The secretive trip that became common knowledge this week, where Warren Buffett and Bill Gates took a look at Canadian Natural's C$9.3 billion ($8.9 billion) Horizon oil sands mining and synthetic crude processing operation, touring the facility which is scheduled to begin production later in 2008, resulted in speculators bidding up the oil sands producers' share prices.
Buffett has sinced cooled the stocks and speculators down, saying in an interview on CNBC that he has no plans at this time to buy into the sector.
"No, no. I go to the movies, but I don't buy movie companies. I mean, I'm always interested in understanding the math of things and understanding as much as I can about all aspects of business," he said on CNBC's Squawk Box.
Buffett usually does things quietly so this very thing doesn't happen. Obviously somebody on the inside let it out the duo were touring the operations so that rumors would bid up the oil stocks on the Toronto Stock Exchange.
Even so, Buffett added that the fact-finding tour may be something useful in the future, but said it's the ability to make long-term price forecasts for oil that will determine if it's profitable to invest in the commodity. Buffett also said if oil stayed at about $120 a barrel over the next 50 years, the tar sands would do very well, but he concluded he doesn't have the answer to that uncertainty.
Part of the difficulty in projecting profits is the higher operational cost connected to the thicker crude inherent in the sands. If oil prices plummeted, and new oil resources tapped (like the billions of barrels available in America), it could end up a poor investment, as thinner crude would be less expensive to access and produce.
Friday, August 22, 2008
Thursday, August 21, 2008
Weaker U.S. Dollar, Increasing Global Tensions Drive Oil Up
Even though a U.S. government report revealed crude inventories in the U.S. increased by 9.4 million barrels, political tensions outweighed the good news in relationship to oil, as prices surged by almost 5 percent on Thursday.
While most of the political concerns center on the growing differences with Russia and the West, other factors like the ongoing battle with Iran over its nuclear program, as well as the neverending attacks on oil production in Nigeria have traders on edge on supply disruptions. In the case of Russia, their foray into Georgia already has slowed down the transportation of Azeri oil in the region.
One other factor contributing to the rise in oil prices is the possibility that Tropical Storm Fay could come back into the Gulf of Mexico during the weekend, which would slow down production by affecting offshore platforms and oil refineries.
more ...
While most of the political concerns center on the growing differences with Russia and the West, other factors like the ongoing battle with Iran over its nuclear program, as well as the neverending attacks on oil production in Nigeria have traders on edge on supply disruptions. In the case of Russia, their foray into Georgia already has slowed down the transportation of Azeri oil in the region.
One other factor contributing to the rise in oil prices is the possibility that Tropical Storm Fay could come back into the Gulf of Mexico during the weekend, which would slow down production by affecting offshore platforms and oil refineries.
more ...
Tuesday, August 19, 2008
Bill Gates, Warren Buffett in Secret Trip to View Alberta Oil Sands
Northeastern Alberta, Canada was the destination of two of the world's richest men, as Bill Gates and friend Warren Buffett secretly flew into the Canadian province to take a look at the oilsands.
The stated reasons were to satisfy "their own curiosity" but also "with investment in mind."
At this time there is about $125 billion in new construction planned for the rich depository of oil, as well as operating expenses projected at $215 billion through the next five years. With Berkshire Hathaway (BRK-A) sitting on billions, it offers them the type of opportunity Buffett looks for, as the size of the company prohibits smaller investments.
Spokesman for Candain Natural Resources Ltd., Rob Larson, confirmed the pair visited the site, but refused to offer any more information.
Fort McMurray mayor Melissa Blake added that although she wasn't aware of the Gates/Buffett visit, there have been a number of "high-profile investors, politicians and even royalty" coming around to have a look at the high-potential oil depository.
Oil News Around the Web
Oil stocks post gains as crude prices rebound
Oil jumps $3 on projections about inventory report
McCain touts drilling agenda from oil platform
Crude Oil Advances on Weaker Dollar, Gasoline Supply Forecast
Trio Plan $1.8 Billion Oil Port In Bet On Texas Refining
Zone Oil & Gas Signs Joint Venture deal with Penn Virginia
Petrobras July oil output in Brazil flat
Storm Fay unlikely to disrupt offshore oil production
Spindletop Oil & Gas Co. Releases Earnings for First Half of 2008.
