Oil Shale = Cellulosic Ethanol

As a reader pointed out, oil shale is in the news again:

Oil shale may finally have its moment

In a nutshell, ICP works like this: Shell drills 1,800-foot wells and into them inserts heating rods that raise the temperature of the oil shale to 650 degrees Fahrenheit. To keep the oil from escaping into the ground water, the heater wells are ringed by freeze walls created by coolant piped deep into the ground; this freezes the rock and water on the perimeter of the drill site. Eventually the heat begins to transform the kerogen (the fossil fuel embedded in the shale) into oil and natural gas. After the natural gas is separated, the oil is piped to a refinery to be converted into gasoline and other products.

I have to be honest. That doesn’t sound too energy efficient to me. And after 100 years of being imminent, I will reserve my skepticism for a while longer. My guess is that the energy balance is actually going to be in the ballpark of corn ethanol, while the hype rivals that of cellulosic ethanol. And it is hyped in the same terms:

Vinegar has developed a cutting-edge technology that, according to Shell, will produce large quantities of high-quality oil without ravaging the local environment - and be profitable with prices around $30 a barrel. Now that oil is approaching $90, the odds on Shell’s speculative bet are beginning to look awfully good.

“A lot of other companies have bent their spears trying to do what we’re now doing,” Vinegar says of his 28-year quest to turn oil shale into a commercial energy source. “We’re talking about the Holy Grail.”

Holy Grails these days seem to be a dime a dozen. So, let’s think about this. Profitable at $30 a barrel. Oil prices have been over $30 for several years now. I would be fast-tracking this technology if I could make those kinds of margins. But it is probably going to be more difficult to turn oil shale into crude than it is to turn tar sands into crude. And the production of tar sands isn’t exactly like printing money, nor is it very environmentally benign.

All this cooling and heating, of course, consumes energy. Can it possibly be worth it? Yes, says Vinegar, who estimates ICP’s ratio of energy produced to energy consumed will range from 3-to-1 to 7-to-1, depending upon the scale of the project.

Water is another worry. ICP uses a lot of water, mainly to refine the oil and purify the natural gas.

It uses lot of water? Sound like corn ethanol. A projected EROEI ranging from 3/1 to 7/1 on an unproven technology? Sounds like cellulosic ethanol.

I don’t want to come across as too negative, but I have heard the oil shale is right around the corner all my life. Shell has definitely invested a lot of money into it, and they aren’t stupid. But they also invested a lot of money into GTL, and that’s not proven to be a particularly lucrative investment. I wish them luck, but I will say the same thing I say for most of these other imminent breakthroughs: You better have a Plan B.

This Week in Petroleum 10-31-07

Halloween Edition - Updated following the release of the report

Overall inventories decreased, and there was a fairly large crude draw, which is likely to push oil prices up from here. If the Fed cuts rates by 0.5%, then I would say we have a decent chance of $100 within the week. No rate cut, and prices probably fall back.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell by 3.9 million barrels compared to the previous week. At 312.7 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 1.3 million barrels last week, and are in the lower half of the average range. Both finished gasoline inventories and gasoline blending components rose last week. Distillate fuel inventories increased by 0.8 million barrels, and are at the upper limit of the average range for this time of year. Propane/propylene inventories increased 0.9 million barrels last week. Total commercial petroleum inventories decreased by 1.1 million barrels last week, but are in the upper half of the average range for this time of year.

Crude imports were up over last week (which isn’t saying much, as last week’s imports were very low). Gasoline imports were very healthy for this time of year, which is surprising to me because of the weak dollar, and the current level of crack spreads:

U.S. crude oil imports averaged nearly 9.4 million barrels per day last week, up 278,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged nearly 9.7 million barrels per day, or 481,000 barrels per day less than averaged over the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components)last week averaged 1,238,000 barrels per day. Distillate fuel imports averaged 325,000 barrels per day last week.

Refinery utilization slid again this week. Refineries should be coming out of turnarounds at this point, but low crack spreads are a disincentive for refiners to work around the clock and spend extra money to expedite returning to full capacity. Also, as the crack spreads decline, there are marginal barrels that you will simply be unwilling to purchase, as they will essentially take your marginal crack to zero. Refiners have models that predict things like this, and I have seen lots of cases in which barrels were available, but refiners chose to run at less than capacity rather than earn nothing on the additional barrels they would have to purchase to come up to full capacity. And I have first hand knowledge that this is indeed the case at some specific refineries.

U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending October 26, down 13,000 barrels per day from the previous week’s average. Refineries operated at 86.2 percent of their operable capacity last week. Gasoline production fell compared to the previous week, averaging 8.9 million barrels per day. Distillate fuel production rose last week, averaging 4.1 million barrels per day.

Note also the seasonal shift toward distillates.

