Are stocks and oil bottoming?

Was last Tuesday’s 350-point rally the beginning of the end of the bear market or just a false “bear trap?”  And a related question: “Did oil bottom at $33 and will it get re-tested?”  Let’s see what we know.

Some things we know

Sometimes the objective observable facts can yield fairly clear conclusions.  Usually that’s not the case.  Usually you can use the available facts to make a decent argument in either direction.  But sometimes the facts seem fairly clear.

For example, there should have been clarity about being …

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Our current investment trauma marks the end of an era of excesses in credit and real estate markets, of course.  But it also denotes that the United States is undergoing a far more general and significant transition - not only to a new government with a radically different agenda, but more lastingly into a whole new climate for investments. 

Gone is the era of wind-to-the-back investing powered since 1982 by continually lower interest rates and the virtuous influence of the baby boomer demographic bulge working its way through the U.S. economy …

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  PACCAR Australia and Westport to Produce Natural Gas Trucks 8:00 AM ET, December 10, 2008 VANCOUVER, BRITISH COLUMBIA, Dec 10, 2008 (Marketwire via COMTEX) — Westport Innovations Inc. (WPT)(US:WPRT) and PACCAR Australia Pty Ltd. (”PACCAR”) announced today that the companies will develop and commercialise liquefied natural gas (LNG) Kenworth trucks for the Australian market. Australia’s Kenworth Trucks, a division of PACCAR, plan to begin factory-installed production in mid-2009 beginning with the T908, K108 and T408SAR truck chassis and roll out across additional models …

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Some mayors in Canada are working to halt coal bed methane drilling because the toxic water produced in the process may be polluting local waters according to the report posted below from the Financial Post.  They say the employment benefits are small compared with the risks to fishing, recreation, and health.  One company affected is PetroBank (PBEGF) which I own because of its patented technologies for extracting oil from deep deposits of tar sands in a move economical and environmentally benign way.    Stop drilling, B. C. mayors …

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An excellent analysis of U.S. natural gas supply prospects and recent history has been posted at The Oil Drum.  It fleshes out a much discussed conclusion that new finds of unconventional gas combined with better extraction techniques could yield much higher NG production.  In fact production has recently been increasing - by as much as 8% according to this article. My sense is that there are two potentially large new sources of demand that could ultimately cause NG prices to rise again.  One is transportation.  A lot of new …

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The reality that’s been revealed by Russia’s Georgia adventure is captured in the following statement by Prof. Steven Blank at Penn. State: ““Russia’s energy objective is to monopolize all Caspian energy flows to Europe, so that it can then blackmail Europe and force political changes to European policy,” Prof. Blank said.

That is the new national security challenge presented by Russia that I discussed recently.  It’s historical and strategic dimensions are set forth in a excellent piece of journalism published today in the Globe and Mail and …

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A study released on 7/30/08 by Amercan Clean Skies Foundation and Navigant Consulting states that U.S. unconventional natural gas deposits are sufficient to supply 118 years of U.S. demand at 2007 levels.  Newly developed fracking and horizontal drilling techniques have made it possible to recover enormous quantities of gas from tight sands, coalbed methane, and gas shale formations, reports the Oil & Gas Journal (8/4/08) On the demand side, some leaders are starting to advocate the use of NG in lieu of petroleum to power cars.  Two Congressmen, Rahm …

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The economy, the stock market, and our understanding of the future direction for energy and transportation may all be on the brink of major changes .  This letter will open a discussion of these ideas. 

A Very Tough Month

Before turning to the future, I must confess that the immediate past month was  most painful for the EIS portfolio.   Oil prices hit a violent downdraft in July, which especially impacted my “options on futures” strategy.  It declined in value by about 33%.  Since the purpose of these options is to provide portfolio …

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The drum beat for substituting natural gas for petroleum to power cars and trucks has begun to get louder.  It’s been part of Boone Pickens’ plan, of course.  And now Jim Cramer has picked up the theme with support from Aubrey McClendon of Chesapeake (CHK). The concept is potentially practical since natural gas is currently much cheaper than oil on an equivalent power basis and since converting cars to NG is done in many parts of the world and is not terribly expensive.  Apparently conversions are popular in Australia …

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A recent post published at Seeking Alpha provides interesting data and commentary - both from the author and readers - regarding the prospects for various nat. gas producers, particularly in regard to the Marcellus Shale play.  I’m not sure this is the day to be loading up on such stocks, but some day the sun will shine on them again.  

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Gore vs. Pickens vs. Congress vs. McCain

The U.S. Congress is pursuing such brilliant energy policy alternatives as:

1. Suing OPEC for anti-trust

2.  Stopping “speculation”

3. Subsidizing corn-based ethanol while taxing imports of foreign ethanol.

  4. Leasing more U.S. land for oil and gas drilling.

These ideas range from idiotic (1 and 2) to counter-productive (3) to moderately useful in the longer term (4). 

To be more specific on drilling, my view is that since there would be no additional oil flowing from drilling the OCS or ANWR for 7 - 12 years, and since …

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This Winter could bring a good deal of economic strain to the roughly 8 million homes heating with oil.  The cost of natural gas heat is less than half that of oil, so that should push a fair amount of conversion from oil to gas.  Last year, about half of all U.S. households, 54 million, heat with gas.  As the report below from the Wall Street Journal states, “I don’t see any way to make the numbers work for middle-income people,” he says, adding, “They’re already …

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The following Wall Street Journal story points out that some IOC’s are starting to buy North American gas reserves partly because they can’t find or buy enough oil in or out of North America.

This trend toward greater investment in nat. gas will tend to increase gas production over the next few years.  It’s possible that nat. gas supply could outrun demand for a while, although there should also be increasing demand from new electricity plants and some conversion from oil to gas in both transportation and heating.  

It’s also possible that …

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Somebody gets it at The Washington Post.  Gal Luft makes perfect sense in this piece about how four other countries are becoming energy independent while the U.S. just plays silly games.  He left out the fifth country doing it, Denmark, which is going down a similar road to Israel’s except using wind instead of solar to generate the electricity.  ENERGIZED Iran and Brazil Can Do It. So Can We . Sunday, July 6, 2008; Page B01 When the founding fathers declared our independence, they could not have imagined …

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http://www.stockmarketnotes.blogspot.com/ Wednesday, May 7, 2008 Gazprom Releases Official Projections of Natural Gas Production: Is It Realistic That Gazprom Increases Output Through 2030? Gazprom, Russia’s largest company and the world’s largest natural gas producer, has released projections for future expected production of natural gas until 2030 on its website, which overall show moderately growing production and comfortable maintenance of gas export capacity. Gazprom’s projections stand in contrast to doubts raised by several analysts (the reports of whom will be discussed below) as to whether or not …

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