Energy exists in various form and affecting our life closely. The most
important one we know are the personal energy level, the car's engine output and
many others. I would like to look at
various type of energy situations.
Special features:
Matthew Simmons' is the author who raised the concern on the end of Arabia's
oil empire. The following two pieces are great treats on the subject.
A presentation on uranium supply and demand The Uranium Market: Past,
Present & Future by Jeff Combs, President of The Ux
Consulting Company, LLC at the 2005 Toronto Resource Investment Conference on
October 3.
HTML or
Slide Show
Simmon's latest interview by Sandra Ward on Barron
part 1
and part 2.
Source: “Projected Costs of Generating Electricity, 2005 Update”; Nuclear
Energy Agency, International Energy Agency, OECD
This chart does not present any surprise. We should consider the unit cost as
the reciprocal of flexibility. Wind turbine could be as small as a unit at
your backyard but the up front investment of nuclear is at billion. Mass
electricity
production is a cyclic competition among nuclear, coal and gas as the efficiency
of each improving.
Latest articles and commentaries:
2011.03.20 Energy is never too far from
politics. Energy does not control the mobility but also the source of financial.
Energy producer rarely bankrupts because it has price power. Saudi got rich but
the American oil companies got richer at the beginning of the Twentieth Century
because the black gold was sold to the American at dirt cheap price. Nowadays,
it is still selling a the below price. Just a simple calculation. The price of
oil as about U$1.00 at 1900. After One hundred and ten years and with a
inflation rate of 4%, the price will be about U$75. This is based on the ample
supply without any additional cost of finding and development; not to mention
about the higher expensive oil. With all the additional factors it could easily
double the price. Why the second part of the argument is valid? The oil pumped
out at the beginning of 20th Century was basically free-flowing from underground
or required very simple pumping mechanism with oil was located very close to the
surface. This is contrast to the kilometers deep of oil now. This is not a new
phenomenon that oil owner want to sell higher price while oil producer want to
buy low and sell high. A simple way is to use political power to suppress the
selling price and use the pricing power to sell at the high price. The situation
can exist if the government support the low production price which could be
different from the real cost. Iran was been an oil producing companies with
little government owned producer during the Czar period. As the people wanted to
take the oil back, there was a political change. Iraq followed but Iraq's oil
problem was 'helped' by the West (i.e. American and British not the French who
has French oil producer in Iraq) to liberal the country. Libya is just another
oil rich country which has many foreign owned oil producers. When the people
wants to take back the oil ownership by removing the government that support
foreign oil ownership, the Ally moves in. This is Western Shamanism. This is
interfering of the internal affair. If American led Western Ally continues to
operate this, the community of Non-American Friendly will be grown by the BRIC
led by China. However, if the Western Ally does not take action, they will lost
the oil field in the Libya case but will not accelerate the lost of those not in
the pipeline.
2010.09.30Association on Study of Peak Oil and
Study USA on its Oil Notes today reports "Two reports from China this week show
manufacturing activity continuing to grow. The official Saudi Press Agency says
that Saudi exports to China will grow by 19 percent this year and that China
will overtake the US as the largest purchaser of Saudi oil. The Asian
Development Bank says China’s GDP will grow 9.6 percent this year and 9.1
percent in 2011. The news from China has analysts talking about oil breaking
through the $80 ceiling. Oil briefly touched $93 in February, but has not been
higher since the fall of 2008.". These are two important messages.
The first is that the China's economy growth continues at least 9%. By
implication, oil demand continues to mount. The second message is that China
becomes the biggest oil customer of Saudi. This could means the oil trade
payment could continue on U$ for China to get rid of the U$. As the result, U$
still reigns the business world. The second message confirms the first.
2010.06.21Japan and China have been actively pursuit oil deals in Middle East.
Japan has non-Government operated oil companies drilling and producing for her
country. China has been actively buying oil from Saudi. The most recent news was
joint venture with BP in Iraq. Association of Peak Oil and Gas Study's June 21
Peak Oil Review quoted "The Saudis reported last week that during 2009 56
percent of their exports went to Asian markets. The US share of Saudi exports
dropped from 20 to 14 percent between 2008 and 2009 while the EU’s share dropped
from 12 to 10 percent." We have witness the declining of world oil
production while American and European are not increasing the production. The
Asian's demand form China and India is just start to ramp up, the supply and
demand equation is definitely tilted to the demand side notwithstanding the
short term fluctuation. This explains a very steep contango for oil future. To
confirm this conjecture, we have to identify whether the reduction of the Saudi
export to American and Europe are caused by the increase of Asian purchase.
2010.06.16
WTI continues the march. NG pulls back by 5% to drop below the U$5 mark. It is a
psych barrier more than any material technical barrier now. During the thinly
traded evening, NG climbs above the U$5 mark to U$5.039 or 0.6% compares to the
end of day price at 17:00 EST. All these are noises and sparkles. The important
technical event is both break above the 200MA. NG broke earlier, pulled back but
hold high. WTI just did that today for its 200MA and 50MA. So we have seen an
established major energy trend. If we take a look at the distillates such as
heating oil and gasoline. Both also broke the 200MA last week. The trend is now
lined up. Let see what is the NG inventory report can do to the NG price.
2010.06.15
WTI prices broke the tradition that falls before the Wednesday EIA report. It is
not fall but up 3% by U$2.30 to U$77.05 for WTI at the end of the COMDEX price.
Volume is not impressive. It is just the 200 day volume average. The jump is not
necessary short covering but speculation. These speculation are rare. The price
of oil is now entered a critical recovery position. If the oil inventory support
such speculation, the price will start to build a plateau. There is a high
probability that the price could hold because the OBV is rising with the RSI at
60 range. There could be room to go.
