Archive through November 16, 2004

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ingot54

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Post Number: 167
Registered: 05-2004

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Saturday, October 16, 2004 - 02:47 pm:

From time-to-time I actually have a bit of a look at some of the Junk mail that occasionally filters into the box.

Have a read of this edited snippet. (Identifying bits edited - source available via private email.

"The above chart shows the price of oil adjusted for inflation. You can see that after the Iranian hostage crisis oil surged to the equivalent of $91 per barrel in terms of today's dollars.

While the recent run up in oil has been impressive, we're a long way from $91. But oil will get there — because that's where it should be just to keep pace with the declining purchasing power of the dollar. Put another way, the price of oil can jump another 68%!

Keep in mind that I'm not talking about the shortage of supply — the sabotaged pipelines, civil unrest in oil producing countries, or the lack of new discoveries. Nor am I even factoring in the huge demand for oil. I'm simply saying that purely to adjust to the dollar's loss in value over the last twenty years, oil needs to climb another $37.

How did that happen? Well, since the early 1980s, the price of oil became artificially depressed while investors threw money at stocks. Oil was virtually ignored while speculators bought Worldcom, Pets.com, and eToys. Oil was old industry. We were in a new era.

-------------- ADVERTISEMENT -------------- Critical FREE report identifies three shocking reasons why oil prices are destined to explode much higher than anyone now believes! FIVE oil stocks you shouldn't touch with a 10-foot pole ... SEVEN oil stocks to buy NOW -- for potential profits of up to 288%!
--------------------------------------------

But as the past year has shown us, the more things change, the more they stay the same. Countries all over the world are trying to grow their economies — China, the most obvious example. In order to fuel that growth, massive amounts of energy are needed.

At the same time, investors are finally getting fed up with paper money — in the form of stocks, bonds, and yes, even the greenback. So, they're seeking out tangible assets again — like oil, gold, and a whole slew of natural resources.

My forecast: Oil is going to hit $100 per barrel in 2005, minimum. You'll read more details about it in this month's issue of the ++++ ++++++ Report, which will be published Friday.

And I'm sure you're wondering about gold. Gold, like oil, suffered from the same lack of attention in the 1980's and 1990's. But as you already know, that's changed. Investors are now clamoring for the shiny yellow metal.

And here's an amazing statistic. Historically, an ounce of gold would buy between 11 and 15 barrels of oil. Today, an ounce of gold only buys 8 barrels of oil.

In other words, gold is CHEAP. Vis-à-vis oil, I expect gold to get back to the lower end of that historical relationship, at 11 barrels of oil per ounce of gold. That would mean $600 gold, minimum.

And if oil hits $100 per barrel — you'll see $1,100 gold."

So there it is. No one believed it before - why should they now. But there are plenty of indicators and commentators, which in retrospect, will make us say :"Why didn't I see that coming?"

To add fuel to the speculative fire, I remember a guest on ABC radio (18 months ago) saying that all of the known (and estimated) oil reserves in the world would be exhausted by the year 2027, at current rates of consumption. That was before the China and India economic expansion became widely prominent in calculations.

Even if the wild speculation above were partly feasible, the timeframe and timing might not appeal to most investors - might come as a thief in the night, or like lava down the lazy slopes!

Food for thought?

Ivan

Money isn't everything, but it's right up there with Oxygen

rederob

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Post Number: 391
Registered: 10-2002

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Saturday, October 16, 2004 - 09:34 pm:

Ivan
Consensus forecasters seldom get it right - it's mostly the guys hitting into left field.
We'll all be wiser at year's end, and I for one doubt the oil market has reached equilibrium and personally believe that $60/bbl will be reached, but not too much more (we surely will get a retrace soon on the over-extended technicals).
As for the ABC guest commentator, he is probably 50 years shy of the mark - 2075 is a better estimate.
The definitive work on oil supply and production was done by M King Hubbert:
http://www.hubbertpeak.com/curves.htm
Depending on who one chooses to believe, global oil production will peak sometime between now and 2025 (best guess presently is around 2010).
Although there is an abundance of oil (for now) not all of it is able to be extracted economically, tho technology (and high oil prices) will lead to abandoned fields being resurrected to eke out every economic drop.
I hold WPL and had recently thought of selling to lock in profits after holding for 18months. Am equivocating as WPL's LNG gas will become an excellent earner in years ahead and can leverage off the present high oil prices.

