Oil & Gas 01 (May 08 - Jul 08)

[winston]

Isaac Newton On Oil...
by Alexander Green


Nearly two months ago I wrote a column asking "Is Oil Becoming the 'Mother of All Bubbles.'"

Personally, I don't think it is. Even though oil has since hit several new records, some bubbles are just hard to beat.

In 1623, according to Charles Mackay, author of "Extraordinary Popular Delusions and the Madness of Crowds," a single tulip bulb changed hands for a thousand Dutch florins. (The average annual income in Amsterdam was 150 florins at the time.) Within a few years, tulip bulbs were traded on numerous Dutch exchanges. Some traders even sold tulip bulbs they had just planted or those they only intended to plant. (Tulip futures contracts, in other words.)

We all know how the famous Dutch tulip bulb mania ended. Fortunes were lost. Thousands of Dutchmen ended up financially ruined.

In 1720, an English firm - the South Sea Company - was granted a monopoly to trade with South America under a treaty with Spain. The primary product? West Africans sold into slavery. This seemed like such a good deal - even though the company made little actual profit - that shares rose more than ten-fold in a single year.

When Sir Isaac Newton was asked how high South Sea stock might eventually go, he replied, "I can calculate the motion of heavenly bodies, but not the madness of people."

Good answer. The stock soon collapsed and thousands of investors were wiped out.

With these classic bubbles in mind, let's take a dispassionate look at today's oil market.

Oil demand in the United States is actually down 2% so far this year. According to the federal Energy Information Administration, high prices and a weak economy will knock down U.S. oil consumption by 90,000 barrels a day in 2008.

The situation is similar in other parts of the world. The International Energy Agency (IEA), the Paris-based energy watchdog of the world's richest nations, recently lowered its forecast for world oil demand growth by 460,000 barrels a day. The IEA also sees supply from outside OPEC growing by 815,000 barrels a day, the strongest growth since 2004. (And this was before Saudi Arabia's recent promise to boost production by a million barrels a day.)

Yet despite these decidedly bearish developments for oil, the price is up 51% since January 1 - and more than 700% since trading at $17.45 a barrel in November 2001.

Some will argue that this price rise is fully justified. After all, most of the world's major oil deposits have already been discovered. The low-hanging fruit has been picked. The remaining oil supplies are tough to get at - and expensive to recover.

Meanwhile, the world's demand for oil keeps rising as more people around the globe - especially in emerging giants like India and China - pound the table for "more juice."

This story is essentially correct. But it is just a story - and a thoroughly well-known one at that. It is not a rationale to buy oil today.

Especially since high prices always sow the seeds of their own collapse. Consumers start to conserve. Producers search for oil that was once too costly to extract. Supply and demand come back into balance.

According to Stephen Schork, President of Schork Group, a firm that advises the Organization of Petroleum Exporting Countries, "There's nothing different between this mania, the dot-com mania, the real estate mania, the Dow Jones mania of the 1920s, the South Sea bubble and the Dutch tulip-bulb mania. History repeats itself over and over and over again."

Yes, speculative fever has gripped the oil market. This bull is likely to end up just like those in the ring in Mexico City. Current oil prices are simply unsustainable.

That doesn't mean that oil is going to plunge today or tomorrow. Indeed, it could keep rising for quite some time. After all, you cannot make a rational judgment about when irrational behavior will end.

But oil prices will come back down. And that will be positive for both the economy and the stock market.

If you have big profits in your energy stocks, consider paring back. Or at least running your trailing stops closer to better protect your profits.

Of course, history never repeats itself exactly the same way. We may not be at the exact inflection point.

But ask yourself this: If Isaac Newton were around, would he be buying oil today?

Think about that. And govern yourself accordingly.

[winston]

McCain wants to lift ban on offshore drilling

(CNN) -- Sen. John McCain on Tuesday proposed lifting the ban on offshore drilling as part of his plan to reduce dependence on foreign oil and help combat rising gas prices.

Sen. John McCain says it's time for the federal government "to put our own reserves to use."

"The stakes are high for our citizens and for our economy," McCain, the presumed Republican nominee for president, said at a press conference Tuesday in Houston, Texas.

Hours later, White House Press Secretary Dana Perino said President Bush on Wednesday will ask Congress to lift the ban on offshore drilling.

Bush has long called for opening the Arctic National Wildlife Refuge in Alaska to oil exploration, but Perino said he now wants to go further.

"For years, the president has pushed Congress to expand our domestic oil supply, but Democrats in Congress have consistently blocked such action," she said.

Earlier in the day, McCain, describing the high price of fuel, confused the cost of gallons versus barrels, which drew laughs from the crowd and the candidate himself. He quickly corrected himself.

"And with gasoline running at more than $4 a barrel ... a gallon ... I wish ... $4 a gallon, many do not have the luxury of waiting on the far-off plans of futurists and politicians," he said.

"We have proven oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production. And I believe it is time for the federal government to lift these restrictions and to put our own reserves to use."

McCain's plan would let individual states decide whether to explore drilling possibilities.

The proposal could put McCain at odds with environmentalists who say it is incongruous with his plans to combat global warning. California Gov. Arnold Schwarzenegger, a McCain ally, opposes offshore drilling.

Florida Gov. Charlie Crist had expressed opposition to exploring coastal waters, but he said this week he supports McCain's plan to lift the moratorium and would not rule out letting his state choose to drill offshore.

"It's the last thing in the world I'd like to do, but I also understand what people are paying at the pump, and I understand the drag it is on our economy," Crist told the St. Petersburg Times. "Something has to be done in a responsible, pragmatic way."

The current law, which has been in effect since 1981, covers most of the country's coastal waters.

