US consumption.

aka, Recession!

Standby for the last opportunity to buy up some oil stocks! (Remain cautious on Gold: it may well dip in a recession.)

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 1271. Sep 29, 2005 5:32 AM

» lcha - Storm left big platform upside down

Storm left big platform upside down
It's not clear if the Typhoon can be salvaged
By LYNN J. COOK
Copyright 2005 Houston Chronicle

Chevron's Typhoon platform was no match for Hurricane Rita.

The oil and gas natural platform capsized in the storm, drifting 70 miles.

Tugboats have secured the upside-down platform, and Chevron is investigating what caused Typhoon to topple, according to spokesman Mickey Driver. The Financial Times incorrectly reported the structure was rammed by a Noble drilling ship, he said.

Chevron would not comment on whether it could salvage Typhoon, but some energy analysts have already written it off.

Typhoon, which was owned in conjunction with BHP Billiton, started pumping oil and gas in 2001 and was expected to have a life span of five to eight years. It had the capacity to pump 40,000 barrels of oil and 60 million cubic feet of gas a day, but with its fields in decline, it was producing only half that amount.

Lcha here: An example of fields petering out faster

Bruce Jefferis, managing director for Aon Natural Resources, said it is too early to put a dollar figure on damage to offshore Gulf of Mexico operations, but the insurance brokerage firm for energy companies has spent days listening to horror stories.

Jefferis is predicting insurance rates will soar and repair costs will quickly outstrip those of Hurricane Katrina and last summer's Ivan.

"Our estimate is that it will be bigger ... particularly the drilling fleet," he said.

In Rita's path
When Hurricane Rita took a last-minute turn, veering north and east to spare much of the onshore energy infrastructure along the Houston Ship Channel, it barreled straight through one of the most prolific oil and natural gas production areas in the Gulf before slamming into the coast and pounding the refining hub of Port Arthur and Beaumont.

Hundreds of production platforms that pull oil and gas out of the ground were in Rita's way in places like the East Cameron Block off Lake Charles.

Several drilling rigs, used to explore for more oil and gas, lost their moorings. They broke loose and drifted up to 100 miles, propelled by turgid waters. Some ran aground. Others are still drifting and will have to be corralled and dragged back into place.

Oil flow stopped
Early Wednesday afternoon, the Minerals Management Service announced that all 1.5 million barrels of Gulf oil production was still shut down. And 80 percent of natural gas — or 8 billion cubic feet — still wasn't flowing.

Later in the day, oil rose $1.28 to settle at $66.35 a barrel, heating oil gained more than 7 cents to settle at $2.1411 a gallon, and gasoline gained more than 17 cents to settle at $2.3393 a gallon. Natural gas rose $1.251, or 9.9 percent, to a record close of $13.907 per million British thermal units.

GlobalSantaFe found two severely damaged rigs that had been lost, and Diamond Offshore, which drills in deep water, also said two of its rigs that broke loose and were swept 100 miles from their sites had run aground.

"This was almost a worst-case path," Jefferis said.

Insurance rates and daily lease rates for drilling rigs will inevitably go up.

The first business day after Rita hit the Gulf Coast, Anadarko jumped all over the chance to lock in its order for several rigs up to six years in advance. It is a sign that the market could be tight for years to come, Jefferis said.

Insurance issue
The insurance industry had only begun to digest Katrina damage when Rita hit.

"Insurance doesn't happen overnight. The rates will climb over the next year as companies go back and buy coverage," he said.

ConocoPhillips said its Magnolia project has minimal damage and should restart shortly. Initial assessments to its three smaller fields in the Gulf show only minor damage.

On Wednesday, Shell Oil Co. did not provide additional information about its deep-water production facilities, but it did say it plans to ship oil from a few fields by barge to land.

The natural gas produced in those areas can flow through a pipeline that has reopened, so no additional flares are needed to burn it off.

-- posted by lcha

Top 1272. Sep 30, 2005 5:49 AM

» lcha - Natural gas flow still feels the pinch

Sept. 29, 2005, 9:59PM

Natural gas flow still feels the pinch
Price climbs to record as 80% of Gulf still out
By JIM KENNETT
Bloomberg News
RESOURCES
Graphic: Natural gas prices

Natural gas futures rose to another record Thursday as production lost to hurricanes Katrina and Rita was slow to recover.

