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To: anyer who wrote (245)7/23/2005 1:23:00 PM
From: SliderOnTheBlack
   of 41501
 
Anyer - re: Oil and Oilstocks...................

There are more than a few "conundrums" for those who think Peak Oil is here and now and that Oil and Oil stocks still have considerable upside.

1. If the Oil Permabulls & the Matt Simmonsites are correct - then the Major Oils and the vast majority of E&P Companies have a very big problem for their stock price.

- replacing reserves and growing production...which is the anthesis to the entire Peak Oil thesis.

- simultaneous ramping of costs - in everything from dayrates for drilling, to rising energy and commodity costs within their operations.

- given this is far from an undiscovered, or underinvested story... what happens to E&P Shareprices if Oil & Gas prices retrace, or even remain flat ? - what will then be the upside driver to E&P shareprices with flat, or worse yet, declining Oil/Gas prices with simultaneous ramping costs ?

...the only upside is Arjun-Mary Meeker-Murti's $105 Call... if you like that bet - take it...

2.The gathering cloud of an Economic slowdown on both the US and the Global Horizon...

- just in this mornings Financial Times - on page 2, Europe is rolling over econmically, Germany which had started to recover, has now rolled back over... in the USA where it takes time for High Oil Prices to feed thru the Economy, Greenspan for the first time - just announced that High Oil Prices are now having a significant, negative effect upon the US Economy.

- the US Consumer and Economy are living on borrowed time via a historic stimulus package of Tax Cuts, a Housing and more importantly - a Refinancing Boom and the reckless availability of cheap Credit. Today the US Consumer has a "0" savings rate, a record personal debt level, has his traditionally largest asset - his home, tied to a Bubble in housing and from the headlines ranging from Kimberly Clark to Hewlett Packard - Job Cuts in the USA have now reached their highest levels since Jan. 2001 and there is no wage growth !?!

... I say - "tic toc" and once again will remind Oil Permabulls that "Bad Macro (slowing global economy) always trumps good micro (positive Oil Fundamentals).

For the OSX, Service and Drilling Companies...

- I'll start with "Remember Freide Goldman - FGI/FGH ?"

Today's Boom, often becomes tomorrow's Bust.

Today's Darling, tomorrow's Dust.

The OSX components do not of course receive their earnings from the Price of Oil, but rather from the Cap Ex Spending of the Producers - often based upon their longterm expectations for the Price of Oil.

So, when CEO's like XOM's Lee Raymond, BP's Lord Browne all say there is no shortage of Oil, no fundamental reasons for prices to be at this level... people should listen.

Even VLO's CEO William Greehey, who was on CNBC around the 4th of July, echoed the comments of Raymond & Lord Browne - in that there is quote/unquote:

- no shortage of Oil.

- no fundamental reason to support prices at this level.

During that same week 2 New LNG Facilities were approved in the USA (see later comments on INCREMENTAL SUBSTITUTION*)...but, yet we have no US Company willing to spend the money to build a new US Refinery ?

...why ?

Don't tell me about permiting, or environmental issue's either... LNG Facilities face the same challenges with permiting & environmental challenges.

If XOM wants to build a New Refinery... it would get built.

We've gone thru these "Peak Oil/Oil Crisis-Shocks" before...here's a walk back in time to 1979-1980 during that Oil Shock-Crisis where all of the Energy Experts were calling for the End of Cheap Oil...only to see Oil Prices literally collapse soon thereafter:

******************************************************************************

From the Tocqueville.com Web Site:

"Even with decontrol of oil prices, we can see a 30 percent to 40 percent decline in domestic oil production." Daniel Yergin – Sierra July/August 1979

"An already serious energy problem has now become an energy emergency, an emergency that will persist throughout the entire 1980s." - Robert Strobaugh and Daniel Yergin - Foreign Affairs vol.58, no.3, 1979

"World oil prices have only one way to go in the next decade--up, and probably sharply so." - John Mattill - Editor, Technology Review -December/January 1980