Platinum Energy Resources, Inc. Reports Financial and Operational Results for the Second Quarter Ended June 30, 2008
ReoStar Energy Announces First Quarter Fiscal Year 2009 Financial Results
Oil jumps $3 on projections about inventory report
McCain touts drilling agenda from oil platform
Crude Oil Advances on Weaker Dollar, Gasoline Supply Forecast
Trio Plan $1.8 Billion Oil Port In Bet On Texas Refining
Zone Oil & Gas Signs Joint Venture deal with Penn Virginia
Petrobras July oil output in Brazil flat
Storm Fay unlikely to disrupt offshore oil production
Spindletop Oil & Gas Co. Releases Earnings for First Half of 2008.
Platinum Energy Resources, Inc. Reports Financial and Operational Results for the Second Quarter Ended June 30, 2008
ReoStar Energy Announces First Quarter Fiscal Year 2009 Financial Results
Monday, August 11, 2008
Oil Drops Below $115 a Barrel
For today, at least, traders decided that slowing demand for the black liquid gold outweighs possible disruptions from the escalating conflict between Russia and Georgia, as the price of oil fell below the $155 a barrel mark Monday; the lowest level in three months.
For the day it fell as low as $112.72 on Globex, before rallying some to finish the session at $114.45 a barrel on the NYMEX. Even so, it did rise as high as $116 during the day. That rise was primarily attributed to the growing tensions in South Ossetia.
Depending on where the problems between Russia and Georgia lead to, for now it looks like demand will be the chief metric used to price the value of oil.
For the day it fell as low as $112.72 on Globex, before rallying some to finish the session at $114.45 a barrel on the NYMEX. Even so, it did rise as high as $116 during the day. That rise was primarily attributed to the growing tensions in South Ossetia.
Depending on where the problems between Russia and Georgia lead to, for now it looks like demand will be the chief metric used to price the value of oil.
Thursday, August 7, 2008
Oil Fluctuates on Slowing Demand, Attack on Turkish Pipeline
Oil continued its recent swing as opposing news stories had it going up and down.
On the one hand the price surged to $121 a barrel when news of the attack on the Turkish-based Baku-Tbilisi-Ceyhan pipeline, earlier in the day, by the PKK (separatist group Kurdistan Workers' Party), caused the upswing. It's estimated the pipeline could be closed for up to 15 days.
The other factor continues to be the cutting back on fuel use, as Americans continue to travel less during the summer months.
Residual effects of the drop in oil prices is also showing up at the gas pumps as overnight prices fell by a little over a penny to a national average of $3.849 a gallon; about 6 percent off it's highs last month of over $4 a gallon.
In afternoon trading, light, sweet crude rose by 21 cents to $188.79 a barrel on the NYMEX for September delivery, while Brent crude in London increased by 16 cents to $117.16 a barrel.
Wednesday, August 6, 2008
Oil Prices Swinging Back and Forth On Gasoline Stockpiles and Crude Oil Supply
A government report showing gasoline stockpiles are lower than last weeks' forecast, along with a surprise that the crude oil supply grew more than expected, has oil prices swinging back and forth today after the release of the report.
In early trading, September delivery of light, sweet crude gained 51 cents, to reach $119.68 a barrel on the Nymex. After the report prices have been going up and down.
According to the Energy Information Administration, stockpiles of gasoline dropped by 4.4 million barrels last week. That's much more than the 1.4 million decline analysts were looking for.
Crude supplies also surprised analysts in the positive, as they grew to 1.7 million barrels, in contrast to the 1.2 million barrel drop analysts thought would be coming.
In early trading, September delivery of light, sweet crude gained 51 cents, to reach $119.68 a barrel on the Nymex. After the report prices have been going up and down.
According to the Energy Information Administration, stockpiles of gasoline dropped by 4.4 million barrels last week. That's much more than the 1.4 million decline analysts were looking for.
Crude supplies also surprised analysts in the positive, as they grew to 1.7 million barrels, in contrast to the 1.2 million barrel drop analysts thought would be coming.