rederob

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Post Number: 398
Registered: 10-2002

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Votes: 0


Monday, October 18, 2004 - 12:10 am:

There are some interesting questions about oil that might have even more interesting answers.
Q: Why has no new oil refinery been built in the US since 1976?
A: Domestic US oil production peaked around 1970 and refineries were not operating near capacity then. It is probable they determined that excess capacity would see them through for many years and that offshore refining might compensate for supply imbalances in the distant future (read NOW).
Alternate answer: Refineries are very costly and environmental concerns make US construction a last resort.
Q: US refineries have been at near maximum capacity for the past year. Given that refiner margins are at all time record levels why has none of the oil major announced even an intention to build a new refinery?
A: Refiners have been content to upgrade and adopt new technologies to increase output. It is probable they have run the slide rule over the numbers and determined that the risk reward ratio is not there; principal suppliers being Russia, Nigeria, Venezuela, and Middle East because Europe has cornered market for most (politically) reliable oil producers.
Q: Why did Greenspan’s “Oil” address on Friday (http://www.federalreserve.gov/boarddocs/speeches/2004/200410152/default.htm) not touch on any specific measures that the US would implement to overcome extended price increases?
A: First, the Fed has no mandate on oil. Secondly, Greenspan believed his own line, “…technology, given a more supportive environment, is likely to ensure the needed supplies, at least for a very long while”. Finally, apart from the US Strategic Petroleum Reserves, their answer is that market forces will arrive at a longer term solution.
Because Greenspan spoke at the end of a trading week, a detailed dissection of his address and its market impact has been muted. Bulls and bears will interpret his comments accordingly.

These are just a few of my questions and answers (or views).
They prompt deeper questions and I have learned from researching the oil market that greater complexities abound. For example, the multitude of “gasoline” standards in the US means that refineries typically can only accommodate demand from specific States, rather than the whole nation: This alone creates internal imbalances which exacerbates price spikes.

One of the most telling recent indicators of near term direction is the spread between sweet (low sulfur) and sour oil prices which has almost doubled in the past 2 months. Until the spread reverses trend, oil is most likely to push higher or, at worst, consolidate in price over US$50/bbl.

hilarius

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Post Number: 388
Registered: 04-2004

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Monday, October 18, 2004 - 08:29 am:

Greetings Father Rederob

Where does that leave CTX as a refiner in our area?

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

rederob

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Post Number: 400
Registered: 10-2002

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Monday, October 18, 2004 - 09:38 am:

Br Hilarius
This cannot be simply answered, so visit here:
http://www.caltex.com.au/media_files/PressItem.576.801.pdf

The bottom line is that Oz refineries maintain a different focus to Asian refineries (our "competition"). Plus, Asian refineries no longer have the "surplus" that could be shipped off to Oz as local demand (China/Indonesia) has absorbed it.
Caltex seems destined for a stellar performance this year, but is at risk should there be a major collapse in POO (Price of OIL!!) - low likelihood near term.

By the way, industry analyst consensus this week is for higher POO.

hilarius

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Post Number: 390
Registered: 04-2004

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Monday, October 18, 2004 - 09:54 am:

Thank you Father Rederob

Please forgive me, for I have sinned

I have not bought CTX when I ought to have done, and I have considered buying it "too late" when I ought not to have done

Reading your words encourages me to have a naughty flutter even at this late stage

Please pray that I will not end up in a falling POO

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

rederob

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Post Number: 401
Registered: 10-2002

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Monday, October 18, 2004 - 10:14 am:

Br Hilarius
I have dispatched Mother Superior to guide your penance!
I sold out of CTX at handsome profit, but so early as to have missed out on another $5/share increase.
Therefore am contrite with sin of remission for not repurchasing on a retrace - but what retrace I ask?
If you look towards the heavens you may see....

