Monday, October 03, 2005

Gulf Times Newspaper - Qatar, Gulf and World News - Finance & Business

Occidental just made its first shipment of Libya crude to the US. This is the first shipment since sanctions were placed on the country in 1986 in response to terrorism attacks.

The scale of worldwide oil production seems to be lost on most bloggers and investors. It is not good news that several rigs were severely damaged by Rita but a few out of 2700 active rigs worldwide is not as big a deal as it would seem.

With supplies already tight, the hurricane damage gives everyone a lot to talk about. It has been entertaining to read how "peak oil" has already been reached. "Peak oil" is the point at which oil consumed will always be larger than the amount of new oil discovered.

Yesterday, the Chair of Exxon and the King of Saudia Arabia tried to dispell the rumours about peak oil. King of Saudia Arabiasaid he expects the proven Saudi reserves to double as addtional areas are explored. Better still, the Chair of Exxon estimates that there are 7 trillion barrels of oil still to be discovered.

According to the Baker Hughes web site, the active rotary rig count dropped to around 480 in 1999 when oil dropped to $12 per barrel. The current count is approaching 1,500 with about 500 of those in Canada.

On the one hand, the billions of barrels locked-up in Colorado Shale is still not profitable to extract. However, the tar sands of Canada are now being developed. One excellent idea that is being floated by Total (a French oil company) is to build a nuclear power plant at the tar pits.

Few folks realize how much energy we waste when we produce and distribute energy. Misguided environmental policies have added and abetted incredible losses.

Take the California fiasco as a prime example. Powerplants are not built in California but power is transmitted to the state. This highly inefficient practice results in the extra buring of millions of tons of coal; just don't burn it in California.

The fear of nuclear power has resulted in the buring of 400 million tons of coal each year. Nuclear power is much cleaner than coal power.

Gradually we learn how to convert waste to economic use. For example, Shaw Carpet Mills has burried megatons of waste carpet fibers over many years. Recently the company learned how to use this material to produce energy to run the carpet mills. The key was in heating the fiber to a gaseous state such that the polutants could easily be filtered away.

The biggest waste product from power plants is heat. For this reason, it makes great sense to build a nuclear power plant where the heat could be used to extract oil from the tar pits of Canada.

The reality is that the earth is collecting more energy from the sun than we are using. As long as the sun shines, we will never run out of energy. We must learn not to waste millions of pounds of concrete and steel chasing wind mills when natural processes on our planet convert the sun's energy to hydrocarbons for us.

My best guess is that the price of oil will be down to $54 per barrel within a year. In the short run, it will be necessary for Americans to cut their use until recovery from the hurricanes is complete.

In the long run, we need to continue to become more efficient in our energy use. No need to worry over this as it is as much a part of nature as the process of decaying biomass producing oil. Markets do work! The use of electricity for lighting replaced oil lamps around the turn of the 20th century. The savings has been incredible. In the future we will drive cars that are powered by nuclear electricity. The nuclear power plant will not be in the car but the nuclear plants should be disperesed around the country (more so than the 108 nuclear plants already producing energy).

According to the Rydex Mutual Fund index, non-professional investors have dramatically overweighted oil in their portfolios. If you have more than 10% of your portfolio value in oil, you are overweight. I am underweight oil. I own a couple of very small interests in working Texas wells but, own no oil stocks.

I own no oils stocks because I believe we are close to a near-term peak in the price. The pain of higher prices is being felt around the world. Indonesians will see a jump of about 50% in the regulated price as of this coming Friday. China is regulating the sale of large vehicles and India is cutting their oil subsidy.

Meanwhile, oil producing nations are letting bids for new ground and water. The bids include our own back yard. Oklahoma, Alaska and the US property in the Gulf to name a few. Libya will let an area the size of Cuba next week. Russia, Libya, Mexico and hundreds of other nations are making deals with American firms. US technology has improved by factors of 1000. In the old days, wild-catters drilled many an empty hole. Today, American firms make detailed 3-D maps of millions of acres before drilling to where they know the oil will be found. The
Exxon chair estimates that there are 7 trillion barrels of oil to be found and the 3 trillion will be relatively easy to find.

With strong measures being taken on the demand side, around the globe, and with increased production around the globe, it is a matter of time before the price of crude comes down.

After two years of consolidation, the US stock market is about to boil over the top. When Google lets its contracts to build out the Google Net, the next round of capital spending will be underway. Many of the dreams folks had of the internet in the 1990's will come true over the next 10 years.

Check out the negative sentiment of consumers and investors as reported at Rasmussen Reports. You can see how negative the public has become. Investors should remember to invest when others are fearful and to be fearful when others are greedy.

The market needs one more big dose of "bad news" to kick start the next great stock market move. I can't tell you what the bad news will be. I hope it is not Stan! Rita has always been a name I have liked but not Stan. Wilma may be along before Stan gets out of the way. Again, these hurricanes have not been pleasant, however, they are not big enough to derail the greatest economic machine ever to exist. The US economy is strong. Greenspan used it to pull the rest of the world out of a mess and now he is tapping the brakes before we crest the top of the hill. It is time to get on board.



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