Saturday, August 2, 2008
The US dollar and Oil
Prior to the oil price going through the roof last Friday, something unusual occurred - the US dollar rallied. The stronger greenback impacted the commodity markets, with oil, base metals and the Dow Jones Industrials for that matter all falling sharply.
The source of the beleaguered US dollar's rally was hawkish inflation comments from Fed Chairman Ben Bernanke, in a speech at the International Monetary Conference in sunny Barcelona, Spain. The foreign exchange market's ears pricked up with the following words:
"In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets. The challenges that our economy has faced over the past year or so have generated some downward pressures on the foreign exchange value of the dollar, which have contributed to the unwelcome rise in import prices and consumer price inflation. We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations."
It's extraordinary that after years of US dollar weakness, the Fed decides that now is the time to act concerned. We believe there are a few reasons for this change of tact, mainly political. But there are many more reasons why the Fed's words are unlikely to be backed up with actions, and for this reason, we expect continued US dollar weakness and rising inflation in the years ahead.
Let's put Bernanke's dollar comments into context.
Since September last year the Fed has slashed interest rates from 4.75% to 2%, a massive reduction in nominal terms. But in an inflationary environment, the reduction in real interest rates has been even greater. With inflation running around 4% (officially...) real rates are negative.
While the Fed's intent was to prop up careless Wall Street investment banks, negative real rates have caused frenzied speculation in the commodity markets, most notably oil. Following the recent round of interest rate cuts, the oil price rallied to more than US$130 a barrel, a level that is clearly destabilising for the global economy.
Markets were not helped either by Israel's threats to attack Iran should the Iranians continue to develop a nuclear capability. How this development will play out is anyone's guess but with Iranian President Mahmoud Ahmadinejad threatening to destroy Israel a few years ago, it is unlikely that the Israeli's are bluffing. There is also a precedent in 1980 when Israeli jets bombed a nuclear reactor that was being built in Iraq,
US Treasury Secretary Henry Paulson has had his hands full in the Middle East, where he had face to face talks with one of the US Treasury's biggest group of lenders, OPEC. Oil producing nations have for decades recycled billions of US petro dollars back into US treasury bonds and securities, thus providing financial support for the dollar. But there are signs this relationship may be coming to an end.
Inflation, which has lain dormant for many decades, is now making a come back that Elvis would be proud of. The once harmonious relationship that existed between the US and OPEC is no longer comfortable.
Most of the Mid East oil producers have their currencies pegged to the dollar, which means they cannot conduct monetary policy independently. So when US rates fall, their official interest rates also decline.
As a result, inflation is running at double-digit rates in most of these countries, which is in turn leading to questions over whether the currency pegs should be maintained (and indeed China is asking itself the same question). With a chronically weak US dollar, these countries are massively disadvantaged. As well as importing inflation, a socially destabilising effect, they are selling a finite asset (crude oil) for depreciating dollars.
So Henry Paulson's recent trip to the Mid-East would have made for particularly interesting conversation. OPEC's support for the US dollar is crucial. Because oil is priced in dollars, all oil production is 'monetised' in US dollars and provides a huge source of demand for the Greenback. We believe that without OPEC being onside, the US dollar is completely exposed.
Imagine if oil were all of a sudden traded in euro's? The US, with its huge oil bill, would no longer be able to print dollars (issue treasury bonds to OPEC and China) to pay the bills. Instead, it would be required to borrow euro's to buy the required amount of oil. Nearly every other country around the world would also be in the position of no longer having to buy dollars to pay for oil.
While a switch to the euro (or a basket of currencies) is not about to happen any time soon, this explanation provides some idea of how interlinked the US dollar and oil are, and inevitably, the price of gold. Behind closed doors Henry Paulson was undoubtedly given some stern words over the strength of the US dollar, or lack thereof. "If you want us to maintain our currency pegs, stop devaluing your currency." Or words to that effect.
And as Bernanke noted in his speech in Barcelona, "in collaboration with our colleagues at the Treasury...we are attentive to the implications of changes in the value of the dollar for inflation..."