The two hurricanes, striking within a month of each other, have shut in 188.5 billion cubic feet of gas since Aug. 26, 5.2 percent of annual production, the U.S. Minerals Management Service said Thursday. About 80 percent of daily Gulf of Mexico output has been closed since Rita made landfall last weekend.

"What's really driving us here is continued concern about how much damage has been done by either Rita or Katrina," said Carl Neill, an analyst at Risk Management in Chicago. "It looks like things are a little worse than originally assumed, and things aren't coming back on line as quickly as thought."

Lcha here: My company hosted a client function at the baseball game last night so I got to talk to several of my clients. One has lost 2 production units and a drilling rig in the Main Pass area offshore Louisiana. Two others are missing drilling rigs. One says they just don't know the extent yet from Rita. All say movement is very slow because the onshore facilities that stage drilling recovery efforts are damaged and operating at limited capacity. Botrtom line is the Houston refineries were spared but offshore production/exploration was not.

Natural gas for November delivery on the New York Mercantile Exchange rose 9.6 cents, or 0.7 percent, to $14.196 per million British thermal units.

Prices have more than doubled from a year ago, and analysts at the Energy Department's Energy Information Administration have estimated that the average residential consumer in the Midwest will pay 52 percent more for natural gas this winter.

"The average person has no idea how expensive things are going to be this winter," Neill said. "It's not going to sink in until they get the first bill, and then the politicians will be screaming in the streets."

The Gulf of Mexico accounts for 24 percent of U.S. natural gas production.

Flooding and wind damage forced the Sabine Pipe Line of Dallas, a unit of Chevron, to halt deliveries to the Henry Hub, the benchmark for wholesale natural gas prices and the delivery point for gas sold under New York Mercantile Exchange futures. Workers have drained the main station yard of standing water and have accessed the buildings there, and the remainder of the hub is being drained, the pipeline said on its Web site.

Traders also are watching an area of thunderstorms in the Caribbean Sea that has the potential to become a tropical depression.

In other trading Thursday, crude oil prices rose amid worries over the laggard pace at which the Gulf Coast's refineries, pipelines and rigs are recovering from the hurricanes. The U.S. Minerals Management Service said Gulf Coast output improved only slightly from a day earlier.

Light, sweet crude for November delivery rose 44 cents to settle at $66.79 a barrel.

Other energy futures slipped, however, after a report Thursday from the Energy Department said natural gas inventories rose. That substance affects other fuels because the ability to import liquefied natural gas is limited.

Gasoline futures fell nearly 9 cents to settle at $2.2516 a gallon, and heating oil eased more than a penny to $2.1247 a gallon. Brent crude on London's International Petroleum Exchange slipped 9 cents to $63.84.

The Energy Department's weekly inventory report showed supplies of natural gas last week rose by 53 billion cubic feet to 2.885 trillion.

Inventories are now 2.4 percent above their five-year average and 3.9 percent below year-ago levels. The supply gain fell short of expectations. Analysts had called for a gain of 66 billion cubic feet, the median estimate of 23 in a Bloomberg survey.

Utilities put natural gas into the nation's more than 400 underground storage caverns and reservoirs from April to November for use during the winter, when demand peaks.

Even storing 53 billion cubic feet last week after Katrina and Rita pummeled offshore production is a healthy sign, said Mike Schick, president of Energy Analytics, a Houston-based consulting firm.

Inventories may match their five-year norm of 3.1 trillion cubic feet by the traditional Nov. 1 start of the heating season, Schick said.

Utilities seeking to store gas for the winter are being helped by the industrial and residential demand lost in the storm-ravaged Gulf Coast.

Supply and demand are "fairly well-balanced, and it's somewhat incredible to me," Schick said. "There's so much focus on rigs, without paying attention to the offsetting shut-ins on the demand side, which are also pretty significant."

-- posted by lcha

Top 1273. Sep 30, 2005 6:55 AM

» lcha - No easy fix for Rita-damaged oil works

No easy fix for Rita-damaged oil works
Report: Problems getting workers, helicopters, equipment slowing repairs to offshore production.
September 30, 2005: 6:58 AM EDT

NEW YORK (CNN/Money) - Getting off-shore oil and natural gas platforms back in service after two Gulf of Mexico hurricanes is proving difficult, according to a published report Friday.