"During 1980 and 1981, for each barrel of oil newly produced as a result of decontrol, the cost to the U.S. economy could range from at least $56 per barrel under the most optimistic assumptions, to about $870 per barrel under assumptions which many experts believe are realistic...Thus even if decontrol does in fact stimulate a few extra barrels of oil, the total cost to the economy of those few barrels is so high as to make decontrol the most nonsensical, irresponsible, and expensive energy supply strategy imaginable." Energy Action - March 24, 1979

"Ronald Reagan brushed aside energy issues during the campaign, insisting the shortages could be overcome by unleashing private enterprise. But not even his most fervent supporters in the energy business share that optimism. Virtually all private forecasts predict declining domestic oil production and liquid fuel shortages in the next decade." New York Times - November 14, 1980

"There is a dwindling supply of energy sources. The prices are going to rise in the future no matter who is President, no matter which party occupies the administration in Washington, no matter what we do." - President Jimmy Carter - March 31, 1979

"At present rates of exploitation, the United States will exhaust its own petroleum reserves in about 10 years..." - Alan Madian - Foreign Policy - Summer 1979

"Any surplus production capacity that individual OPEC countries may have developed in recent years will almost certainly vanish by the mid-1980s, perhaps sooner... In 1990 prices, adjusted for future inflation, oil could be selling for $42 to $55 a barrel." - U.S. Department of Energy - National Energy Plan II - May 1979

"The present oil shortage looks like the start of a long siege. While the demand for oil keeps growing as world population and economies expand, supply slows and it is difficult to see where large amounts of additional oil will come from in the next several years." Leonard Silk - New York Times - June 29.1979

"We're heading into a world of considerably higher prices. There will be a major impact on housing by 1983, and I'd be surprised if gasoline is less than $2 per gallon plus whatever inflation adds." Kenneth Arrow, Professor of Economics, Stanford University - Forbes - February 4, 1980

"It's obvious that gasoline could reach at least $2 a gallon after decontrol." Representative John Dingell (D-MI)Chairman, Subcommittee on Energy and Power – Forbes December 10, 1979

"Estimating $1.50 [per gallon of gas] is totally, totally optimistic." Dan Lundberg, Gasoline price specialist - New York Times - February 27, 1980

"Without rationing, gasoline will soon go to $3 a gallon." Senator Dale Bumpers (D-AR) - U.S. News and World Report - July 9, 1979

à Note: gasoline prices did not reach $2.00 until 2004

"One thing is for certain: prices will continue to rise. We're dealing with a scarce, finite commodity, one that will be running out in a couple of decades. Traditional criteria of supply and demand don't apply." Charles W. Duncan, Secretary of Energy - U.S. News and World Report - February 25, 1980

"We're going to be on the ragged edge for years." Clifton C. Garvin, Jr. - Chairman, Exxon Corp. - Business Week - December 24, 1979

"With oil, surprises or changes can only go one way: against us." Paul Frankel - Petroleum Economics, Ltd. - Dun's Review - April 1980

"The price of oil now seems firmly locked into a steep upward spiral for the foreseeable future." Business Week - December 31, 1979

"At present rates of consumption, America's oil and gas will be gone within a decade." Newsweek - July 16, 1979

"In moving towards 1990, the industrialized countries will be walking an `oil tightrope.' " International Energy Agency - Energy Conservation 1981

"Most industry observers, however, believe that this time OPEC will be successful in keeping oil prices from falling." Business Week - December 31, 1979

"Responses that might have been sufficient between 1974 and 1979 no longer suffice; today the United States and all the world's importers are caught in an acute and lasting energy emergency." Robert Stobaugh and Daniel Yergin - Foreign Affairs - vol. 58, no. 3 1979

"We must adopt a system of gasoline rationing without delay...in a way that demands a fair sacrifice from all Americans." Senator Edward Kennedy (D-Mass.) - New York Times - January 28, 1980

"I think it [OPEC] has now become such an institutionalized structure that it would be very doubtful that anyone could break it down." President Jimmy Carter - New York Times - February 11, 1979

**************************************************************************

In the year 2000, the average US Driver drove 2,000 more miles than they did in 1973, but used 200 gallons less gasoline in doing so....due to the advances in fuel efficiency technology in automobiles.