Finally, I continue to see conflicting reports on whether gasoline demand is up or down:

Total products supplied over the last four-week period has averaged 20.7 million barrels per day, down by 0.1 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.3 million barrels per day, or 0.3 percent above the same period last year.

At this point, I think the Fed will make the final determination on whether we reach $100 within the next week.

Halloween Edition - to be updated following the release of the report

Yogi Berra once famously noted “It’s tough to make predictions, especially about the future.”

I will add a corollary to that, albeit without Yogi’s succinctness: As a future event becomes more probable, the number of people who knew it all along will grow exponentially. I mean, let’s face it. Wasn’t if obvious that Boston would win the World Series? Likewise, wasn’t it obvious that crude prices would be knocking on the door of $100 as November approached?

I want to review, because I see a widespread affliction of amnesia following this recent 30% run-up. Flashback to August. Oil prices were poised to go on a run that would take them to over $90 in October. What were people saying then? It was in August that legendary oil man T. Boone Pickens told CNBC; “I think you’re going to see $80 a barrel before I’m 80.” His 80th birthday is in May 2008. CIBC World Markets said that crude prices could reach $80 a barrel this year and $100 by the end of 2008. Deutsche Bank raised its “long-term” oil price forecast to $60 a barrel. And the EIA wrote in their August Short Term Energy Outlook: “Crude oil prices, which have been rising over the last 2 months, are expected to reach a peak monthly average price in August before starting to ease slightly.”

That was conventional wisdom. Some were calling for lower oil prices, and those calling for higher oil prices certainly were not calling for $100 oil in 2007. That was what the talking heads and the analysts were saying in August. One notable exception was Goldman Sachs, who wrote that US crude price could top $90 a barrel in the fall and hit $95 by the end of the year if OPEC didn’t bump production. They nailed it. But their opinion was definitely not held by the majority as if it was obvious all along.

On the topic of Goldman Sachs, I have seen some suggest that they are trying to influence oil prices by telling clients to take profits. Of course one wonders if the same people were making those claims when oil was $70 and Goldman was calling for it to run to $90. I guess if you are long at $93, Goldman says take profits, and you start to lose money, it’s not that you misjudged. No, it’s market-manipulation. But that works both ways. And the U.S. Commodity Futures Trading Commission has noted that the long to short ratio has grown rapidly throughout this rise. That in and of itself will help fuel the climb. But this Goldman Sachs issue is a good example of why I don’t trade short-term. The fundamentals in the short-term can be wiped out by market sentiment. And things like their sell recommendation can swiftly change market sentiment.

Anticipating Today’s Inventory Report

As I wrote after the release of last week’s report, “this inventory report will provide a lot of fuel for the bulls for another week.” A lot of fuel indeed, as oil ran up by about 10% in the past week, before correcting back yesterday. So, do we get tricks or treats today? Of course one man’s trick is another man’s treat. And this week’s inventory report will have lots of implications, as did last week’s.

If we see a big draw, I think we see another run at $100. A big build, and the profit-taking continues. However, complicating today’s report is the decision by the Fed whether to cut interest rates. If the Fed cuts rates by half a percent, and we see a big draw, I think we see $100 oil within a week. If the cut is a quarter point or no cut at all, I think we continue to see profit-taking unless there is a very big crude draw. No cut and a big build should cause prices to fall quickly. Of all the scenarios, I think the case for a sprint toward $100 is the weakest. My own thoughts are that we see a build* and a quarter point cut or less, and that oil prices slowly drift down in the short-term.

Personally, I wouldn’t cut rates at all after the battering the dollar took the last time rates were cut. But they didn’t ask my opinion. Nor, as far as I can tell, did the Fed read my blog to find out my opinion. But as I noted yesterday, someone at Goldman Sachs did. So I take full responsibility for manipulating the worldwide price of oil downward to avoid losing my $1,000 bet.

*Note 1: If I was running a refinery, I would probably prefer to pull down inventories with crude at these prices. You have probably seen the comments from major oil company executives who don’t feel that the current price is sustainable short-term. If you believe a correction is coming, you may prefer to draw down inventories somewhat and take your chances. But as I have noted previously, that can be a Catch-22. Keep your inventories full at these prices, and you are supporting the current price levels. Pull them down in the current atmosphere, and you support the impression that supply is insufficient, which will favor higher prices.

Note 2: I won’t be responding to comments on this essay, as I have pumpkins to carve and kids to take Trick-or-Treating.

Halloween Edition - to be updated following the release of the report

Yogi Berra once famously noted “It’s tough to make predictions, especially about the future.”

I will add a corollary to that, albeit without Yogi’s succinctness: As a future event becomes more probable, the number of people who knew it all along will grow exponentially. I mean, let’s face it. Wasn’t if obvious that Boston would win the World Series? Likewise, wasn’t it obvious that crude prices would be knocking on the door of $100 as November approached?