Given Paulson has zero credibility in talking up the dollar (he of the strong dollar mantra) he has obviously 'collaborated' with the Federal Reserve and enlisted the credible Bernanke to try and win the FX market over. And they listened, for a few days at least. We suspect that the very short term speculators were spooked out of their positions, and the dollar benefitted from short covering. On the flip side, commodities and commodity related stocks sold off sharply.
But the reality is that Bernanke will have to do more than just 'talk the dollar up'. Soon after Bernanke's comments last Tuesday, the European Central Bank was again talking tough on inflation (they have better form in managing inflation expectations) and the dollar promptly sold off against its main rival, the euro.
Then, in US trade on Friday, firm evidence arrived that the US economy is indeed slowing down, with the unemployment rate soaring from 5% to 5.50% following the release of May's payroll statistics.
These numbers confirmed to us that if the US economy is to avoid a deep recession, interest rates will remain low, and by implication, real interest rates will remain negative.
The geopolitics now being played out in the Middle East add another layer of complexity to the oil market. And with Barrack Obama being the clear favourite for the Whitehouse at the end of the year, the risk of an Israel/Iran conflict is now rapidly escalating. We thought oil was due for a correction last week, but the threat of Israeli action could drive oil even higher, and this is now being reflected with a risk premium being priced into the market
This creates more headaches for the US in their attempts to control inflation.
Inevitably, no matter how much Bernanke tries to anchor 'inflationary expectations', the reality of negative real interest rates will ensure inflation in the US (and globally for that matter) continues to gather momentum.
The attached chart shows the recent performance of long term US Government bond yields. If inflationary pressures continue to build, and we suspect they will, bond yields will slowly rise and bond prices will slowly fall.
The reality is that if the US wants to fight inflation, it must raise rates. As we have repeatedly stated, we do not see that as a realistic policy option for the US and we believe the authorities will continue to 'manage' the US dollar lower. The extraordinary volatility we are witnessing in the markets on an almost daily basis is the result of these huge imbalances that have become embedded in the global economy. The market is now attempting to right these imbalances through a serious bout of global US dollar inflation, which is being passed on to every other nation in the world.
About the Author
Fat Prophets are leading global independent stock market advisors with a comprehensive product range of research reports for all investors. Visit the Fat Prophets website to learn more and get expert advice on investing in shares and managed funds.
The source of the beleaguered US dollar's rally was hawkish inflation comments from Fed Chairman Ben Bernanke, in a speech at the International Monetary Conference in sunny Barcelona, Spain. The foreign exchange market's ears pricked up with the following words:
"In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets. The challenges that our economy has faced over the past year or so have generated some downward pressures on the foreign exchange value of the dollar, which have contributed to the unwelcome rise in import prices and consumer price inflation. We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations."
It's extraordinary that after years of US dollar weakness, the Fed decides that now is the time to act concerned. We believe there are a few reasons for this change of tact, mainly political. But there are many more reasons why the Fed's words are unlikely to be backed up with actions, and for this reason, we expect continued US dollar weakness and rising inflation in the years ahead.
Let's put Bernanke's dollar comments into context.
Since September last year the Fed has slashed interest rates from 4.75% to 2%, a massive reduction in nominal terms. But in an inflationary environment, the reduction in real interest rates has been even greater. With inflation running around 4% (officially...) real rates are negative.
While the Fed's intent was to prop up careless Wall Street investment banks, negative real rates have caused frenzied speculation in the commodity markets, most notably oil. Following the recent round of interest rate cuts, the oil price rallied to more than US$130 a barrel, a level that is clearly destabilising for the global economy.
Markets were not helped either by Israel's threats to attack Iran should the Iranians continue to develop a nuclear capability. How this development will play out is anyone's guess but with Iranian President Mahmoud Ahmadinejad threatening to destroy Israel a few years ago, it is unlikely that the Israeli's are bluffing. There is also a precedent in 1980 when Israeli jets bombed a nuclear reactor that was being built in Iraq,
US Treasury Secretary Henry Paulson has had his hands full in the Middle East, where he had face to face talks with one of the US Treasury's biggest group of lenders, OPEC. Oil producing nations have for decades recycled billions of US petro dollars back into US treasury bonds and securities, thus providing financial support for the dollar. But there are signs this relationship may be coming to an end.