Hybrid Electric and Alternative Fuel Sources are just now emerging in the US...they will only rapidly advance in their efficiency - while simultaneously dropping in their cost to the consumer.

...in the coming decade, this will be an incredibly important factor in the Supply:Demand balance for Oil/Gasoline, just as it was during the prior Oil Shocks that drove the demand for new technologies.

Price drives innovation.

In a free market such as we purport to have in the USA, an Energy Economy when significantly impacted with rising prices, incrementally facilitates substitution of alternative fuels and new technologies. Unfortunately, often Politicians intervene and adopt policies that are not the most efficient, nor the best economic solutions for either the economy, or it's citizenry.

Instead of spending $200 Billion+ to seize control of the Mid-East Oil Fields via our presence in Iraq - along with the countless hundreds of Billions yet to come in the years and decades ahead to maintain the permanent Military Bases and presence we are now building and creating... we could have used the prescious economic resource called TAXPAYER MONEY and much more efficiently and productively (for both the economy and the Taxpayer) invested in "incremental substitution" via investing in and funding New and Alternative Energy Sources that would actually lead to US and North American Energy INDEPENDANCE, such as the Canadian Oil Sands, or merely instituting New Cafe Standards which would accelerate the use of Hybrid Electric Vehicles (and bring down their costs !)....versus maintaining DEPENDANCY on OPEC & Big Oil - while ensuring their windfall profits and the inefficient use of precious resources, not the least of which being - Taxpayer Money and US Military Lives ...

Nevertheless, the ultimate power of the natural laws of economics will prevail, as people tend to buy more at lower prices and buy less at higher prices...while producers tend to produce less at lower prices and produce more at higher prices...hence the ultimate power of Economic Cyclicality in the Oilpatch is ensured.

- it truly is "the price of Oil - Stupid" but, there is also a natural continuation of that Platitude, that being that the Cure for High Oil Prices - is, was and will always be - High Oil Prices....as Oil Producers tend to invest less in Cap Ex, Drill less and produce less at low prices - than they do at high prices.

The Natural Cycle of Economics will prevail over the Hype & Self-Enriching Political Agenda's of this decades Oil Cassandra's... the solution will arrive, it will ultimately matter little if it remains primarialy a Fossil Fuel oriented solution, or an Alternative Fuel, or a New/Emerging Technology... rest assured - the Cure for High Oil Prices - will be High Oil Prices...and it will end as it always ends... with Pigs getting Fat and Hogs getting Slaughtered.

Lookin' forward to the Hog Roast,

Slider`

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To: SliderOnTheBlack who wrote (251)7/23/2005 3:37:16 PM
From: philv
   of 41501
 
Strong reasoned arguments, but they are based on a dramatic slowing economy, not just in the US, but also in Asia. And if that happens, as industrial activity declines, and depression and poverty sets in, then yes of course your projections are most likely.

But I think even a slowdown will not change the fundamentals much. The US is not the world, and Asia's rapidly increasing demand is what is putting pressure on supplies. Even if the US slows considerably, that slack will be rapidly tighten the supply picture again.

In the longer term, in my opinion, it isn't so much a supply problem rather than a price problem, because at higher prices, a lot of marginal wells can be brought on, as demand slackens. But it all takes time. The fruit hanging low in the branches has been easy picking, the rest will take much more effort.

I don't know if you read this piece:

"PARIS (ResourceInvestor.com) -- North Sea production could show its largest fall ever this year as Norwegian production has tumbled beyond expectations. Meanwhile these and Chinese economic figures are confounding oil bears like the International Energy Agency (IEA) and OPEC."