2010.05.13
The chart for American's natural gas inventory has indicated a significant
deficit. This deficit is far more than most of the last few years but the NG
price does not reflect this situation. Either the distributors are complacency
or there are future contracts for the summer. The later is not true. If the
situation continue, the NG price could explode during the hot summer months of
August and September. With the most recent downward pressure on WTI (Brent
remains above U$80) but NG can hold on above U$4.00, this is a bullish sign.
Platinum has recovered during the beginning of evening trade (up U$28 or 1.6%).
The volatility of commodities continues.
2010.04.029
NG has a sudden drop of 7% today after the EIA announced the last week
inventory. Is this pure speculation or actually this is creditable statistics.
From the chart, we can see there is over production above the standard model but
the actual figure is in deep deficit as shown by the surplus chart due to the
progressive change of usage model. When fundamental does not change, the
technical break down is not necessary 100% reliable.
2010.03.04
Overnight, the C$ to U$ does not change much. The effect of the Canadian
2010-2011 budget's effect could be masked by the closing of the weaken. With
the interest rate peeking over the horizon, the C$ has been holding back.
Investors who are going to invest in Canada does not want to have high C$
for the meantime. If they try to buy C$ for their investment by announcing
their intend, it could increase the cost. Nonetheless, the effect of the
market could be mull today but vigorous next week. On a side note, WTI
closes above U$80 for a few days. Today could be pivotal for the
establishment of a support at U$80.
2010.03.03Gold has broken the short term resistance of U$1,120 to U$1,130 level this
morning. WTI has been flirting the above U$80 level and beaten down many time
and rises again. Today, the press continues with the USD pulling back slightly.
Any slight weaken of USD will mean very little to the WTI price because now is
all speculation on the demand of oil. With the news Greek cutting spending and
increasing tax, hope has created. But this could be sell on news type of event.
Updated at end of day: WTI closes above U$80 and tops U$81 before falls
back. This is rare because the WTI rises before the EIA number which is not
usual. However, we should take consideration with the sudden strength of
EURO that weakening U$. U$ should be weaken but the strength of Euro is just
speculation before Greek meets Germany and France. We could expect a sell on
Euro which could boost U$. Along the similar vein, gold advances above
$1,140 at the evening which could set the stage to recover the U$1,200 high
ground.
2010.01.30
The Iceland was the first one that has hydrogen replenish station for the
hydrogen fuel car other than the hydrocarbon gas station. This is as green
and as clean as it can get. China, one of the alleged environment
non-friendly country and bull eyes of many green house gas cutting culprit,
has announced to build 27 plug-in station for electric car as a pilot
project and more will be built countrywide. This could be the second country
that walk before talk to make the world cleaner using the electricity. Of
course, these energy could come from highly polluted power technology but
this is the first step. Complement of the China Daily:
http://www.chinadaily.com.cn/bizchina/2010-01/28/content_9390392.htm.
According to this report, the electric car industry and the heavy duty
battery industry will be complemented by this move. American has been
claiming the leadership of electric car by car manufacturer such as GM's
Volt but there is no such complementary plan. The first world distributed
commercial electric car could very possibly by China's BYD not Volt by the
second half of 2010. China's actions are very pragmatic. She deserves more
recognition on the effort to improve the quality of life of the Earth.
2010.01.26
The following is quoted in the ASPO-USA's weekly review for January 26,
2010: "We’ve gone from record [natural gas] storage to
under the five-year average in two months, which is really astonishing.
Before this winter season started, most traders thought it to be
incomprehensible storage would evaporate so quickly." -- Chris Jarvis, president Caprock
Risk Management; Hampton Falls, New HampshireWhen you read these
comments you cannot stop wonder about the accuracy of the EIA/IEA's
statistics. These statistics consistently used by the traders and market
commentators to give us the perception on what is going on. Are these
numbers that reliable? If not, there is a lot of problem we rely on them for
our investment decision.
2010.01.06
The strong oil resistance of U$82 is broken today. As always, temporally
break through does not mean anything. The level has to be held. WTI moves up
again after the EIA announce the inventory. Traders love these wild news to
create trading opportunity. But oil is on a steady trend to recover. The
fundamental that oil is not consume less inside and outside America will
finally catch on by everyone. The demand is not destructed. After whoever
has been loaded up with the paper cheap oil, now is the time to push the
market for another dump. This time, the plan may not work out as expected.
NG has been suffer much worse than oil but finally the true will come out
that we could see the price will continue to mount even after the winter. It
should be going to U$8 if the USD can maintain the current level. Otherwise,
higher price for NG.
2010.01.04 Oil broke the U$80 but shies from
better the U$82 on October 21, 2009. Today''s surprise U$2.15 movement has
not create panic. WTI's estimated contracts for the day at NYMEX is 235,089
which is 12% higher than the 200 day average volume. Energy stocks do not
have a general rally; only the big one due to the news that Total increase
holding in Cheakerspear. The price may finally meet the reality of supply
that changing from demand concern to supply concern (quoted from the weekly
news letter of ASPO-USA). In fact, the market did not respond to the
drawdown last week to play safe. The consumption can be continue to be at a
maintained level.
2009.12.31 According the the EIA's published
petroleum statistics on yesterday, the drawdown happens on the US West rather
than the US East when the cold weather affects the Northeast. Conventional
wisdom would consider the refinery at the East would do double time to produce
fuel distillate so that the response time is faster and the cost of
transportation is lower. It would be unreasonable to assume that the crude is
shipped from the West to the east for the refinery. As the result of over
shipment, the East has higher inventory than the West through the pipelines
because distillate will need surface transportation. This theory has two
problems. First, we are told that all the storages are filled to the brim so
that super tankers are used to store at sea and no more tanker is available. If
so the inventory could not be increase but drawdown. Second, There is an
alternative explanation that the refineries failure to operate at higher
capacity to produce the fuel. And possibly worse, their capacities are lower so
that they could not operate at a higher rate to drawdown the inventory.