Inflation, which has lain dormant for many decades, is now making a come back that Elvis would be proud of. The once harmonious relationship that existed between the US and OPEC is no longer comfortable.
Most of the Mid East oil producers have their currencies pegged to the dollar, which means they cannot conduct monetary policy independently. So when US rates fall, their official interest rates also decline.
As a result, inflation is running at double-digit rates in most of these countries, which is in turn leading to questions over whether the currency pegs should be maintained (and indeed China is asking itself the same question). With a chronically weak US dollar, these countries are massively disadvantaged. As well as importing inflation, a socially destabilising effect, they are selling a finite asset (crude oil) for depreciating dollars.
So Henry Paulson's recent trip to the Mid-East would have made for particularly interesting conversation. OPEC's support for the US dollar is crucial. Because oil is priced in dollars, all oil production is 'monetised' in US dollars and provides a huge source of demand for the Greenback. We believe that without OPEC being onside, the US dollar is completely exposed.
Imagine if oil were all of a sudden traded in euro's? The US, with its huge oil bill, would no longer be able to print dollars (issue treasury bonds to OPEC and China) to pay the bills. Instead, it would be required to borrow euro's to buy the required amount of oil. Nearly every other country around the world would also be in the position of no longer having to buy dollars to pay for oil.
While a switch to the euro (or a basket of currencies) is not about to happen any time soon, this explanation provides some idea of how interlinked the US dollar and oil are, and inevitably, the price of gold. Behind closed doors Henry Paulson was undoubtedly given some stern words over the strength of the US dollar, or lack thereof. "If you want us to maintain our currency pegs, stop devaluing your currency." Or words to that effect.
And as Bernanke noted in his speech in Barcelona, "in collaboration with our colleagues at the Treasury...we are attentive to the implications of changes in the value of the dollar for inflation..."
Given Paulson has zero credibility in talking up the dollar (he of the strong dollar mantra) he has obviously 'collaborated' with the Federal Reserve and enlisted the credible Bernanke to try and win the FX market over. And they listened, for a few days at least. We suspect that the very short term speculators were spooked out of their positions, and the dollar benefitted from short covering. On the flip side, commodities and commodity related stocks sold off sharply.
But the reality is that Bernanke will have to do more than just 'talk the dollar up'. Soon after Bernanke's comments last Tuesday, the European Central Bank was again talking tough on inflation (they have better form in managing inflation expectations) and the dollar promptly sold off against its main rival, the euro.
Then, in US trade on Friday, firm evidence arrived that the US economy is indeed slowing down, with the unemployment rate soaring from 5% to 5.50% following the release of May's payroll statistics.
These numbers confirmed to us that if the US economy is to avoid a deep recession, interest rates will remain low, and by implication, real interest rates will remain negative.
The geopolitics now being played out in the Middle East add another layer of complexity to the oil market. And with Barrack Obama being the clear favourite for the Whitehouse at the end of the year, the risk of an Israel/Iran conflict is now rapidly escalating. We thought oil was due for a correction last week, but the threat of Israeli action could drive oil even higher, and this is now being reflected with a risk premium being priced into the market
This creates more headaches for the US in their attempts to control inflation.
Inevitably, no matter how much Bernanke tries to anchor 'inflationary expectations', the reality of negative real interest rates will ensure inflation in the US (and globally for that matter) continues to gather momentum.
The attached chart shows the recent performance of long term US Government bond yields. If inflationary pressures continue to build, and we suspect they will, bond yields will slowly rise and bond prices will slowly fall.
The reality is that if the US wants to fight inflation, it must raise rates. As we have repeatedly stated, we do not see that as a realistic policy option for the US and we believe the authorities will continue to 'manage' the US dollar lower. The extraordinary volatility we are witnessing in the markets on an almost daily basis is the result of these huge imbalances that have become embedded in the global economy. The market is now attempting to right these imbalances through a serious bout of global US dollar inflation, which is being passed on to every other nation in the world.
About the Author
Fat Prophets are leading global independent stock market advisors with a comprehensive product range of research reports for all investors. Visit the Fat Prophets website to learn more and get expert advice on investing in shares and managed funds.
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