I want to review, because I see a widespread affliction of amnesia following this recent 30% run-up. Flashback to August. Oil prices were poised to go on a run that would take them to over $90 in October. What were people saying then? It was in August that legendary oil man T. Boone Pickens told CNBC; “I think you’re going to see $80 a barrel before I’m 80.” His 80th birthday is in May 2008. CIBC World Markets said that crude prices could reach $80 a barrel this year and $100 by the end of 2008. Deutsche Bank raised its “long-term” oil price forecast to $60 a barrel. And the EIA wrote in their August Short Term Energy Outlook: “Crude oil prices, which have been rising over the last 2 months, are expected to reach a peak monthly average price in August before starting to ease slightly.”

That was conventional wisdom. Some were calling for lower oil prices, and those calling for higher oil prices certainly were not calling for $100 oil in 2007. That was what the talking heads and the analysts were saying in August. One notable exception was Goldman Sachs, who wrote that US crude price could top $90 a barrel in the fall and hit $95 by the end of the year if OPEC didn’t bump production. They nailed it. But their opinion was definitely not held by the majority as if it was obvious all along.

On the topic of Goldman Sachs, I have seen some suggest that they are trying to influence oil prices by telling clients to take profits. Of course one wonders if the same people were making those claims when oil was $70 and Goldman was calling for it to run to $90. I guess if you are long at $93, Goldman says take profits, and you start to lose money, it’s not that you misjudged. No, it’s market-manipulation. But that works both ways. And the U.S. Commodity Futures Trading Commission has noted that long interest has grown rapidly throughout this rise. That in and of itself will help fuel the climb, and if those positions start to liquidate that will fuel a drop.

Anticipating Today’s Inventory Report

As I wrote after the release of last week’s report, “this inventory report will provide a lot of fuel for the bulls for another week.” A lot of fuel indeed, as oil ran up by about 10% in the past week, before correcting back yesterday. So, do we get tricks or treats today? Of course one man’s trick is another man’s treat. And this week’s inventory report will have lots of implications, as did last week’s.

If we see a big draw, I think we see another run at $100. A big build, and the profit-taking continues. However, complicating today’s report is the decision by the Fed whether to cut interest rates. If the Fed cuts rates by half a percent, and we see a big draw, I think we see $100 oil within a week. If the cut is a quarter point or no cut at all, I think we continue to see profit-taking unless there is a very big crude draw. No cut and a big build should cause prices to fall quickly. Of all the scenarios, I think the case for a sprint toward $100 is the weakest. My own thoughts are that we see a build* and a quarter point cut or less, and that oil prices slowly drift down in the short-term.

Personally, I wouldn’t cut rates at all after the battering the dollar took the last time rates were cut. But they didn’t ask my opinion. Nor, as far as I can tell, did the Fed read my blog to find out my opinion. But as I noted yesterday, someone at Goldman Sachs did. So I take full responsibility for manipulating the worldwide price of oil downward to avoid losing my $1,000 bet.

*Note 1: If I was running a refinery, I would probably prefer to pull down inventories with crude at these prices. You have probably seen the comments from major oil company executives who don’t feel that the current price is sustainable short-term. If you believe a correction is coming, you may prefer to draw down inventories somewhat and take your chances. But as I have noted previously, that can be a Catch-22. Keep your inventories full at these prices, and you are supporting the current price levels. Pull them down in the current atmosphere, and you support the impression that supply is insufficient, which will favor higher prices.

Note 2: I won’t be responding to comments on this essay, as I have pumpkins to carve and kids to take Trick-or-Treating.

Goldman Says `Take Profits’

A few months ago, an analyst at a brokerage firm wrote to me and said that they had actually used some of my essays as the basis of advising their clients. That was flattering, but it also made me feel somewhat uneasy. I don’t mind telling you what I think is going to happen, but I don’t want to be responsible for anyone losing money if I am wrong. Anyway, that particular brokerage had used some of my essays to steer their clients away from ethanol stocks, and those stocks are in fact down significantly since then. So, that worked out well. The analysts probably got paid a nice bonus and the clients were happy. I couldn’t help but notice that my check was lost in the mail, but such is life. But I didn’t end up entirely empty-handed. I probably pulled in $0.40 in ad revenue that day.

Anyway, on a typical day, I get quite a cross-section of brokerage firms, banks, government agencies, insurance firms, and hedge funds that stop by. There have been 30 visitors from New York City - primarily financially related - in the past couple of hours. There have also been 18 visitors today from Washington D.C. - primarily government affiliated. I won’t name names (except for one), but the Site Meter at the bottom of the page gives some information about the last 100 visitors. I also have a site meter that is not visible, and it gives me much greater detail about the last 500 visitors. For instance, I can tell who is reading what, and this can give me quite a bit of insight into what people are after. And it is clear from the paths that some financial visitors are doing research.

