I’ve decided to stop posting to the Energy Investment Strategies web site and to take the site down eventually.  There are two reasons.   One is that I need to concentrate my efforts on fighting my cancer.  The other is that I think to a large extent my original aims for this site have been accomplished.  The site was started to educate investors about “peak oil”, its implications for potential future energy shortages, related increases in the importance and value of energy-related equities, and ways investors can best participate .  …

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The stock market and the oil market both seem to engender feelings much like summer vacation time when I was a kid.  Kinda boring, not much happening, a time to wander around, allow your attention dwell on whatever news of the day happens to come along and rest your mind before getting back to the “real world” some time around Labor Day.   So we can be distracted by Gov. Sanford’s bazaar behavior, the political drama of health care reform, Berlesconi and his babes, or Wimbledon - all of which are …

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As numerous observers have said of late, the causes of oil’s substantial climb from about $40 to $70 were primarily the weakening dollar and purchases by investors and speculators (if there is a difference) to hedge their inflation fears.  I’ve noted these causes ever since oil broke $50. More recently I offered the view that some fundamental supply and demand pressures may be building on U.S. oil inventory levels due to the combined difficulties of four of America’s five largest suppliers, Mexico, Venezuela, Nigeria, and Canada, to …

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Venezuela has provided about 11% of U.S. oil imports, roughly 1.2 mb/d.   Two trends are putting that supply at risk.  The first is Venezuela’s increased commitment to sell its oil to Cuba, to China, and to other non-Japanese Asian countries.  This commitment may be partially one of political comradeship, but it also is based on Venezuelan debt to certain Asian countries. The second is the decline in Venezuelan production that has come from the increasing financial chaos and expropriation activities caused by its virtual dictator, Huge Chavez.  I think …

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Ever since oil lifted over $50 I’ve been saying that speculation is the cause.   Actually, the lower dollar (caused by speculation) is a good part of the cause and inflation speculation is the rest.   What is not driving oil up, it seems, is actual supply and demand.  That’s the assumption in the market, anyway, and it’s probably correct. But there are some fundamentals influencing oil to the upside that are worth noting.   One is Nigeria and the other is Venezuela.   Both have collapsing governments and economies that have been well …

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Oil prices are ascending in concert with a rising stock market and an expanding sense of non-pessimism about the global economy, yet the supply of cheap oil remains far greater than demand.   Huge amounts of $5 cost oil is being moth-balled by OPEC and there is no shortage of oil inventory above ground, much of it floating at sea.   So the fundamentals of near term oil supply and demand imply lower prices but they are being overpowered by speculators who want to own oil as an investment category.  There …

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Stocks continue to recover from their panic bottoms of last November, many of them having doubled or more from then (case in point: General Electric).   All this seems very healthy to me given the lack of real world data indicating any sort of resumption in economic growth.  We get only data indicating a slowing in the rate of decline.  On top of that, we know there are more shocks to come:  huge default rates in loans on commercial real estate which lags the economy, the likely bankruptcy of both Chrysler …

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In early February I wrote about the upside potential for Iraqi oil production.  Below is the opposite case as put forward recently by an EIS reader, Nawar Alsaadi, who has first hand insights on the issue.  I think he makes a compelling series of arguments, all of which tend to the conclusion that Iraq is unlikely to provide the world with much more than it’s current 2.2 mb/d of oil, certainly over the next few years and perhaps longer term. Future Iraqi oil production is very important to projecting …

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I’ve owned Petrobank (PBEGF), a TSE oil junior, at $50, sold it as the market tanked, and over the past few months I’ve been buying it again in greater quantity in the teens.  It’s now just over $20.  I’ve been impressed with management’s apparent ability to successfully execute a standard “exploration and production” strategy as exemplified by its Bakken and it’s Columbian programs.  Beyond that, I’m fascinated with the huge speculative upside potential of the technologies it has developed for harvesting heavy oil more economically and environmentally.  

The stock may not …

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In February Merrill Lynch analysts issued a report saying that non-OPEC oil production may have already peaked. “In summary, assuming the ongoing recession does not turn into a multi-year event where global oil demand is pushed down structurally for the next five years, the steep decline rates in OPEC and non-OPEC countries alike could put upward pressure again on oil prices as soon as 2010 or 2011.”  Here are two press reports:  Thomson Financial News STOCKS NEWS US-Merrill: Non-OPEC oil production may have peaked02.03.09, 02:25 PM EST …

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Oil and Stocks Advance Further   Oil and stocks seem to have bottomed as I suggested last month.  Since that March 16th post, stocks are up another 8%, a scorchingly hot run on an annualized basis.  Since March 6th the S&P is up over 21%.   Meanwhile the price of oil has risen almost 35% since February 18th, not quite two months ago. More Gains to Come I continue to expect further gains for both stocks and oil - and eventually for natural gas - but each is a different …

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Platt’s reported a 12% y/y decline in Mexican oil exports in February.  “In February 2009, Mexico exported 1.257 million b/d of crude, down from 1.366 million b/d in the previous month and 1.429 million b/d in February 2008.”

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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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Six month ago - when the world economy looked significantly rosier - I posted an analysis of projected supply and demand for oil going forward to 2015.  The analysis was based on the assumption of continued demand growth, continuing decline of old oil fields and expected new production from announced oil megaprojects.  I adjusted the magaprojects estimates for delays and  I concluded that: “if these estimates are at all closely correlated with reality we should expect oil markets to be tighter than at present through 2012 …

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Recent reports highlight the enormous reserves of oil in Iraq and the potential for them to be exploited in the relatively near term, potentially impacting the onset of Peak Oil.  From an investment viewpoint, I focus on the period ending in 2015, largely discounting whatever might come thereafter.  In that time frame, Iraqi production increases are more limited and political risks are still hard to assess.  That said, one must tentatively conclude from recent events that foreign contracts are likely to be let and production is likely to increase …

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