Many officials from coastal states oppose offshore drilling because of the risk of oil spills. Environmentalists want offshore drilling to stop to protect oceans and beaches from further pollution.

"The next president must be willing to break with the energy policies, not just of the current administration, but the administrations that preceded it, and lead a great national campaign to achieve energy security for America," McCain said Tuesday.

McCain on Monday said incentives could possibly be provided for states that choose to permit exploration off their coasts, adding that "exploration is a step toward the longer-term goal."

Tuesday's discussion marks the first in a series of talks about America's energy security that McCain will hold during the next two weeks as he lays out his plan to reduce the country's dependence on foreign oil.

McCain opposes drilling in some parts of the wilderness and says those areas must be left undisturbed.

"When America set aside the Arctic National Wildlife Refuge, we called it a 'refuge' for a reason," he said.

McCain also criticized the energy policy of Democratic rival Sen. Barack Obama.

"He says that high oil prices are not the problem, but only that they rose too quickly. He doesn't support new domestic production. He doesn't support new nuclear plants. He doesn't support more traditional use of coal, either," McCain said.

"So what does Sen. Obama support in energy policy? Well, for starters, he supported the energy bill of 2005 -- a grab bag of corporate favors that I opposed. And now he supports new taxes on energy producers. He wants a windfall profits tax on oil, to go along with the new taxes he also plans for coal and natural gas. If the plan sounds familiar, it's because that was President Jimmy Carter's big idea too -- and a lot of good it did us."

McCain argues that a windfall profits tax will only increase the country's dependence on foreign oil and be an obstacle to domestic exploration.

"I'm all for recycling -- but it's better applied to paper and plastic than to the failed policies of the 1970s," he said.

Obama on Tuesday blasted McCain for changing his stance on offshore drilling.

"John McCain's support of the moratorium on offshore drilling during his first presidential campaign was certainly laudable, but his decision to completely change his position and tell a group of Houston oil executives exactly what they wanted to hear today was the same Washington politics that has prevented us from achieving energy independence for decades," he said.

"It's another example of short-term political posturing from Washington, not the long-term leadership we need to solve our dependence on oil," he said.

Democratic Florida Sen. Bill Nelson also criticized McCain's plan, saying it would ruin his state's tourism industry and would not solve the problem.

"I thought John McCain was serious when he said he wanted to make America less dependent on oil. I didn't think he was a flip-flopper. He knows that more drilling isn't the solution to high gas prices," Nelson said Tuesday.

Obama said a windfall profits tax would ease the burden of energy costs on working families. He also wants to invest in affordable, renewable energy sources.
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Controversy over offshore drilling surfaced in the United States in 1969, after a crack in the seafloor led to a huge oil spill off Santa Barbara, California.

During the 1970s, when many Arab nations launched an oil embargo, many U.S. officials pushed for the exploration of offshore drilling of the coastal United States. Environmentalists responded with loud protests.

[HengHeng]

haha i have said sometime back liaoz ... as long as US open up their own drilling .. actually got enough oil one.

[kennynah]

cowboy speaking at 1030pm tonight...


Bush Will Urge Congress To Lift Ban On Offshore Drilling
6/18/2008 9:26 AM ET
(RTTNews) - President George W. Bush will call for a suspension on the ban on offshore drilling Wednesday, as prices at the pump continue to climb further past $4 a gallon and crude oil continues its upward trajectory. Bush is expected to speak around 10:30 am ET to announce his support for lifting the ban.

Tuesday, presumptive Republican presidential nominee John McCain announced his support for allowing offshore drilling. McCain's proposal angered environmentalists who are steadfastly opposed to the procedure, which can have harmful effects on the surrounding beaches, coasts, and marine ecosystems.

((truncated))

[kennynah]

?????...... inventories drawn down...BUT price did not go up...for once ! instead, actually dropping a little...

************
18 Jun 2008 14:35 GMT

ENERGY: US EIA oil stocks for Jun 13 week: "U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by1.2 million barrels from the previous week.

At 301.0 million barrels, U.S. crude oil inventories are at the lower boundary of the average range for this time of year.

Total motor gasoline inventories decreased by 1.2 million barrels last week, and are in the lower half of the average range.

Finished gasoline inventories increased last week while gasoline blending components inventories decreased during this
same time.

Distillate fuel inventories increased by 2.6 million barrels, and are in the lower half of the average range for this time of year.

Propane/propylene inventories remained unchanged last week and moved below the lower limit of the average range.

Total commercial petroleum inventories increased by 0.6 million barrels last week, and are near the bottom of the average range for this time of year.

[LenaHuat]

Actually 21 billion barrels of reserve is very little.

Did some arithmetic, 21 billion*(10 to the power of 9) / 25 million barrel a day consumption =
2-3 years only

I thought there was a mistake in my sums but double-checked it with ABCNews (there is a discussion forum going on at the website and most forumers presumably Americans are lambasting the idea) and it's right, only 2-3 years of oil.

[kennynah]

the folks who are blocking the drilling process... are none other than the chevrons, standard oil... better for them to have shorter supply than ample...understandable

[LenaHuat]

K- And the ones supporting the bill are Cheney, Bush & Halliburton and many more oil cronies

[millionairemind]

Bush did not do anything worthwhile about oil in his 8 yrs of presidency... now just towards the end of his term, suddenly KPKB about oil prices...haha!!

He is actually one major determinant in the high prices of oil. .. wonder how the world and oil prices would look like if he did not attack Iraq??? hmmm will we even see $50 oil????

I think it has got to do with the election. He wants to push the blame of high oil prices to the Dem. controlled congress so that the Republican can have a slim chance of winning in the Nov election.

Boatload of crap..

[HengHeng]

by the way his dad and himself owns oil companies. These bugger is earning money at the expense of the ppl he should serve