The Wall Street Journal reported that efforts to restart facilities a week after Hurricane Rita blew through the area are being hampered by a lack of sufficient workers, helicopters and equipment.

The federal Minerals Management Service reported Thursday that about 99 percent of oil production in the Gulf, or about 1.5 million daily barrels, remains shut down, while about 80 percent of natural-gas production, or nearly 8 billion cubic feet of gas a day, remains shut.

Much of that was taken offline as a precaution before Rita hit. Still, production returned much faster immediately following Katrina last month and Hurricane Ivan last year, the Journal reports.

"A lot of dock facilities that boats would leave from are gone. Hangars are messed up. Helicopter availability is tight," Tony Lentini, a spokesman for the Houston-based exploration company Apache Corp., told the paper.

The storm also did significant damage to rigs, which are used to explore for new offshore sources of oil and gas. The two hurricanes either sank or seriously damaged 13 drilling rigs, the Journal reported, citing ODS-Petrodata, an offshore market-analysis firm. That shrank an already tight Gulf of Mexico fleet by 12 percent, and could hamper exploration for months to come.

"Will it be more difficult to drill? Yes. Will it be more expensive? Yes. Will the end product cost more? You bet," Al Reese Jr., chief financial officer of ATP Oil & Gas Corp., told the paper.

Restarting seven refineries hit hardest by Rita -- from Port Arthur, Texas, to Lake Charles, La. -- is also taking longer than originally thought, the paper reported. A bit more than 20 percent of U.S. refinery capacity is now out of service from damage from either Rita or Katrina.

Reliable electricity is turning out to be the biggest hurdle for restarting refineries in the hard-hit area around the Texas-Louisiana border. The Minerals Management Service's own office in Lake Charles could be shut for a month due to lack of electricity.

Even some refineries not hit head on by the storm are taking somewhat longer to fix than originally expected. BP said Thursday it could be several days before damage to insulation is repaired at the nation's No. 3 refinery, its 437,000-barrel-a-day Texas City facility. Texas City is near Galveston and Houston.

The paper reports that repairs could take longer than expected and will likely keep upward pressure on fuel prices, renewing concerns about heating costs this winter.

It's also pushing the Bush administration to unveil a national energy-conservation campaign next week, aimed at giving consumers, businesses and federal agencies tips on saving energy during the winter heating season. Conservation has been at best a low priority for the administration in the past.

Lcha here: This is 4 years too late in my opinion.

Department of Energy Secretary Samuel Bodman is expected to showcase a public-education effort Monday called "Easy Ways to Save Energy," according to department officials familiar with the plan, the Journal says. The department, working with the nonprofit Alliance to Save Energy, will encourage consumers to add insulation, repair weather stripping, install thermostat timers and take other steps to reduce heating bills.

-- posted by lcha

Top 1274. Sep 30, 2005 9:37 AM

» Normxxx - Re: No easy fix for Rita-damaged oil works

In response to No easy fix for Rita-damaged oil works posted by lcha:

Gee! And we're only half-way through the 2005 hurricane season.

You mean the high gas prices are not just the oil company's profiteering? We have some congressmen who swear by it!

Why bother conserving? Prices will come down next year during the recession.

-- posted by Normxxx

Top 1275. Sep 30, 2005 9:42 AM

» Normxxx - Re: Oil Shale estimated to be 800 Billion barrels..............

In response to Oil Shale estimated to be 800 Billion barrels.............. posted by axolotl:

.recent article in IBD says $70 to $90 oil is the level for profit from shale oil in the American west.

And then what do you do after you've sunk a couple of billions into facilities and SA drops the price of oil to under $20? And the politicians just have a big laugh (at your expense, of course).

-- posted by Normxxx

Top 1276. Sep 30, 2005 10:20 AM

» axolotl - Re: Re: Oil Shale estimated to be 800 Billion barrels...........

I am in favor of energy independence by resticting oil imports by about 3% per year until independence. There is one process that supposedly costs $20 per barrel to remove shale oil. If I were a young man, I would investigate shale oil and a number of other energy alternatives. There are fortunes to be made in energy.

-- posted by axolotl