2009.12.28
ASPO-USA reports that "The
recovery of natural-gas prices may be slowed by hundreds of uncompleted
wells in North America that can be brought online quickly to meet increased
demand for the heating and power-plant fuel. As many as 1,500 gas wells were
drilled and not completed as of an October estimate by Halliburton Co. Those
wells can start pumping gas once prices climb above $6 per million British
thermal units, limiting further gains. The largest concentration of
uncompleted wells appears to be in the Barnett Shale of North Texas." So
the U$6.00 proved to be a strong resistance. Once penetrated, this will
imply the delivery significantly drawdown the inventory. If that does not
happen, we can see a major fallback.
2009.11.10
According to
Association for the Study of Peak Oil and Gas USA's Weekly Report Published
on November 9, 'Storage of crude on tankers in
the US Gulf is now down to 7 tankers from a high of 20 in May as the spread
between current and future crude prices has narrowed, making floating
storage less attractive.'
This is a rare report to reflect that oil tanker story is due to the
contango of oil price not before of demand destruction. We know that the oil
price has suffer significant damage just like gold price due to no real
reason but the margin call. So the cat is out of the bag.
2009.10.30According to UxC.com
report, China will
be leader of the nuclear plan in 2030. By 2020, 78 GWe new nuclear capacity
should be built. The current status is that 16 is building, 250+ are planned
and over 70+ are identified.
2009.10.23 Are we seeing the rally of energy
driven by the devaluation of the U$? This is a complex and compounded
problem that exuberated by the disguising real demand with excess supply.
With the strong and powerful propaganda machine, it can create mass
influence. While a simple turning off a tab could fix the excess supply
problem, it is dramatically described as filling up to the brim for all
possible storage. There is a shut-in method better than storing. Arabian
does that when they see the price is too low. According to the Wednesday EIA
petroleum report, the oil is in excess and the gasoline is in shortage
because the refinery is not at the high production capacity. Immediately,
the oil price drops and the gasoline price rises. One day later, everything
returns to up trend even with the USD Index bounced back above 75. Now, this
morning, WTI returns to U$81 range while USD up 13 bps to 75.13. On one side
of the mouth, the media says that Fed is holding down a weak U$ to create a
competitive edge for American. At the same time, every entertainlyst says
that all currencies are rushing to the bottom to competitively devaluate. If
everyone is devaluating their currency, the commodity price will not rise.
Exchange rate likes the buoyancy of the rubber ducks in a bath tub, if it we
add more water to the tub, all ducks relatively at the same level. But the
water level increases. The price of commodities in all these currencies go
up; this is inflation.
2009.10.18 Iraq had imposed a rule on foreign
oil company. They can get U$2.00 from the produced oil. This turned off many
oil producers who seek interest in Iraq's giants. The most recent, the
second, auction has born fruit rather than fruitless than the first auction.
The first one emerged is not surprising not American contender, it is BP-CNPC
(a British and Chinese joint venture) consortium. It sought U$3.99 per
barrel produced but later fell back to U$2.00 as asked by the Iraq
government. The details is in the
AP report. This outcome has profound meaning. First, American remains
out of the oil game in Iraq after pouring billions of dollars to the Iraq
war. Seconding, BP wins this auction only after it gets a Chinese partner
who is already buying oil from Iraq. Iraq supposes to be American friendly
now but it is not. American's foreign oil policy may have to amend as she
gets less and less friends around the world.
2009.10.15
Gold and WTI bears the ratio of 10 in the past and now it has restoring to
the current value of 13.50. This will push the oil price to U$100 if gold
holds its current position but don't count on it. Natural gas has been
identified as glut and excess with no demand. As the result it fell below
U$3.00. Without any major news, it bounces back to the high U$4.00 range. To
me it is much more manipulation than anything else. The NG surplus chart
shows the consumption is steady. Very much contrasts the excess theory. One
question these theorists need to answer is why the producer does not shut
off the valve. It is not impossible and it happened before. In the most
recent days, with the threat of falling U$, energy is steadily rising. This
winter we may see U$100 WTI and U$10 natural gas. Even in C$, they will be
higher than current price level.
2009.09.29
Natural gas went up more than U$1.00 or 28% from U$3.74 to U$4.80 after the
October future concedes to the November. The price gap is the biggest
between the October and November. The gap between November and December is
U$0.70 and the spread diminishing to further down the road with the contango
extended to January 2011 at U$7.256. Is this a turnaround of NG. The jump is
unusual but not the only situation.
2009.08.19EIA has been the biggest promoter of demand destruction and weekly
increase of stockpile and import. It is not a consistence picture because
the rate of increase is unbelievable high (now should have 100's million
barrel surplus since the destruction begins) with the side story of storing
these surplus oil in oil tank. Suddenly, the oil has a drop of 8 million
barrel in one week with the refinery input reduced by 0.5%.
2009.08.14A new chief to the China National Nuclear Corporation is reported by
China Daily on August 14. The report allows us to look into the inner of the
China state owned business and their relationship with the Politic Bureau. The
new chief held the title of Chairman of China Atomic Energy Authority from 2005
to 2008. The title in CNNC is GM. The event triggered is the previous GM was
implicated in an investigation. What we can say is the legal machine is running.
The Chinese Administration is deploying key resources to all key business units
in the country to ensure continuity of the policy. China has a dedicated
organization to oversees the use of nuclear energy in an active role because it
involves actual building as contrast to the monitoring role of EIA. An
August 17 report from China Daily describes "The CNNC is
responsible for China's nuclear weapons, power production, and managing the
country’s nuclear waste disposal facilities, according to the company's
website. It made a profit of 4.8 billion yuan ($705 million) last year.
China plans to build five nuclear power stations this year to reduce the
country's reliance on coal and oil." China's nuclear energy is not yesterday
technology. This time it is at the technology bleeding edge. Xinhau News
Agency reported on April 20, 2009 that "China on Sunday started the
construction of its first third-generation pressurized water reactors using
AP 1000 technologies developed by US-based Westinghouse. The reactors,
located in Sanmen of east China's Zhejiang Province, will also be the first
in the world using such technologies." This project is a joint venture of
CNNC's subsidiary SUFA and Westinghouse. There are also other technology
trial with Russian as early as in
2006 reported by China Daily. The stimulus package is in fact smoke and
mirror. It sounds like new money, but these type of multi-year planned
project could be included in the U$500M package. The announcement is just
the second run of an epic movie. Another sign to show China Government is in
the driver seat to switch export oriented economy to a balanced internal
consumer model.
2009.08.12If one follows the EIA weekly energy report on petroleum or natural
gas they will be dumbfound on the price has not quite tracking the
inventory, especially the oil. There are a few interesting issues related to
the EIA number starting with the source: it is based on voluntary supply
sources which does not perform a systematic collection of raw data and
performing analysis. This is criticized by Henry Groppe. Second, one of the
very misleading indicator is on the days of inventory is based on the
consumption rate of refinery. This is very controversial because the
American refinery capacity is falling and problematic. This explains why
price goes up when the days of inventory rises. Of course some people does
read the actual number but the number does not have to be accurately
reflecting the reality. For example, storing oil in oil tank theory has been
criticized by Henry Groppe that it is a myth because it is so expansive that
no one can do it. Truth may be coming out some day but the market's trend
may show the tip of the truth. As all EIA and IEA effort points to excess
oil, oil price has recovering to U$70 even with OPEC output cheating.
Immediately, there are tons of explanation like high hope on economic
recovery of America but ignoring the true needs of BRIC. WTI takes efforts
to slowly climb back above U$70 after a flash drop of the price. When it
happens week after week, one would wonder why the price returns higher and
higher even on the face of flash rise of U$?
2009.06.18
In Matt Simmons' Twilight in the Desert, he wrote about his research
on oil price and demand. His finding is that higher oil price does not
necessary curb consumption. Forget the U$147 oil. The current level of U$70
is already 75% higher than the U$40 a few years ago. With all the negative
economic climate, gasoline consumption continue recovers and oil stock
continue to decline. In yesterday's EIA's weekly report, crude stock fell
3.9M barrel, nearly double of the expectation. US gasoline consumption was
up 1.3%. Consider the continue decline in the American economy with all the
manufacturing slow down, the consumption is edging up. You could conclude
all the hand waiving on how China is slowing down become meaningless when
she still maintaining a stubborn growth when thousands of manufacturer
bankrupted. As an editorial note, there is not short of millions of business
in China because she is climbing the curve of developing economy. The
typical model has huge number of small business (not even medium) before
consolidated to medium size business to a few 800 pound gorillas. It does
not mean those dozens of 800 pound gorillas is final. Rest a sure, more will
come. Look out P&G, J&J, Caterpillar, Coca Cola. BYD, Geely, CNOOC and
SINOPEC are prime examples of these gorillas.
2009.05.05
Association for the Study of Peak Oil & Gas - USA Chapter has published
an
interview with the energy expert Matt Simmons. This interview provides
interesting view on the glut of oil.
2009.02.26Since the collapse of the WTI,
its prices has been persistently below the Brent at end of the day close.
This morning, the situation has reversed. If this continues, the concept of
surplus WTI could be fading away. (Evening update. WTI closed at
U$44.49 above Brent's U$41.51. Now the U$3 premium relationship has
restored. The excess WTI may not be that much excess now.)
2009.02.11This week is vital and pivotal
for the gold and oil which implies U$. Gold in all currencies except U$ are
making record high. Gold in U$ is reaching the 6 month peak. More important
the 200MA for U$ gold price is turning up since last week. C$ gold price
200MA turned up long time ago. This is a strong signal for the U$ gold price
to break all time high again. While gold is signalling a strong inflation
ahead, oil is signalling a week economy in very short term. It continue to
slide but not below U$30 yet while contango of near term still at a very
high premium. May be this tells us the short term demand destruction is only
very short term. However we have to be very careful because even contango
exists but the price continues to slide. At the current level, the oil
industry is suffering. It is not just the producer but the peripheral
suppliers and service providers. This puts extra weight on the overall weak
economy. Many large service providers, like drilling, have to raise capital
which is very close to suicide. If these peripheral industries die, we can
see the partial collapse of the oil industry that leads to large producers
only. The result is monopolizing the producing and sky high oil price in the
future. For the meantime, Alberta oilsand is facing this exact scenario.
Oilsand production need at least U$45 per barrel to survive. Many have
shutdown existing projects and stop new new one. If the demand destruction
is real, the supply and demand may achieve a meta balance. With all the
manufacturing sectors slowing down this could be partly true. The other side
of the equation is consumer. According to IEA, gasoline consumption only
decline by half a percent. So the supply and demand may not be balanced.