One I will name is Goldman Sachs. I get one or more visitors from there on pretty much a daily basis. Thank goodness I finally got through to them:

Goldman Says `Take Profits’ After Crude Hits Record

Oct. 30 (Bloomberg) — Goldman Sachs Group Inc., the bank that said in July oil may reach $95 a barrel, told clients it was “time to take profits” after crude rose to a record $93.80 in New York yesterday.

“We are now more cautious on the near-term upside potential for oil prices,” analysts including Jeffrey Currie in London said in the bank’s Energy Weekly today. “We are not trying to call a top here, just take profits.”

Goldman said it was closing its long positions in New York oil futures. Oil has gained 51 percent this year as hedge funds and other large speculators increased bets on rising prices. Net-long positions in New York crude futures in the week ended Aug. 3 jumped to the highest in more than a decade.

Crude oil for December delivery fell $3.15, or 3.4 percent, to settle at $90.38 a barrel on the New York Mercantile Exchange. The price for March delivery was at $87.99 a barrel and at $82.92 for December next year.

Goldman’s recommendation “might be a bit early,” especially if colder weather boosts demand during the next two months, said Francisco Blanch, a London-based analyst at Merrill Lynch & Co. Blanch predicts oil will average $80 a barrel for the three months through December, and that prices are more likely to reach $100 soon than $60.

OK, I will name one more name. Someone at Merrill Lynch is also a very regular visitor on here. And the official position of Merrill Lynch is still for $100 oil. (Time to bail, Merrill).

Of course I am joking about influencing Goldman. For all I know, it’s one of their receptionists just browsing on their lunch break. I just thought it was interesting that they - having been really bullish on oil for a long time - also felt like the market had gotten ahead of itself.

On the other hand, if I am now the de facto chief energy analyst for Goldman, I will look for my bonus check in the mail.

One other thing I sometimes get a kick out of is seeing the keywords that have directed people here. You sometimes wonder, “What were they thinking?” Here is a sampling from today (from various search engines):

rapier vs staff
opec no longer pegs oil to dollar
are there any harmful wastes produced by fossil fuel
doug macintyre eia doe
upstream downstream oil price
rapier
who killed electric car engineers
why is ethanol stock going down
rebreather training aberdeen
bush texas ranch house size
why are gas prices rising? 2007
if a barrel of crude goes up to $100 what will a gallon of gas cost?
chuck schumer’s views on energy
robert rapier doesn’t sleep
how much energy is obtain in alcohol fumes?
congressional food versus fuel
probability of die-off scenarios peak oil
personal investing to combat gas prices
bibliography on vinod khosla

But the funniest one I ever heard came from another energy blogger, who said someone was directed to his blog by “What does it mean when my poop is green?” LOL! I didn’t ask.

Goldman Says `Take Profits’

A few months ago, an analyst at a brokerage firm wrote to me and said that they had actually used some of my essays as the basis of advising their clients. That was flattering, but it also made me feel somewhat uneasy. I don’t mind telling you what I think is going to happen, but I don’t want to be responsible for anyone losing money if I am wrong. Anyway, that particular brokerage had used some of my essays to steer their clients away from ethanol stocks, and those stocks are in fact down significantly since then. So, that worked out well. The analysts probably got paid a nice bonus and the clients were happy. I couldn’t help but notice that my check was lost in the mail, but such is life. But I didn’t end up entirely empty-handed. I probably pulled in $0.40 in ad revenue that day.

Anyway, on a typical day, I get quite a cross-section of brokerage firms, banks, government agencies, insurance firms, and hedge funds that stop by. There have been 30 visitors from New York City - primarily financially related - in the past couple of hours. There have also been 18 visitors today from Washington D.C. - primarily government affiliated. I won’t name names (except for one), but the Site Meter at the bottom of the page gives some information about the last 100 visitors. I also have a site meter that is not visible, and it gives me much greater detail about the last 500 visitors. For instance, I can tell who is reading what, and this can give me quite a bit of insight into what people are after. And it is clear from the paths that some financial visitors are doing research.

One I will name is Goldman Sachs. I get one or more visitors from there on pretty much a daily basis. Thank goodness I finally got through to them:

Goldman Says `Take Profits’ After Crude Hits Record

Oct. 30 (Bloomberg) — Goldman Sachs Group Inc., the bank that said in July oil may reach $95 a barrel, told clients it was “time to take profits” after crude rose to a record $93.80 in New York yesterday.

“We are now more cautious on the near-term upside potential for oil prices,” analysts including Jeffrey Currie in London said in the bank’s Energy Weekly today. “We are not trying to call a top here, just take profits.”

