Saturday, October 02, 2004

Whose your oil daddy?

Oil hit $50/barrel this week. Who told that would happen? Thats right your ol' pal Bubba. On August 4th who told you to invest in Canadian tar sand stocks. That's right, Bubba did. Canadian Natural Resourses - up 33%. Suncor up 15%. Western Oil Sands up 18%. UTS up 33%. That is in 2 months, not this entire year.

This change in the oil market is not a short term blip. This is a long term structural change.

Now to be fair, a lot of the run up in the price of oil is due to the depreciation of the dollar against other major world currencies. (Thank you very much Bush Adminstration!!!) The run up in oil price is not nearly as bad, measured in Euros, as it is measured in dollars.

However, there is a structural change underlying the basis for oil prices. Demand is outstripping supply. The demand forecast for next year is that an additional 2 million barrels per day will been needed over and above this year's average rate. That is how much Kuwait produces. So to put the situation in simple terms, by next year another Kuwait will have to be discovered and brought on production to meet the world's demand. Oh, and the year after that, another Kuwait will have to be discovered and brought on. And the year after that. Ad infinitum.

Of course the situation is much worse than that, because many of the world's main oil producing areas are old, tired, and in terminal decline. So, to meet demand, new production has to overcome decline in older fields PLUS exceed the previous year's rate by 2 million barrels per day.

Anybody with any common sense can see the trend is unsustainable. It may not happen this year, or next year, or the year after, but sooner or later demand will outstrip supply.

My biggest worry is that the Democrats win the election, and then will be on seat when the crash occurs in this game of oil price chicken. The President will have very little effect on this situation when it occurs. And the American public will punish the current office holder severely when they can no longer afford to put gas in their SUV's.

Nuff said for now.


Friday, October 01, 2004

Whose the Master Debater?

I am sure that every political blog posted today will have something about the debate. What can you really say except George Bush showed the world how really ill-informed that he is, and John Kerry showed the world how much more presidential he is than the actual president. Period!

Now the spin begins. The Bush supporters who are not completely drugged with their own self delusions are having a gut check moment. However, Karl Rove I'm sure hasn't worked up one bead of sweat. The RNC machine is highly effective and efficient, and I'm sure they already had a plan for this outcome. Don't ever "misunderestimate" the political Darth Vader and the Dark Side of the Force.

Anyway, that debate hopefully helped Kerry, but his supporters CANNOT rest one minute for the next 5 weeks. He is still the underdog. Bush still has a very large advantage in almost every area - the polls, monetary resources, organization, the power of incumbency, access to the free media, and his willingness to stoop to almost any depth of meanness and character assassignation. Kerry may be smarter, wittier, more presidential, and may have most of the world's public opinion on his side, but the world doesn't match up well against Karl Rove and the RNC.

Anyway, just for fun I am posting viewer's comments from the Toronto Star. The General of course would call them traitorous Frenchmen, and Bush has done a good job alienating Canada, along with the rest of the world. However, it can be argued that Canadians would be more objective about the debate than Americans at this point. I am not in any way suggesting that what is shown below is a representative sample of anything. As I said, it is just a little bit of fun.

Voices: Presidential debate winner

We asked you to pick the winner in the debate between U.S. President George W. Bush and Democratic challenger John Kerry. Here's what you had to say.

Kerry won by a landslide. Bush was unbelievably poor. Most of the time I couldn’t understand what he was trying to say, whereas Kerry was quite articulate. I truly feel for the American people if (Bush) is re-elected.
Brian Strachan, Bracebridge, Oct. 1

The debate showed the American people that Kerry is a more confident leader then Bush, who was lost for words and flustered. The clear choice should be Kerry for President.
Don Lawton, Mississauga, Oct. 1

I think that John Kerry won definitively. He presented an effective and honest strategy on dealing with the Iraqi war, and also the war on terrorism.
Fiona Williams, Grand Rapids, Oct. 1

I think there is no doubt about it. John Kerry won that debate hands down. Everything he did, from the points he made to the way he carried himself, outperformed Bush. I only hope that the American people see that and forget about the spin that Bush's people will put on it.
Andrew Rapsey, London, Oct. 1