...CTX's chartline taking pride of place in Our Lord's Pantheon of High Performing Equities.

tony_m

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Post Number: 166
Registered: 01-2003

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Votes: 1


Monday, October 18, 2004 - 12:52 pm:

Looking at CTX fundamentals it is hard to understand why it has stalled recently. It looks to me like market sentiment has been dampened by CTX having performed so well for so long therefore 'it must have run out of puff'??

CTX came off a really low base before the long run up but it is still cheap. PE is 7.02 v sector 19.2. Forecast earnings growth for Dec 04 report is 47.49% but will probably be a lot higher because of the tie up with WOW and higher crude prices giving opportunity for better margins. The PEG is a very low 0.04 so it suggests CTX could easily double and not be overvalued even then.

I dont know if there are any lurking issues but it would seem that market sentiment is the problem. Hopefully there will be some realisation that it is still a good buy and it will take off again.
Tony_M

hilarius

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Post Number: 391
Registered: 04-2004

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Monday, October 18, 2004 - 01:24 pm:

Tony

The friars are with you ... frying furiously

Buy your oil now before it runs out

Hilarius (taking the view of CTX you suggest)

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

rederob

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Post Number: 409
Registered: 10-2002

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Thursday, October 21, 2004 - 08:12 am:

As can be seen, POO holding up strongly despite technicals suggesting an overdue retrace. Fundamentals presently driven by low US heating oil inventories and likelihood that nation will go into winter with prospect of short supply.
Expect heating oil tightness to cap POO downside over coming months.
POO to $60/bbl is looking more probable each week.

ken

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Post Number: 38
Registered: 04-2003

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Thursday, October 21, 2004 - 09:45 am:

Please see huge Natural Gas price increase overnight in ASX long term / PSA thread.

http://www.incrediblecharts.com/userscripts/forums/show.plx?8/269064#POST52383

rederob

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Post Number: 411
Registered: 10-2002

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Thursday, October 21, 2004 - 10:43 am:

Thanks Ken
News reports from all over the place are pointing to more and more companies making formal decisions to increase the prices of their goods and services as soon as practicable - to accommodate energy cost increases and higher prices of raw materials.
Ultimately the price hikes will crimp spending and energy costs etc will deflate.
However, we are not looking at that scenario for months, more likely nearer to mid-2005.
My view is that oil, commodities and precious metals have a great 6-month window of opportunity to outperform.
Thereafter, chicken entrail tossing and tea leaf reading may offer clues if TA cannot help.

rederob

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Post Number: 413
Registered: 10-2002

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Friday, October 22, 2004 - 09:06 am:

Very little change overall to base metals or oil prices overnight.
Consolidation is important in the light of greenback weakness.
Warehouse stock drawdowns continue in most complexes except aluminium, which is subject to some Chinese producer dishoarding (to LME warehouses) due to tax dodges that close at year's end.
Copper's tightness gave it a slight edge over other metals: Its weekly LME ratio of cancelled warrants to inventory of over 20% suggests there is minimal downside risk near term.
A Bloomberg report that China's growth rate may slow has weighed on the markets this week. The key word was "MAY": How much slower in percentage terms would make an impact, anyway?
I think it's mischievous to not explain that slowing from around 9% annual growth to 7% or even slightly lower still implies that China's demand for key commodities cannot be met in the medium term. Should Chinese growth fall below 5% then market tightness will ease, but prices should remain strong. Start to worry when Chinese growth stalls, but only after examining India's books - that's the next chapter of this commodity bull market story.

archer

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Post Number: 331
Registered: 11-2002

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Friday, October 22, 2004 - 10:45 am: