₪ David Pescod's Late Edition October 10, 2006
CRUDE OIL $60.25 -1.24
So, you’re back after having a great turkey dinner and ready to back to work, right? Well, at least the Canucks are. And here is a little “Must-Do list” in reading to catch you up to snuff on oil, or at least what we hope is next after one heck of a correction.
First of all, Henry Groppe is the legendary oil and gas commentator out of Texas and you can see him on ROB-TV last week. Just go to www.robtv.com and click on watch past videos
from Friday, 12:30 ET Morning Call with Jim O’Connell. He gives a 60-year perspective on oil and gas and what he expects next. He is definitely worth listening to, particularly his predictions for what next and you’d have to put him in the bullish camp.
Next, Donald Coxe has been one of our favorite commentators for a long time and his predictions on the run of commodities over the last couple of years have been pretty much bang on. He had been expecting oil might actually weaken as the American economy weakens, but now with the people who count the number of people actually working in the States coming up with a surprising large revision in finding almost 880,000 more working than expected and unemployment rates near historic lows, this is good stuff to hear and just maybe that could be good for oil prices.
More importantly is Coxes' comment on the oil sands and the relative value. What’s the important point in all of this? Well, with so many oil and gas companies with reserve lives of something like seven, eight or maybe even ten years, suddenly you could say that those oil sands that you have as assets —wouldn’t it be something if suddenly you could put some of those assets on the books with 25-year reserve life?
The big problem of course is that it’s not a 25-year reserve life until the accountants say it is. And the accountants that count are the ones with the SEC. Shell has been waiting for some time for the SEC to rule on their suggestion that since we all know that oil sands have a 25-year reserve life, and we’ve known for years they’ve had a 25-year reserve life (if not in some cases 50 or more) why can’t they be booked as 25 years? An interesting comment by Coxe on this. To listen to his comments, go to events.startcast.com.
One of our favorite commentators by far is Jeffrey Rubin. He’s been one of our favorite commentators since two decades ago when he had the gall to predict that the Toronto area real estate market was overpriced and should see a 25% correction. He had the gull to predict it and more importantly, he was bang on, despite all the abuse he took.
We’ve been following the CIBC head economist ever since and what is he predicting now? Well, higher oil prices despite what might be a tad weaker economy in the U.S. It’s a strange combination of some T-Bills worrying about an American economy that might weaken a bit, and commodities that he’s still bullish on because of demand out of Asia. Some comments he made in front of 1300 people at Toronto’s CFA annual forecast dinner, attracted a lot of attention in the press. One way to get a good read on what he said is to go to www.globeandmail.com and in their search archives, type in Jeffrey Rubin, for their take on what Rubin said. Must reading we figure, particularly for those that are feeling more than a little beaten up by the correction in oil of late.
NATURAL GAS $6.56 +0.134
We’ve been commenting regularly on natural gas and associated gassy stocks over the last while for one obvious reason... natural gas prices have been clobbered because of unusual weather over the last seven to eight months, a very warm past winter, no hurricanes in this past hurricane season to shut down production facilities in the Gulf of Mexico which produces close to 23% of Americas natural gas and a big chunk of its oil, plus even further, a summer which was a tad cool so air conditioning demand was a little less than expected. Meanwhile, inventory levels for oil are near record highs and for natural gas, they are near record levels that some inventory depots are already warning that they are almost full and are at a point where they may not be able to take any more natural gas in inventory. So what could get you happy? Well, a strong North American economy might help, but you are left hoping on the one thing that could make a big difference….the weather! What could make a difference there? Well someone, somewhere is making a prediction for a change might be right about the weather, but all of a sudden, it looks like we are getting the first shot of some Arctic air a little bit early and some weather forecasters that you can’t count on, are now suggesting that this coming winter, might actually be a little bit cool in spots. But, do you trust them?
NATURAL GAS STRIPS FOR THE NEXT EIGHT MONTHS:
November, 2006 $6.51
December, 2006 $8.06
January, 2007 $8.64
February, 2007 $8.64
March, 2007 $8.50
April, 2007 $7.79
May, 2007 $7.75
June, 2007 $7.86
July, 2007 $7.96
Above, please notice some prices for the upcoming contracts for delivery for natural gas. This is based on NYSE prices and as we mention, these prices are a lot better than where they have been in the last couple of months. Unfortunately though, these are the prices for south of the border. Up here in Canada, where you face pipeline charges to get it there and inventories are just as full, instead of getting $6.51 U.S., the current spot price is $4.23 Canadian. Ouch! Now try and make money when that’s all you are getting for your natural gas, and that’s why you are seeing the gas producers struggle these days. What a difference ten months can make? What was the price of natural gas ten months ago today, you ask astutely? How about $12.08! That’s why gas stocks are having a much tougher time. If gas does turn (and it’s the weather you are going to have to betting on) one could do very well, given current low prices for gassy stocks.
BRILLIANT MINING (V-BMC) $0.80 +0.11
I guess the good news is that some junior explorers out there are finding some tasty morsels and that when they do, there still is a bit of an interest in the markets. However, I suspect that if Brilliant Mining’s news had come out, say, six or seven months ago, we would have seen double today’s volume. Anyway, no sense whining about the different market we’re in, but today, Brilliant announces a massive 111 meter section grading 2.9% nickel on their small Lanfranchi nickel mine in the Kambalda nickel district of Western Australia. It’s a new discovery west of the Helmut South ore body and there are many questions about how big this intersection might really be as in the company’s announcement they note that true width is yet to be established because the drill orientation is interpreted to have a considerable oblique component to true thickness. Even if they cut it many ways though, that grade is tasty and it will be interesting to see how big a difference this could make to Brilliant’s future.
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