Goldman said it was closing its long positions in New York oil futures. Oil has gained 51 percent this year as hedge funds and other large speculators increased bets on rising prices. Net-long positions in New York crude futures in the week ended Aug. 3 jumped to the highest in more than a decade.

Crude oil for December delivery fell $3.15, or 3.4 percent, to settle at $90.38 a barrel on the New York Mercantile Exchange. The price for March delivery was at $87.99 a barrel and at $82.92 for December next year.

Goldman’s recommendation “might be a bit early,” especially if colder weather boosts demand during the next two months, said Francisco Blanch, a London-based analyst at Merrill Lynch & Co. Blanch predicts oil will average $80 a barrel for the three months through December, and that prices are more likely to reach $100 soon than $60.

OK, I will name one more name. Someone at Merrill Lynch is also a very regular visitor on here. And the official position of Merrill Lynch is still for $100 oil. (Time to bail, Merrill).

Of course I am joking about influencing Goldman. For all I know, it’s one of their receptionists just browsing on their lunch break. I just thought it was interesting that they - having been really bullish on oil for a long time - also felt like the market had gotten ahead of itself.

On the other hand, if I am now the de facto chief energy analyst for Goldman, I will look for my bonus check in the mail.

One other thing I sometimes get a kick out of is seeing the keywords that have directed people here. You sometimes wonder, “What were they thinking?” Here is a sampling from today (from various search engines):

rapier vs staff
opec no longer pegs oil to dollar
are there any harmful wastes produced by fossil fuel
doug macintyre eia doe
upstream downstream oil price
rapier
who killed electric car engineers
why is ethanol stock going down
rebreather training aberdeen
bush texas ranch house size
why are gas prices rising? 2007
if a barrel of crude goes up to $100 what will a gallon of gas cost?
chuck schumer’s views on energy
robert rapier doesn’t sleep
how much energy is obtain in alcohol fumes?
congressional food versus fuel
probability of die-off scenarios peak oil
personal investing to combat gas prices
bibliography on vinod khosla

But the funniest one I ever heard came from another energy blogger, who said someone was directed to his blog by “What does it mean when my poop is green?” LOL! I didn’t ask.

Goldman Says `Take Profits’

A few months ago, an analyst at a brokerage firm wrote to me and said that they had actually used some of my essays as the basis of advising their clients. That was flattering, but it also made me feel somewhat uneasy. I don’t mind telling you what I think is going to happen, but I don’t want to be responsible for anyone losing money if I am wrong. Anyway, that particular brokerage had used some of my essays to steer their clients away from ethanol stocks, and those stocks are in fact down significantly since then. So, that worked out well. The analysts probably got paid a nice bonus and the clients were happy. I couldn’t help but notice that my check was lost in the mail, but such is life. But I didn’t end up entirely empty-handed. I probably pulled in $0.40 in ad revenue that day.

Anyway, on a typical day, I get quite a cross-section of brokerage firms, banks, government agencies, insurance firms, and hedge funds that stop by. There have been 30 visitors from New York City - primarily financially related - in the past couple of hours. There have also been 18 visitors today from Washington D.C. - primarily government affiliated. I won’t name names (except for one), but the Site Meter at the bottom of the page gives some information about the last 100 visitors. I also have a site meter that is not visible, and it gives me much greater detail about the last 500 visitors. For instance, I can tell who is reading what, and this can give me quite a bit of insight into what people are after. And it is clear from the paths that some financial visitors are doing research.

One I will name is Goldman Sachs. I get one or more visitors from there on pretty much a daily basis. Thank goodness I finally got through to them:

Goldman Says `Take Profits’ After Crude Hits Record

Oct. 30 (Bloomberg) — Goldman Sachs Group Inc., the bank that said in July oil may reach $95 a barrel, told clients it was “time to take profits” after crude rose to a record $93.80 in New York yesterday.

“We are now more cautious on the near-term upside potential for oil prices,” analysts including Jeffrey Currie in London said in the bank’s Energy Weekly today. “We are not trying to call a top here, just take profits.”

Goldman said it was closing its long positions in New York oil futures. Oil has gained 51 percent this year as hedge funds and other large speculators increased bets on rising prices. Net-long positions in New York crude futures in the week ended Aug. 3 jumped to the highest in more than a decade.

Crude oil for December delivery fell $3.15, or 3.4 percent, to settle at $90.38 a barrel on the New York Mercantile Exchange. The price for March delivery was at $87.99 a barrel and at $82.92 for December next year.

Goldman’s recommendation “might be a bit early,” especially if colder weather boosts demand during the next two months, said Francisco Blanch, a London-based analyst at Merrill Lynch & Co. Blanch predicts oil will average $80 a barrel for the three months through December, and that prices are more likely to reach $100 soon than $60.