2009.01.15
WTI and Brent have a wide margin; 35.4 and 47.83 respectively. One is
produced from Texas and the other is shipped over the sea. If the story is
true, Texans are storing their WTI using the supertanker to store the their
oil. So those produced from the overseas priced at WTI are down
precipitately. While the oil has to be sent from Northsea to Europe will pay
a high 47.83. If this story is true, the margin will get wider and wider.
But why those brent buyers buy WTI? Nothing is logical. If it is logical,
the days for the wide margin will come to an end.
2009.01.07
Conspiracy and complexity theory: Russian may use the energy trump card to
influence Europe by cutting off the NG supply to Ukraine using the excuse of
debt owned by Ukraine and alleging Ukraine stealing the NG delivered to
Europe through the country (80% of the Russian delivery). This move is
executed during the coldest month to create the most effect. As the result,
insult is added to injury, it is a lose-lose result. Europe is frigid and
Russian is poor and has to deal with excess NG (according to news report
which is not necessary true because Gazprom can turn off the tap). Ukraine's
strong position could be backed up by American who has strong tie and
turning Ukraine to be the bridge fort to curb Russia to restore the glory
U.S.S.R. Ukraine will be back down from her strong stance under the pressure
of Europe. While the story is not completely unfold, both sides have
encountered unexpected results. Pressure is adding to the pot. Warm weather
may solve this knot. If not, both side could have very unexpected outcome
including military action or destroy of NG pipeline.
2008.12.13
Conspiracy theory: oil demand destruction is a weapon aimed at the Russian
and non-American Friendly oil producers (RANAFOP). The last time oil future
traded at U$47 range was February 2005, three and a half years ago. Consider
the demand grows at 4% a year (BRICS definitely drives much higher than
that) the demand growth will be about 15% increase since then or about 5-6
MBPD. This is below the 1.5 MBPD growth per year by IEA or even EIA. From
July to December is only about 5 months, how could one to explain the demand
destruction is so significantly that the price falls back to 2005. Report
has been shown that the low price is caused by producer storing crude by oil
tanker because ground storage is very tight. In order to avoid the high cost
of ship rental, near future contract is sold dirt cheap. This simply not
holding water because producer could just reduce the production. Yes, the
future becomes spot and they have to deliver. Again this is not true, they
can be roll over to next month or even further down future. Another strange
condition is that at such low price, American strategic reserve is not
refilled since the release. China's strategic reserve program remains
inactive. At such low price why are they not refilling? Consider who could
suffer most from lower oil price, it is obvious the Russian, Iran and
Venezuela. When Russian and Venezuela is using the oil as lever to control
the West now the hot weapon goes cool. The thread of cutting NG to Europe
from Russia could not be materialized because Russian need the money. So
does Venezuela. Now Iran could not mount new campaign for any terrorist
activities. Or you can expect Tali Ban and Al Qada activities to be reduced.
Would it be a loss-loss for the Big Oil? No, their reserve is declining
rapidly. It they can use any excuses to cut the production to preserve the
reserve, it is a great idea because you can sell it much higher in the
future (a multiple). Would this be a short term or long term? Complex theory
says you cannot really predict the result. Just like the sub-prime crisis
caused the Lehman bankruptcy than world financial crunch. The oil price
rewind is most probably is out of hand of anyone now because lower the price
more output is required for Russian, Iran and Venezuela to support their
budget. The price will be just spiral down. I just hope it will not come to
a point that similar to T-bill.
2008.12.10
Today's number published by the EIA is that inventory continues to increase.
This is indicated by the number of days of supply that has increased from
19.9 to 21.8 days YOY. When this happens, entertainysts claim this is the
cause of that 10% crude price drop. The American has got into energy diet.
So oil price has to be falling precipitously. While credit card companies
have already indicate the maximum reduction month over month was only 4%.
Most recently the gasoline consumption has increased. So how good is the
days of supply. This is a myth. This is the input to the refinery. When the
refinery has problem to churn out gasoline, it is being labelled as
reduction of consumption by consumer. This should drive down the
price. OPEC has nothing can do to change this destruction of demand. Today a
new concept has re-emerged. OPEC can push up price by cutting production.
You can fool some people sometime....
2008.12.05
Crude price continues coming down precipitately. At this level, it is not
just only the OPEC and non-OPEC producers are hurt, the supply chain and
peripheral industry (such as drilling) are hammered by significant cut back
of the spending. Some will not able to last especially those not well funded
large one. While the oil revenue is shrinking, labour inflation is not. The
energy price for these companies is hedged at a much higher price. The
result is a stagflation for the oil patches around the world. This create a
lot of crack line at many geopolitical regions such as form East Europe
Russian countries, Middle East, North Africa and South America. The unrest
coming could be violent and long. In effect, this could become a world war.
Alternatively, Sprott Asset Management has proposed a way to stablize the
world economy by buoyancy of commodities. This could be a way the OPEC
countries to do to stop the price fall. They could buy the near term
contracts and benefit from the contango future contracts.
2008.12.01 Bloomberg reports today that
OPEC seeks U$75 a barrel through cutting production. This is the
conventional thinking. With the help of those holding future oil contract, it
may succeed should the margin clerk does not call them or the banker does not
call in the loan for them. Supply and demand does not control the price anymore.
Before I could publish this blog, the market comes down so do all
commodities.
2008.08.17
Russian may rebuild the iron curtain. Just this time is not iron; it is oil
and gas. This starts with Georgia, a West befriended ex-Soviet republic.
Under the pressure continuous pounding shrouded by a cease fire, Georgia may
get the message to disassociate herself with the West. The Globe and Mail
article,
Moscow transforms real-world game of RISK, dissect the situation for
you.
2008.08.04
Oil drops more than U$4.00 during the day and recover above U$121 at the end
of the day shown in this chart.