John Kerry was the clear winner.....
Mark Savage, St. Catharines, Oct. 1

If it isn't clear to anyone that Senator Kerry was the winner he can join President Bush in returning to night school to brush up on his grammar. The president proved again that he is illiterate and came across as a frightened child when cornered by Kerry with legitimate statements regarding his decisions.
Caroll Thachuk, Windsor, Oct. 1

I can't imagine anyone thinking that George Bush won the debate.
Connie Cummins, Pickering, Oct. 1

In my opinion Kerry is a winner. I am going to support him now.
Lakhbir Dhillon, Orlando, Florida, Oct. 1

Senator Kerry has totally impressed me. He seemed "in control" of the debate and yet never stooped to degradation or character attacks. As for President Bush, he sounded like a broken record. Comments such as "wavering" and "convictions blowing in the wind" are getting a little old.... "Hey, G. dubya... wake up!"
Patrick Maloney, Stirling, Oct. 1

And on, and on, et cetera, et cetera.....


Monday, September 27, 2004

My Favorite Subject (but I know it bores everyone else).

Oil futures hit just under $50/bbl today ($49.8?). I predict the price will exceed the important "psychological threshold" of $50 later this week. The Houston Chronicle had another good article about what is driving oil prices in Sunday's paper.

Sept. 25, 2004, 12:57AM
Needed: three 1-billion-barrel oil banks

The oil market is losing its shock absorbers.
It's too early to celebrate the recent decline in oil prices after they nearly hit $50 a barrel. None of the reasons that created the price spike -- the strong thirst for crude in China and India, the dismemberment of the Russian oil giant Yukos, the terror strikes against oil facilities in the Middle East -- has gone away. Like the hurricane season in Florida, the oil market may be facing even more violent storms.
The lesson from the recent price jump is that the oil market has too little wiggle room to deal with supply disruptions. We have been told for years that such disruptions could be offset by the spare capacity of the 11-member Organization of the Petroleum Exporting Countries -- the ability of some producers, chiefly Saudi Arabia, to inject extra oil into the market when other suppliers falter.
This spare capacity has been the oil market's main source of liquidity.

Despite Saudi Arabia's reassurance that it possesses an immediately available spare capacity of 1.3 million barrels a day and is accelerating plans to bring new oil fields into production, this is all too little, too late. Demand for OPEC crude will rise by at least 2 million barrels a day by the end of next year, and production from new fields might take a long time to be brought online.
At the same time, no oil-producing country outside of OPEC seems to be willing to create new spare capacity by investing billions of dollars in oil infrastructure that would sit idle most of the time. At about $45 a barrel, oil countries prefer to cash in as many petrodollars by producing at full throttle.
As a result, the oil market today resembles a car without shock absorbers: The tiniest bump on the road can send a passenger to the ceiling.


However, according to Luft "there is another way."
To compensate for the erosion in OPEC's spare capacity, major oil consuming countries should take steps to insulate their economies from supply disruptions by creating liquidity mechanisms of their own.
At its current capacity of 700 million barrels, the U.S. Strategic Petroleum Reserve, or SPR, barely suffices to tide the U.S. economy over if there is a severe disruption of oil supplies.
While certainly costly in the short term, expanding each of the U.S., European and Asian strategic reserves to contain 1 billion barrels would have the long-term benefit of keeping the market liquid. The stored oil could be released at will to compensate for supply reductions.
An expanded SPR also would signal to OPEC that the oil weapon can no longer be used against oil-consuming countries.

There is much to be done to make the world less dependent on oil originating from unstable parts of the world by building more efficient automobiles and producing next-generation fuels to power them. But this will take many years.
In the interim, the world economy should not be at the mercy of oil kamikazes determined to go for its jugular and unstable countries.
Building a robust oil bank and managing it responsibly is the only short-term mechanism to bring about stability at gas stations.
Without such a mechanism, $50 a barrel for oil could well become a fond memory.

Personally, I am deeply cynical about the possibility of humans, and especially democratically-elected governments (or the Bush Administration for that matter), to act in a proactive manner for the benefit of the economy as a whole. Without a discernable near-term political advantage, no government will make a move, especially one for the "greater good of the populace", but also one that might hurt a specific campaign contributor. Consequently, I would bet the farm that oil prices are going higher - much higher.