OK, I will name one more name. Someone at Merrill Lynch is also a very regular visitor on here. And the official position of Merrill Lynch is still for $100 oil. (Time to bail, Merrill).

Of course I am joking about influencing Goldman. For all I know, it’s one of their receptionists just browsing on their lunch break. I just thought it was interesting that they - having been really bullish on oil for a long time - also felt like the market had gotten ahead of itself.

On the other hand, if I am now the de facto chief energy analyst for Goldman, I will look for my bonus check in the mail.

One other thing I sometimes get a kick out of is seeing the keywords that have directed people here. You sometimes wonder, “What were they thinking?” Here is a sampling from today (from various search engines):

rapier vs staff
opec no longer pegs oil to dollar
are there any harmful wastes produced by fossil fuel
doug macintyre eia doe
upstream downstream oil price
rapier
who killed electric car engineers
why is ethanol stock going down
rebreather training aberdeen
bush texas ranch house size
why are gas prices rising? 2007
if a barrel of crude goes up to $100 what will a gallon of gas cost?
chuck schumer’s views on energy
robert rapier doesn’t sleep
how much energy is obtain in alcohol fumes?
congressional food versus fuel
probability of die-off scenarios peak oil
personal investing to combat gas prices
bibliography on vinod khosla

But the funniest one I ever heard came from another energy blogger, who said someone was directed to his blog by “What does it mean when my poop is green?” LOL! I didn’t ask.

Goldman Says `Take Profits’

A few months ago, an analyst at a brokerage firm wrote to me and said that they had actually used some of my essays as the basis of advising their clients. That was flattering, but it also made me feel somewhat uneasy. I don’t mind telling you what I think is going to happen, but I don’t want to be responsible for anyone losing money if I am wrong. Anyway, that particular brokerage had used some of my essays to steer their clients away from ethanol stocks, and those stocks are in fact down significantly since then. So, that worked out well. The analysts probably got paid a nice bonus and the clients were happy. I couldn’t help but notice that my check was lost in the mail, but such is life. But I didn’t end up entirely empty-handed. I probably pulled in $0.40 in ad revenue that day.

Anyway, on a typical day, I get quite a cross-section of brokerage firms, banks, government agencies, insurance firms, and hedge funds that stop by. There have been 30 visitors from New York City - primarily financially related - in the past couple of hours. There have also been 18 visitors today from Washington D.C. - primarily government affiliated. I won’t name names (except for one), but the Site Meter at the bottom of the page gives some information about the last 100 visitors. I also have a site meter that is not visible, and it gives me much greater detail about the last 500 visitors. For instance, I can tell who is reading what, and this can give me quite a bit of insight into what people are after. And it is clear from the paths that some financial visitors are doing research.

One I will name is Goldman Sachs. I get one or more visitors from there on pretty much a daily basis. Thank goodness I finally got through to them:

Goldman Says `Take Profits’ After Crude Hits Record

Oct. 30 (Bloomberg) — Goldman Sachs Group Inc., the bank that said in July oil may reach $95 a barrel, told clients it was “time to take profits” after crude rose to a record $93.80 in New York yesterday.

“We are now more cautious on the near-term upside potential for oil prices,” analysts including Jeffrey Currie in London said in the bank’s Energy Weekly today. “We are not trying to call a top here, just take profits.”

Goldman said it was closing its long positions in New York oil futures. Oil has gained 51 percent this year as hedge funds and other large speculators increased bets on rising prices. Net-long positions in New York crude futures in the week ended Aug. 3 jumped to the highest in more than a decade.

Crude oil for December delivery fell $3.15, or 3.4 percent, to settle at $90.38 a barrel on the New York Mercantile Exchange. The price for March delivery was at $87.99 a barrel and at $82.92 for December next year.

Goldman’s recommendation “might be a bit early,” especially if colder weather boosts demand during the next two months, said Francisco Blanch, a London-based analyst at Merrill Lynch & Co. Blanch predicts oil will average $80 a barrel for the three months through December, and that prices are more likely to reach $100 soon than $60.

OK, I will name one more name. Someone at Merrill Lynch is also a very regular visitor on here. And the official position of Merrill Lynch is still for $100 oil. (Time to bail, Merrill).

Of course I am joking about influencing Goldman. For all I know, it’s one of their receptionists just browsing on their lunch break. I just thought it was interesting that they - having been really bullish on oil for a long time - also felt like the market had gotten ahead of itself.

On the other hand, if I am now the de facto chief energy analyst for Goldman, I will look for my bonus check in the mail.