Technically, WTI does not touch the oversold until recently. Last time the
RSI was around 20 before rebounded. It was the time everyone thought oil
would go back to U$40. Negative sentiment is building on oil. Is it negative
enough?
2008.08.04
Geology survey, unless it is 100% sure, they qualify the finding on the
probability of reserve based on the sample they collect either from rock
grab or drilling core sample. The most recent report by the American media
regarding the Arctic petroleum reserve provide by the US Geology Society
seems a little more than deviated from the normal practice. According the
the
ASPO-USA's August 4, 2008 newsletter, the total reserve is calculated by
summing up all the samples discarding the probability. To understand why
this could potentially provide big surprise, please read the commentary at
the end of the newsletter.
2008.07.17 It is very
interesting to hear the entertainysts singing a tune that makes Americans
believe their government is doing something for them: bailing out the
strapped homeowner (actually the executives of F&F not even the investor)
move towards sustainable and energy independent. The later was done by
announcing increase in inventory. But reference to what? If you look at the
data published by EIA yeaterday, the crude inventory is at the lower end of
the range. This translates to 19.3 days of supply v.s. 22.7 days of supply
last year same period. Gasoline has a much better number. It has 22.9 days
of supply v.s. 21.1 days last year. Distillate is in similar situation. It
is 30.1 days of supply v.s. 29.5. Does this mean reduction of consumption?
Why doesn't EIA publish a simple number, gallon used in the period? These
days of supply can be misleading because there was significant draw down
before. The fill up is just to restock.
2008.05.26
American's NOPEC Bill will create back fire to the American's energy import.
LNG has shown the American that if you cannot pay the price somebody can.
Pursuing to force OPEC to lower price may have a small political win in a
very short period of time. But this will give OPEC the great reason to
reduce capital investment to increase output. As the contract expiring, the
new one will not be signed with the American because the new buyers (as
usual the Chinese and Japanese) finance the new projects.
2008.05.16 Two
events create great impact on the natty yesterday. First is the U$840M LNG
to gas gasification terminal project at Quebec City will have the investment
from the Russian Gazprom. Gazprom will assure the supply 100% of proposed
LNG capacity from the Shtokman gas fields. The second is the Canadian
governmental panel postpones release of environmental report till 2009. The
first will increase the supply of natty (by gasifying the LNG and
distributes through the NG pipelines) and the second delays the future
supply years after 2014. The first one is more intermediate term because the
gasification terminal expansion project will finish by 2009. Gas from
Gazprom may not be a good stabilizer for the natty market as we all observe
how Russian likes to volatile the price either due to political or profit
reasons. The most recent reduction of LNG supply from Saudi to North America
was explained as other countries can pay a higher price. China and Japan
signed and building gas pipeline for the Russian gas delivery. This will put
the East and the West in direct competition on the NG. The Mackenzie
pipeline is the great hope that delivers the NG treasure from the Alaska to
North America. NG future reacts to these two pieces of news in a slightly
positive way. It pulls back from the recent high of U$11.70 to U$11.50 this
morning. However I see both events are helping the bull to push the NG in at
least short term because it shows the demand exists and the supply is tight.
If you check the US NG inventory chart on the Gold
& HnCn page, you would see the inventory build up is virtually none.
This is also supported by the contango of NYMEX NG contract up to Jan 2009
which sits at U$12.534. A whole U$1.00 premium in the future which is
reaching the Katrina height.
2008.03.17Reported by the ASPO's
March 17, 2008 weekly report, US LNG imports
of 16.2 million tons in 2007 will
increase by more than 400% to 70 million tons/year contracted into the US by
2012, according to Martin Houston, a VP with BG PLC Group. He says that
excess production capacity is unlikely to emerge in the system any time
soon. NG's price fall in last 2
years was blamed on LNG. With the LNG import growth continue, why the NG
price continue to mushroom?
2008.03.10WTI
shots up north of U$107 when the USD is rally a bit just south of 73. The
picture does not jive. NG also takes the benefit of surging WTI to hit
U$10.024 and hangs around the same level after the NYMEX closes for the
afternoon. NG may break the resistance of U$10.10. Gold fell U$12.00 and
recovers just about U$2.00 below the Friday close. The market has incredible
under current to prevent the commodities to move up but the underlying
demands is so strong that it will overcome the down draft. However,
volatility would not be minimal.
2008.03.06
We may be heading towards an above U$10.00 NG.
2007.12.04The
world is watching the OPEC meeting not just the trader. On the surface, OPEC
believes that there is sufficient oil event for the coming worst winter in
15 years. As we all suspect, OPEC countries have cheated severely, there is
not much surplus to increase supply except Saudi. From another angle, oil is
peaked or peaking. It is sold at at price that provided only about 2/3 of
the wealth about one/two years ago which means the revenue just worth what
is about U$60. It is very high possibility that U$ will resume its free fall
as the result of the US Treasury's policy. Why on earth the OPEC wants to
sell more oil at a lower price than the high price in the future? Due to
political pressure OPEC may increase led by the Saudi. History telling us
that American enticed Saudi to sell the oil to them at dirt cheap price. The
influence is almost gone now. Cheap oil may be be easily to get. Another
hint is that Brent is higher than WTI. This indicates the demand is high for
import to save the American oil. The trick may not work anymore.
2007.11.06 Oil hit U$97 while USD dropped below 76. USD fell
one percent so oil went up about three percent. Not gold. It gone up 1.5%.
Even in C$ (U$ fell 1% against C$) rose C$2. This can mean gold is not just
rise against U$ but others. In another word, inflation overnight was about
0.3% in Canada? Horrible. Gold's triple identities (wealth storage, fiat
money guarantee, and jewelry) have been exploited Entertainysts to explain
everything. If gold is just a metal, it should reflect the jewelry demand.