"Firstly, figures out from Norway show their North Sea production fell year-on-year by 700,000 barrels per day (bpd). Quarterly production is also down. Figures for the second quarter of 2005 are 300,000 bpd lower than the first."

resourceinvestor.com

Those figures, if accurate, cannot be lightly dismissed.

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From: bredren1557/23/2005 4:50:30 PM
   of 41501
 
Mr. Slider, I never heard back on this post, perhaps chances are better you might reply from the comforts of your own dugout !
Message 21488803

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To: SliderOnTheBlack who wrote (251)7/24/2005 1:08:21 AM
From: jim_p
   of 41501
 
Good Post and a nice thread!!

Jim

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To: SliderOnTheBlack who wrote (251)7/24/2005 1:13:17 AM
From: grusum
   of 41501
 
Slider, i agree that the cure for high prices is high prices. however, while we may know that prices are highER, how can you tell that prices are truly 'high'. i thought home prices were high years ago... as compared to now, they don't seem so high.

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To: SliderOnTheBlack who wrote (222)7/24/2005 6:26:38 AM
From: surelockhomes
   of 41501
 
John Mauldin

Last week I said that for this week's letter we would look at the US trade deficit and China, and in particular the possible revaluation of the currency and its effect upon the trade deficit. China obliged by revaluing the yuan (Renminbi). This is both more, and less, than it seems.

Let's first look at what China did. They allowed the yuan to rise by 2%, with a daily 0.3% trading band based on the price of the previous day. While in theory this could allow for a significant price increase over a period of several months, in practice it is unlikely to do so. Allowing the yuan to rise too rapidly would be highly destabilizing to the Chinese economy. You can take it to the bank, even an undercapitalized Chinese one, that the Chinese government will do everything in its power to maintain stability.

Further, instead of pegging the yuan to the dollar, it is now going to be pegged to a basket of currencies. Because it is a basket reference rate, it will be possible for the yuan to both rise and fall against the dollar. Can you imagine the consternation of Congress if the dollar rises against the yuan? Let's look at how that could happen.

"The basket is likely to be heavily dominated by the USD. Using China's trade weights, normalized, a five currency basket would have the following weights: USD (27%), JPY [Japan](31%), HKD (Hong Kong] (24%), EUR (15%), and GBP [Great Britain](4%). The hard dollar pegs (USD and HKD) account for close to 50% of the basket. If you consider the JPY as a soft USD peg, the weight on the dollar could be as high as 80%. This means USD/RMB will still be very 'docile', with the index being 'sticky' relative to the USD." (Morgan Stanley)

In essence, only 20% of the potential basket proposed by Morgan Stanley would actually float in any real sense. If the euro and the British pound were to sell off against the dollar it would cause the value of the basket to fall relative to the dollar, and thus would have the effect of lowering the price of the yuan. This could be a real scenario, as the euro and the whole union are now in a great deal of uncertainty, not to mention really slow growth. The markets hate both.

investorsinsight.com

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To: SliderOnTheBlack who wrote (251)7/24/2005 7:45:29 AM
From: siempre
   of 41501
 
Slider, enjoy lurking here & enjoy your site....thought you might be interested in a New York Times article I posted @ SI
this morning re. the Plame affair & Iraq deception....

Message 21535581

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To: SliderOnTheBlack who wrote (251)7/24/2005 8:15:07 AM
From: el_gaviero
   of 41501
 
This post has some typical Sliderisms in it, the most obvious being a straw man that he sets up and then knocks down.

Peak Oil people are not blind fools, or any more blind fools than any other collection of humanity. I don’t know anybody out there in the Peak Oil World who says that crude prices are going to go up towards the sky forever & ever. Most of them that I read are quite realistic, and the good ones do what all good investors do --- they pay themselves from time to time.

I think, in fact, that for the last two or three years Slider has not played the oil market very astutely (after years of brilliance, by the way, when he was a seer, in tune with the zeitgeist, and able to read the oil market like a book). Thinking the party was going to be over at midnight, he left too early, but it is now dawn and they are still on the floor boogieing. My guess is that Slider left a lot on the dance floor.