One other thing I sometimes get a kick out of is seeing the keywords that have directed people here. You sometimes wonder, “What were they thinking?” Here is a sampling from today (from various search engines):

rapier vs staff
opec no longer pegs oil to dollar
are there any harmful wastes produced by fossil fuel
doug macintyre eia doe
upstream downstream oil price
rapier
who killed electric car engineers
why is ethanol stock going down
rebreather training aberdeen
bush texas ranch house size
why are gas prices rising? 2007
if a barrel of crude goes up to $100 what will a gallon of gas cost?
chuck schumer’s views on energy
robert rapier doesn’t sleep
how much energy is obtain in alcohol fumes?
congressional food versus fuel
probability of die-off scenarios peak oil
personal investing to combat gas prices
bibliography on vinod khosla

But the funniest one I ever heard came from another energy blogger, who said someone was directed to his blog by “What does it mean when my poop is green?” LOL! I didn’t ask.

Goldman Says `Take Profits’

A few months ago, an analyst at a brokerage firm wrote to me and said that they had actually used some of my essays as the basis of advising their clients. That was flattering, but it also made me feel somewhat uneasy. I don’t mind telling you what I think is going to happen, but I don’t want to be responsible for anyone losing money if I am wrong. Anyway, that particular brokerage had used some of my essays to steer their clients away from ethanol stocks, and those stocks are in fact down significantly since then. So, that worked out well. The analysts probably got paid a nice bonus and the clients were happy. I couldn’t help but notice that my check was lost in the mail, but such is life. But I didn’t end up entirely empty-handed. I probably pulled in $0.40 in ad revenue that day.

Anyway, on a typical day, I get quite a cross-section of brokerage firms, banks, government agencies, insurance firms, and hedge funds that stop by. There have been 30 visitors from New York City - primarily financially related - in the past couple of hours. There have also been 18 visitors today from Washington D.C. - primarily government affiliated. I won’t name names (except for one), but the Site Meter at the bottom of the page gives some information about the last 100 visitors. I also have a site meter that is not visible, and it gives me much greater detail about the last 500 visitors. For instance, I can tell who is reading what, and this can give me quite a bit of insight into what people are after. And it is clear from the paths that some financial visitors are doing research.

One I will name is Goldman Sachs. I get one or more visitors from there on pretty much a daily basis. Thank goodness I finally got through to them:

Goldman Says `Take Profits’ After Crude Hits Record

Oct. 30 (Bloomberg) — Goldman Sachs Group Inc., the bank that said in July oil may reach $95 a barrel, told clients it was “time to take profits” after crude rose to a record $93.80 in New York yesterday.

“We are now more cautious on the near-term upside potential for oil prices,” analysts including Jeffrey Currie in London said in the bank’s Energy Weekly today. “We are not trying to call a top here, just take profits.”

Goldman said it was closing its long positions in New York oil futures. Oil has gained 51 percent this year as hedge funds and other large speculators increased bets on rising prices. Net-long positions in New York crude futures in the week ended Aug. 3 jumped to the highest in more than a decade.

Crude oil for December delivery fell $3.15, or 3.4 percent, to settle at $90.38 a barrel on the New York Mercantile Exchange. The price for March delivery was at $87.99 a barrel and at $82.92 for December next year.

Goldman’s recommendation “might be a bit early,” especially if colder weather boosts demand during the next two months, said Francisco Blanch, a London-based analyst at Merrill Lynch & Co. Blanch predicts oil will average $80 a barrel for the three months through December, and that prices are more likely to reach $100 soon than $60.

OK, I will name one more name. Someone at Merrill Lynch is also a very regular visitor on here. And the official position of Merrill Lynch is still for $100 oil. (Time to bail, Merrill).

Of course I am joking about influencing Goldman. For all I know, it’s one of their receptionists just browsing on their lunch break. I just thought it was interesting that they - having been really bullish on oil for a long time - also felt like the market had gotten ahead of itself.

On the other hand, if I am now the de facto chief energy analyst for Goldman, I will look for my bonus check in the mail.

One other thing I sometimes get a kick out of is seeing the keywords that have directed people here. You sometimes wonder, “What were they thinking?” Here is a sampling from today (from various search engines):

rapier vs staff
opec no longer pegs oil to dollar
are there any harmful wastes produced by fossil fuel
doug macintyre eia doe
upstream downstream oil price
rapier
who killed electric car engineers
why is ethanol stock going down
rebreather training aberdeen
bush texas ranch house size
why are gas prices rising? 2007
if a barrel of crude goes up to $100 what will a gallon of gas cost?
chuck schumer’s views on energy
robert rapier doesn’t sleep
how much energy is obtain in alcohol fumes?
congressional food versus fuel
probability of die-off scenarios peak oil
personal investing to combat gas prices
bibliography on vinod khosla

But the funniest one I ever heard came from another energy blogger, who said someone was directed to his blog by “What does it mean when my poop is green?” LOL! I didn’t ask.

OPIS on the Bull Rush

My daily OPIS summary weighed in on my side over the level of oil prices. I am beginning to think I may not be crazy at all.

