I have been reading your bearish posts on oil supplies and price and I have to say I have the exact opposite opinion that you do.
First off, Don Coxe is right. The Ghawar has peaked. The Ghawar produces light sweet crude. The Saudi’s cannot raise their output of light sweet crude, which leads me to believe that the Ghawar has peaked. Then behind curtain number two, Mexico’s Cantarell field has also just peaked.
energybulletin.net
Hhhhmmm, The largest and the second largest oil fields ever found have both just peaked. This is starting to sound like “It’s different this time.” I also think that there is very sound logic to Don Coxe’s recommendation of oil sands stocks for their long life reserves.
Secondly, your theory that high prices are going to choke off demand and cause prices to tank is completely backwards. If you read the Picken's article, you will understand that prices must rise to choke off demand because there is soon going to be too much demand and too little supply at $50 oil.
peakoil.net
This talk about a bubble for oil stocks is crazy. OXY pe 9, DVN pe 9, CVX pe 9 then there NXY’s CEO saying that they are going to make CDN $24 a share cash flow in ’07 based on $40 oil and NXY's trading at CDN $63 I wonder what their cash flow will be based on $60 oil? $70 oil? Yet you think we’re in a bubble?
We are at the precipice of one of the greatest investment opportunities that we are going to have in our lifetimes. Peak oil is near. Slider you should read chapter 3 of Kenneth Deffeyes new book “Beyond Oil.” Its only 17 pages. You could knock that down in 20 minutes sitting in one of the chairs at your local Barnes and Nobles if you’re too cheap to shell out the $20. Ken puts the peak oil date on November 24th, 2005. (give or take a month of course and definitely by Q1 of ‘06) When I first heard this date I thought that he was pulling a date right out of his .... well you know. Then I looked at the chart on Page 43 and realized that this chart has played out many times in the past including how Hubbert predicted America would peak in the early 70’s. I just got to go with Deffeyes and history on this one. ASPO has the peak date falling in ’06. Matt Simmons has never said a date on peak oil to my knowledge. He did correctly forecast the peak in natural gas production in the U.S.
Personally, I am not a big fan of the service stocks because I think the real money is going to be made by the producers. The service stocks market cap will be limited to a set premium over replacement cost. Who knows what that premium will be but if it gets too high, there will be lots of new builds to ameliorate it.
The E&P’s are all going to double and triple. Speaking in generalities here the market is valuing the E&P’s at around $40 oil. They can pull oil out of the ground at a cost of about $20 a barrel so their profit margin is about $20 a barrel. When oil hits $80 a barrel by ’08 the E&P’s profit margin will triple to about $60 a barrel. If the E&P’s PE ratios stay about the same, at a 10 times earnings OXY will be trading for over $200.
Here’s a chart of the ’09 contract for light sweet crude:
futuresource.com
I don’t see the big tank that you’ve been trumpeting. I’m a long long way from a margin call on this trade and I certainly don’t feel like a bag holder. I only wish I had stuck with my game plan and bought 50 contracts.
Peak oil is not a transitory event. Oil prices and the stocks of producers are going to jump up dramatically and then dance but there is going to be one heck of a jump first. I believe this is going to be a historic opportunity to create wealth. And so I am going to swing for the fences and load up on ’08 leaps on the producers that will start trading next month. I plan on buying between 500 to 1000 calls.
I’ve been nibbling on Jan ’07 leaps because the ’08 are not trading yet and I can’t seem to stop my buying impulses. So far I’ve bought:
100 CHV Jan ’07 Strike price $60.
31 CHV Jan ’07 Strike price $65
50 XLE Jan “07 Strike price $40
10 SU Jan “07 Strike price $35
I’ve got a soft spot for Chevron right now because the merger with Unocal has stripped away the entire recent run up. That and Kurt Wulff seems to like it. I would like to buy some ’08 calls for SU, OXY, APA, DVN ,APC, XOM, CVX and maybe a few more depending on the price.
Scanning the political events you got Iran coming out with their own oil trading exchange, China visiting Venezuela and wanting to sign oil deals. What’s with that? - Hasn’t someone told China that Venezuela has already peaked? And then they visit Canada too?
I’m keeping my eye on the big picture and my gut is telling me to buy leaps on all the E&P’s. This is going to be interesting to see how all of this shakes out. In the meantime enjoy your shoulder season. You got a few more weeks left. |