As a precautionary measure, I would say that if I were out of sync, I would level at least with myself. One can’t always be in tune with the zeitgeist but one can at least try to be in tune with oneself.

We’ll know when Slider IS BACK when his rhetoric gets creative again, as it was during his heyday. I say all this because I miss the old, creative Slider at his rampaging, exuberant best. This new paranoid phase, with dubious ideas about using oil to crush China (or whatever it is that he is saying) and his recycled rhetoric, is ..... alas....actually ...... quite ..... boring.

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To: el_gaviero who wrote (258)7/25/2005 9:02:33 AM
From: SliderOnTheBlack
   of 41501
 
gaviero - Sliderisms, Straw Men & Zeitgeist ?

...was it something I said ?

Now I think I know what a "Sliderism" is...

-ie: anything that is not in lock-step with the Peak Oil Permabullian version of zeitgeist.

Straw Man ? The Natural Laws of Economics and Free Markets - such as incremental substitution, or Buyers buying more at low prices & less at high prices and Producers producing less at low prices and more at high prices ? - is that a "straw man" ? Or, Bad Economic Marco trumping good oilpatch micro....which has rolled over virtually all prior Oil Cycles... is that a straw man arguement as well ?

And "zeitgeist" ?!?!?!

Zeitgeist.... isn't that something like poltergeist ? - something we should be afraid of ?... very, very afraid ?

If you want zeitgeist... go to Investor's Business Daily - you'll find all the stinkin' zeitgeist you'll ever need.

It was too much damn zeitgeist that created the Internet & Tech Nasdaq Bubble !

Zeitgeist - scheistgeist...

Good Traders in Cyclical Sectors don't need no stinkin' "zeitgeist"...they need to be "Zetetic".

- from Modern Latin, "zeteticus"

- from Greek, "zeteikos" based on the verb "zeiten" meaning - to seek.

In the History of Philosophy (1660), "Zetetic Philosophy" reflected the - continual enquiry after truth.

In William Thomson's - The Outline of Thought (1853), the Zetetics - were seekers, or investigators and inquirers of truth.

The "Pyrrohinists" dating back to 300 B.C. - were also called Zetetics, but were actually of a more skeptical school of thought, seemingly doubting everything...(not a bad philosophical bent to have during New Paradigm's MeThinks).

In Mathematical & Scientific terms "zetetics" - was the method used for finding the value of unknown quantities by direct search, in investigation of, or in the solution of problems.

- both schools of thought certainly supportive of the contrarianism that is often a prerequisite to being successful in both the timely entry’s and exits within the volatile Cycles in the Commodity Sectors of the market.

...zeitgeist is for the Momenteum/Trend IBD Traders...and if that floats your boat... so be it.

In my thinking, a Trading Philosophy based on "Pyrrohinistic Zeteticism" better serves the Oilpatch and the Gold & Natural Rescource Sector Trader, than does "zeitgeist," due to the indigenous volatility & complex Economic and Geopolitical catalysts found within these sectors.

And as far as [ "...leaving a lot on the dance floor" , or "not playing the oil market very astutely" ]... maybe we ought to rewind the zeitgeist tape a bit here gavi'

The most opportune time to have been long the Oilpatch was from late 1998 to the fall (Oct) of 2000.

- that period gave us OSX 45 during Q3 & Q4 of 2000 and a rally to OSX 145 in October of 2000 - resulting in a Sector "Triple" and an index run of 100 points.

...been there - done that.

* It should be noted, that the OSX saw the 145 level in late 1997, late 1998 and again in the spring of 2001...in reality (not a state most Permabulls are often found) the OSX is only up 14 points, or 10% from those earlier highs over the last 4 to 8 years - which hasn't even kept up with inflation !?!?! - so what did anyone miss ?

Now...where our apparent disagreement over your version of "zeitgeist" and my preference for "zeteticism" comes into play, is during that period in late 2000 - when I pounded the table for a Portfolio Weighted Leap from "Black Gold's" Cyclical Top - to "Yellow Gold's" Cyclical bottom.