Why it moves in reverse direction of U$?
2007.10.23 WTI Crude was closed at U$87.56. The price dropped to
U$85 during the night session. The U$2.00 drop was caused by the expiring of
the November contract yesterday end of day. The market expects the demand
and/or Middle East Turkey/Kurd conflict resolved quickly. With the situation
escalating, the WTI jumped from the session open this morning U$85 to $86 in
an hour. Gold fell U$10 when USD rose above 78 yesterday and recovered
U$5.00 after the USD fell to 77.70 this morning. All these indicates supply
and demand law temporary gone out for a short vacation. Panic, greed and
manipulation reign the market in short term. Retail investor could be
roasted if the macro view is not maintained.
2007.10.17 With a hint from BOC's David Dodge on rate cut, the
Canadian stock market rally is expected. At the same time this will slow the
influx of capital into Canada until further details to prevent FX lost.
However, this will definitely fire up acquisition train engines from various
capital markets around the world.
2007.10.15 WTI crude explodes above U$84 which I see it as a
critical barrier has a significant meaning. This break up paves the way to
U$90 in the near future but also implies USD will fall to a significant
level most probably at 75 in a very near term and 72 in near term. Oil
demand may be up a bit but the rise of energy is now fueled by the
devaluation of U$. Canadian investor enjoy a moment of happiness today
because C$ falls. However, if Mark Carney, incoming BoC governor, does not
lower the value, the manufacturing and energy sector could suffer. Yet there
is always the silver lining. Foreign investors may find it warm a fuzzy to
have a brave currency that will appreciate against other currency. But this
has to be fortified by a clear Canadian FX policy. This could be the reason
why no line up to take out the extremely undervalued Canadian natural gas
companies.
2007.09.17 "The government of
Queensland,
Australia has prepared a report warning of massive social dislocation,
rising food prices and infrastructure problems because of rising oil costs.
The report on the looming "peak oil" crisis concludes that we will have to
re-think the way we live and travel in the next few years as cheap liquid
fuels fade away." from
Peak Oil Review 17 September 2007published by
ASPO-USA.
2007.09.12 Entertainist has explained that the US inventory
has dropped significantly so the WTI price is pushed up to record high above
U$80 interday. This is a very interesting notion and sensation for
communication. When you look at the data in more details, the days of supply
for last week was 20.6 which is the same as last year but the WTI price was
just below U$60. The inventory is seasonal so there is fluctuation. If the
EIA's model is accurate the most important number for inventory level is
days of supply rather than the actual number of barrels. This is just
another way to play people's emotion. Consider the Katrina situation which
reduced the American national production (but still supplemented by import)
by 10% pushed the WTI to U$69.81. the current supply level should not
squeeze up the price. There could be another explanation: inflation of 14.5%
in two years or more.
2007.09.12 Natural gas cuts through the U$6.00 like a hot knife cuts
through butter. You can argue that it gets help from oil. On August 31 NG
closed at U$5.43 and continued to U$5.30 during the Labor Day weekend.
Within less than 2 weeks, what is the fundamental that has changed to
trigger this rally? Would this be the normal price? Hedgies are shorting NG.
Now they get squeezed. More may come.
2007.09.04 Natural gas fell to U$5.30 during the Labour Day long
weekend and today it flipped up to U$5.60. A churn of 6%. Is it because
Hurricane Felix down graded from class 5 to class 2? Is it because OPEC is
going to pump more oil? Is it because the hedgies do the short covering? Is
it because the temperature forecast predict the winter is warming? Is it all
these negative price news becoming positive news for NG? Retail investors
have been jerked up, down, left and right by these high power market
salesman. High wave ahead is the writing on the wall.
2007.08.28 From my study on natural gas supply, it has indicated the
supply is tight to very tight. During last weekend, the natural gas price at
NYMEX dropped 25% from its recent high of U$6.940 to U$5.380 yesterday.
Today, it pops up to U$5.64 level, up by 6%. Apparently this is not supply
and demand in action. Not even hurricane Dean can do that because it never
threats the Gulf. The market has become very irrational. Any market timing
trading is brave.
2007.08.18 EIA publishes a weekly report on natural gas inventory.
The level could go up or down. When we read the 5 year average inventory EIA
chart, we see the NG supply always sits high. Why there still fluctuation.
By rehash the data, a more clearer picture is emerged. Please check out the
chart.
2007.08.15 EIA's oil report shows contradicted consumption
information. EIA consisting identifies American reduces the consumption (IEA
says otherwise). Today, the inventory is 335.2 million barrel up from last
years same period's 331.0 million barrel. However, the days of inventory is
lowered from 21.2 to 21.1 which is a fact proof that supports IEA's
requirement to ask OPEC to increase supply. The market agrees with the tight
supply perhaps reflect the possibility of hurricane Dean may impact the Gulf
of Mexico's oil production. If it happens we may see a parabolic movement of
natural gas. Depending on the level of impact, we may not see U$15 mcf
level.
2007.08.06 "China has declared a
moratorium on the construction of most ethanol plants. Chinese officials
recognized that producing corn-based ethanol was dangerously driving up food
prices. Unless the fuel can be produced with sorghum, batata, cassava and
other "non-staple crops," it won't be produced in China at all. " Peak Oil Review
August 6, 2007.