Today’s “excuse de jour” for the rally has been the reported shut-in of 600,000 b/d of crude oil by Mexico’s state-owned oil company, Pemex, due to inclement weather. In a climate where U.S. crude supplies are dangerously low, such a shut-in would likely spur some panic buying.

Supplies are not dangerously low, however. In fact, stockpiles are near the upper end of the average range for this time of year, according to the U.S. Department of Energy. And in that kind of a climate, news like the Pemex shut-in becomes justification for a move that has little to do with fundamentals.

As has been the case for the better part of 2007, money flow continues to drive this rally. According to the most recent Commitments of Traders report from the U.S. Commodity Futures Trading Commission, speculative long positions on the NYMEX outnumbered short positions by 60,026 contracts for the week of Oct. 26.

In my mind, the only question is whether the correction begins before or after I lose my bet.

(Yes, I know that almost all I have been writing about for the past week is oil prices, but this is a news story that in my opinion dwarfs most of the other happenings in energy.)

The Positive and Negative of High Oil Prices

Probably the most devastating personal impact if oil goes over $100 is that there won’t be a beer fund for people who stop by and see me in Aberdeen. Therefore, if you come see me you will have to pick up the tab.

But a MarketWatch story today highlighted that energy stocks were tracking oil prices, which is why I am hedged against rising oil prices:

Energy stocks rise along with oil prices

NEW YORK (MarketWatch) — Energy stocks moved up Monday along with the overall market after oil futures broke through $93 a barrel for the first time on jitters over a production cut in Mexico on bad weather. Oil futures rose $1 to $92.86 after breaking through $93 for the first time earlier in the day.

For me, that’s mixed news. On the positive side, higher oil prices mean that people will conserve more energy. That is first and foremost, the most important thing. Also, the value of my company stock increases; a good thing for me personally. On the negative side, high oil prices really endanger the economy with a recession. Furthermore, I will soon be relieved of $1,000 if the price rise doesn’t slow down. Of course, forced conservation also means hard times for some people. We must conserve, but there are certainly people suffering at these prices.

On the price issue, I continue to see many analysts reiterate what I have been saying. From the same story:

Natixis Bleichroeder Inc. on Monday said in a note to clients that oil prices above $90 a barrel may not be justified by supply data. “The oil price move to record territory has been accompanied by some geo-political issues, continued inventory draws and very aggressive buying by non-commercial speculators,” Natixis said. “That said, we are less than certain that the fourth-quarter oil market undersupply condition of roughly 1.1 million barrels a day justifies prices above $90 a barrel.”

I firmly believe that oil is overbought. The question is, will it correct before or after it relieves me of $1,000? That is going to depend largely on Wednesday. If the Fed cuts interest rates, and crude inventories drop again, I think we will see $100 oil within a week. I think there is a pretty good chance the Fed will cut rates (although I think that’s a mistake), but I don’t expect that inventories will be down again this week.

For me, the worst case scenario is that oil cracks $100, and then corrects back down to $70. That means it wipes out the beer fund, as well as my company stock value, and conservation efforts will slow.

Shakeout Predicted

I have never heard of James Mound, but I think he is correct in his assessment below. As I have mentioned, I absolutely would not buy oil at these prices. It may still go to $100 in the short term, and clearly that sentiment is helping drive the market, but the fundamentals have not changed so dramatically in the past 3 months to warrant this kind of run-up:

James Mound’s Weekend Commodities Review

Energies

Strong selling ensued on Monday as a follow through to a bearish Friday close. The market suckered in a lot of shorts, me included, and then rocketed back to fresh highs amid growing geopolitical concerns. While the concept of peak oil (the end of the growth cycle of this limited life natural resource) is well supported, it does not necessarily support the current extremes. The market is in a short covering frenzy, overextended beyond what any normal relative strength scale would measure and setting up for a serious bull suck-in and shakeout. Look to the exchange for increased margins at these prices and watch the market come crashing down. Put plays are really the only remotely intelligent way to play the bear move, but if you are thinking of going long this market here just ask yourself if you are the last person to the party. Natural gas remains independently a good market for playing long call volatility as price expansion is likely in the coming months.

If inventories pop back up this week, you could see a quick sell-off. Ditto if Saudi convinces the rest of OPEC to calm the markets. I think upside potential is small in the short-term (but high in the long term) and the risk of a decline is large. If I was investing short-term, I would be buying puts here. It is hard to believe that the price of crude has moved 10% on the back of last week’s inventory report, but I said it would provide fuel for another week. Of course the other wild-card is whether interest rates will be cut again this week, as expected. If that happens, we could run up a few more dollars. But, I think investors have already factored in an expected rate cut.

I had mentioned writing a post on a recent exchange I had with a speculator. I will get that done as soon as I can, because it will give you some insight into the financial acumen of some of the people who are currently piling in.