I received the same reaction from the Oil Permabulls then, as I do now...

For the record, from that point - the OSX immediately collapsed, falling to a low of OSX 58 over the next year.

Simultaneous to that - the HUI Gold Index Stocks went from what proved to be it's secular bottom of HUI 35 to it's ultimate high of HUI 258.

That resulted in the HUI Goldstock Index multiplying 7 - fold from it's lows.

Comparing the returns of zeitgeist to zeteticism and Black to Yellow Gold over this timeframe, looks something like this:

finance.yahoo.com

And not to stomp zeitgeist into the dirt as a valid trading philosophy...but, there was also the infamous OSX "JUNE SWOON" of 2001 that errupted the old Strictly Drilling Thread here on SI in that rather memorable Battle between Permabulls in zeitgeist and my zetetic call to go Short.

...the Short's won.

- then there was that other "New Paradigm....this time it's different" Oilpatch Permabull battle during the Natural Gas Mania that brought the Blackouts in California during the peak of Enron's Energy Derivative Shenanigans {of course we know, Energy Markets are never Manipulated !)... I said "Short it"... the Bulls were blinded by greed and zeitgeist....and once again:

...the Short's won.

- this spring, the Oilpatch had a parabolic run from Jan to March and I once again suggested going "Short" (or, taking profits... selling, is selling (vbg) and once again:

...the Short's won.

Now as far as "leaving a lot on the dance floor" here:

- as covered in the BBR, no - I am not Portfolio weighted to the Oilpatch either long, or short. Moderate trades in light of the declining Risk:Reward Metric's as I see them...but, levered in both directions via a floating options straddle...as I see the trade on "Volatility" itself, being THE Trade... but, that's already been debated elsewhere.

Since that nicely profitable Short of the Oilpatch Run:

Goldbugs have just had a significant pullback & trading opportunity that has given us a 40 Point HUI Index Rally.

The Oilpatch has just rallied to a similar degree from the pullback to OSX 120's to the present high's pushing 160.

- 40 points each.

I just sold my small, but levered position in straddled "calls" in the OSX plays... I still hold my full portfolio weighted Long position in the Gold plays...as well as a few LEAP Calls in Oil and am waiting to re-institute the Short Side of the Straddle into any significant extension of this rally, or into downward momenteum should Crude Oil retrace and the sectors shareprices rollover....for now, I am giving the Permabulls enough rope to hang themselves once again...

Neither Gold, nor Oil have the Risk:Reward Metric's that they possessed in earlier zeitgeist times...

It's like Auto Racing... you must learn to put the pedal to the metal and accelerate like hell in the straight-aways, but also to ease off of the gas pedal and judiciously use the brake pedal in the curves, or in heavy traffic.

Zeitgeist and BullMarkets are like the "Straightaways"...virtually anyone can mash down the gas pedal and go fast...

But, ultimately Races are always won by how one navigates the curves and heavy, unfriendly traffic.

Good Luck Gaviero...just watch out for the Wall on those high-banked turns.

You race your race.... I'll race mine.

You dance your dance....I'll dance mine.

You take zeitgeist.... I'll take Zetetic's.

Pyrrohinisticaly yours,

Slider`

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To: SliderOnTheBlack who wrote (259)7/25/2005 9:37:52 AM
From: SOROS
   of 41501
 
I'm betting with so many problems waiting to surface, that gold and oil will experience major inflationary moves upward for the next several years. The powers that be have built a world economy and system based on greed at the expense of forward thinking. Now we all pay. Hopefully our gold and oil holdings will tide us over from the prices we will inevitably pay at the pump and those costs (ever-rising) from things we have to have (food, insurance, utilities,etc.) because of rising oil and the economic screw-ups of the "leaders" (cars for $50,000; houses for $500,000; computers for $50; commute to work in China -- a long way).

I remain,

SOROS

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