2007.08.02 The energy sector is and will be continued to suffer from
the high cost of energy (what an irony) because the cost of high energy
finally funneled back to everything: from salary inflation, machinery
inflation to operating energy cost inflation. The shock creates a period of
low return of capital which in turn feeds on the vicious down cycle of
cutting production. As the result there could be a severe gap of production
on top of the existing declining production. Would the American reduces the
demand to easy the supply demand, apparently this is not happening. All this
has been exuberated with with the weak U$ which is the common oil currency
at least for now. This could create an undesirable effect that more you sell
and more you lost by the time you are paid.
2007.07.18 EIA released the oil supply today, as of last Friday, it
is 22.7 days up from 21.1 last year some period and down from last week's
22.9. This should be an indicator of surplus because it is below the 5 year
maximum but the price of WTI is back to U$75 range. Anyone has the rationale
and the importance of these numbers?
2007.07.11 "OPEC can do nothing about high oil price: Qatar", Financial Post
2007.07.11. When your oil reserve is at draw down mode and the currency
you are paid is losing purchasing power, why would you like to reduce the
price. It is the same argument that we would like high paid to combat
inflation or should I say fiat currency deterioration.
2007.07.09 Price movement is usually gradual. This is the base of
technical and statistical analysis. A smooth trend line tells subtle
changes. A spike is only an event. The worst nightmare is the gentle slope
up or down without any identifiable cause. Crude has been doing this. The
headline story of this week's
Peak Oil Review (July
9) will offer the full story. Please also read the Orinoco, Venezuela story.
There is a Chinese wild card there could send a chill up the American's
spine.
Brits
form an all party parliamentary group to deal with peak oil and gas.
Last
week, Chavez was in Moscow on an arms-buying mission, but also to invite
Russian oil companies to replace the US companies in developing the Oronoco
oil basin. Venezuela gets Russian to fill the Western Big Oils. It will be
hard to turn around.
Much
of Iran refinery capacity was destroyed during Iraq-Iran war. 50% gasoline
is now imported at subsidized price of U$0.38 / gallon. This leads to the
gasoline ration started last Tuesday. May be more hidden factors.
GHG
burden at China is created by the West by pushing the production to the
cheap labor country where polluted energy industry is run.
Japan
continues her 13th month of oil import reduction (11%). We may want to check
out whether nuclear energy is replacing the hydrocarbon. This has the
implication of boosting uranium demand.
India
will receive natural gas from Iran via a multi-billion-dollar pipeline
through Pakistan which is to be completed in four years. So much for the
American’s hope to get energy from Iran.
2007.06.28 US natural gas inventory has increased by 99 Bcf which is
higher than the 83 Bcf consensus. This only 18% higher than the 5 year
average. As I keep on saying the supply should be 20% above the 5 years
average. So this is 2% below. The price is suppressed by the illusion of
overstock. As for those Canadian NG producer who does not hedge, the EOD
future for NG now is standing at C$7.40 as oppose to $7.20 last year same
time. This is still a higher price than last year with the negative
sentiment from the market.
2007.06.25 From the weekly Peak Oil Review
of ASPO-USA June 25 Issue China has become the #1 CO2 producer and
its oil import increase by 11.5% compare to last year same period.
2007.06.21 WTI Crude droped more than U$1.00 yesterday
morning created a panic in the energy market. Entertainysts (my name to those
story telling analysts) explained that it was due to increase in stock. My
mentor John Budden pointed out it could due to the low refinery capacity which
forced the stockpile to increase. There is also another reason was the expiry of
the July contract. Today WTI Crude back to the high U$68. The ascend was steep.
It looks like some shorty got a squeeze. Natural Gas was reported up from 2,255
Bcf to 2,344 Bcf but below 2,465 one year ago as of last Friday. The build up
for summer falls short. The whole energy market was boiling rally.
Suncor up C$3.00 during the mid session. Natural Gas stock recovered.
Speculation and shriller have continuously fooling the crowd.
2007.06.06 According to EIA publishes the US oil inventory the days
of reserve as of June 1 is 22.1 days vs 22.4 days last year same period.
Obvious this is a decline comparing to last year. If you believe the
consumption has slowed down, you are betting wrong.
2007.05.17 The natural gas supply of American is in trouble. EIA
releases the NG inventory as of last Friday was 1,842 BCF comparing to 2,067
BCF in last year same period. This an almost 11% reduction while the NG
should be building up for the summer electricity generation. If the trend
continues into June, we shall see NG and electricity price go up so does the
cost of your backyard barbecue.
2007.05.09 The nearest crude oil contracts have been continuous
dumped at about U$2.00 lower price than next contract. This does not reflect
any lowering trend of the crude oil. Rather, people would not want the
delivery of oil now due to the refinery shortage. This is the main cause of
vertigo. There is a continuous trend that has higher crude price even the US
inventory increase above 5 year average. The hidden cause is that the demand
has crept up 20% higher than the average. Anything below that should
consider tight.
2007.05.03 Xinhau News Agency reported that China found a world
class oil field (7.35 billion barrels) by China National Petroleum Corp near
Tangshan City, north China's Hebei Province. This discovery certainly
improve China's oil security but does not slow down its oil appetite too
much.
2006.12.31 The price of ethanol is U$2.10 and methanol is about
U$1.8 (rose from about U$1 one year ago) for Jan 2007. Other than the price,
methanol also burns cleaner, less volatile than natural gas and the
gasoline/ethanol engine can be easier to be adopted. We may see a fast
development of converting engine to adopt the methanol solution for country
currently has a potential growth on machinery. Since methanol can be mass
produced from coal and natural gas (rather than gain) we may want to watch out
the petroleum demand from countries such as China and Russia. In case of
China, they have coal/natural gas and have a high potential to expand the
automobile market and methanol production infrastructure. The slack of
petroleum demand from the American may not be picked up by the Chinese.
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