Is Alan Greenspan Shorting The Stock Market?

Wednesday, October 14, 2009

Former Federal Reserve Chairman Alan Greenspan said he sees the U.S. economy slowing next year as the surge in stocks comes to an end. “The odds are that we flatten out, even though earnings are doing very well,” Greenspan said in an interview with Bloomberg Television, referring to the equity market. That flattening out will probably “put some sort of dull face” on the economy in 2010, he added.

The former Fed chief said he sees little threat of higher inflation now, even as the economy recovers. In the longer run, inflation will pick up unless the Fed withdraws the stimulus it has pumped into the economy, he said, voicing concern it may come under political pressure to refrain from doing so.

“We are still by any measure in a disinflationary environment,” said Greenspan, 83. “Unless we sterilize or unwind the big monetary base we’ve built up, two, three years out inflation really begins to take hold.”

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

What Are The Best Stocks To Short Now?

As the market rallied to such an extreme level there are probably lots of good shoting candidates on the US markets. I think it would be interesting to open a debate here on the best stocks to short right now.

Is the dollar going to recover somewhat and are the mining and basic resources stocks that will give us the best bang for the buck? If this is the case, maybe United States Steel Corporation (X), Freeport-McMoRan Copper & Gold Inc. (FCX), Hecla Mining (HL) and Goldcorp Inc. (GG) are good candidates or even Market Vectors Gold Miners (ETF). Oil stocks could also be an interesting shorting pick, especially the smaller names that have run too far, too fast.

But the market correction can be focused in the financials and in that case I think the best play will be on the ETF, Financial Select Sector SPDR (ETF) or in some selected names like American Express Company (AXP), Bank OF America (BAC) or some smaller regional banks. Many market analysts have been expressing concerns about the commercial real estate and there are plenty of names to sell short on that space, Boston Properties, Inc. (NYSE:BXP), Simon Property Group, Inc (NYSE:SPG) or the sector ETF, iShares Dow Jones US Real Estate (ETF).

For instance, the short seller specialist, Jim Chanos is focusing on shorting healthcare stocks. I don`t think its the most interestign sector to short at the present time.

But the idea of this post is to open the debate on shorting opportunities on the US stock market with the members of this big trading community sharing their shorting picks and the reasons for the their selections. This way we can take advantage of the intellectual capital that we built on this webpage.

Will The US - China Trade War Send The Markets Tumbling?

"China said Sunday it would review complaints about U.S. exporters' pricing of chicken and auto products after Washington's move to slap punitive sanctions on Chinese tire imports, raising tensions in a trade dispute ahead of two planned meetings between the countries' leaders." in the Wall Street Journal

Is this the match that will ignite a market correction? I think it is. I am watching the early price action in Asia and markets are looking soft. I am already short Dax Futures and I am considering doubling my position when the market opens later today. Globex S&P Futures are already down 10 points, which is a major move for a Sunday night Globex session.

I think people will be running for cover on Wall Street tomorrow and for the next few trading sessions. The party may very well be over. And those who came late to the party will get a decent hangover.

Art Cashin Says That The Market Resembles The Summer Of 1987

“There’s just some eerie things about this—it’s reminiscent of spring and summer of ‘87 when nobody believed the rally and it kept going up despite skepticism, people shorting into it. It ate them alive until it suddenly turned.” says Art Cashin.

Is this a reminiscences of the 1987 stock market crash? Very interesting words from the veteran trader Art Cashin. He has been wrong all along, being bearish since late March or May but is he regaining his form?

Time To Short Oil?

Crude oil futures prices ended the session lower on Friday, posting the biggest single-day loss in 2 weeks.

NYMEX October Oil Futures dropped 3.7%, or 2.65 dollars a barrel, to 69.29 a barrel. That was the biggest decline since Aug. 31 and followed four days of gains that pushed prices up by nearly 4 a barrel on the "dollar weakness trade".

"It's the continuing battle between (weak oil supply/demand) fundamentals and economic optimism and there's a lot of uncertainty over which is going to be the strongest performer" in the conflict, said Gene McGillian, an analyst at Tradition Energy in Stamford, Conn.

Officials of the Organization of Petroleum Exporting Countries this week kept oil output restraints in place and said prices around current levels were fair for both producers and consumers. While OPEC leader Saudi Arabia expressed confidence over the coming economic recovery that will lift demand for oil, some analysts voiced concern about oversupply weighing on the market. I think there is an increasing possibilities that the OPEC members will cheat on their quotas oversupplying the market. But the major risk shorting oil is still the "dollar weakness trade" that has been going on.

US Markets Have Done Nothing In 8 Years

"Eight years have now passed since 9/11, and the Dow is essentially unchanged since that horrible, sad day. On 9/11/01, the Dow was at 9,605. The index is currently trading just 15 points below that level at 9,590." in Bespoke Investment Group Website

After all the bull and bear markets of all these years the Dow Jones moved less in 8 years then it normally moves in a hour. Remarkable, not?

Longest Streak Since November. Can It Continue?

U.S. stocks gained for a fifth day, the longest streak for the Standard & Poor’s 500 Index since November. The S&P made a fresh 11 month high and keeps defying gravity. I do not have any trading position on the S&P Futures but I am short Dax Futures and feeling the pain. I am off over 130 points in just 2 trading sessions.

But even more frustrating then that is the behaviour in the Euribor Futures complex. I am losing in that position every single day. Quite amazing. Even though, I have the December and March futures so time is on my side on that trade.

But not everything is going against me, my stock picks are doing very well. Dynegy and Hecla Mining are going through the roof.

After losing a few thousand euros shorting Dax Futures I think its time for the bears to charge the market lower. I am as bearish as I can be and I expect a major correction in the global stock markets in the next few weeks.

I will regroup watching Rafael Nadal at the US Open. He will play against the talented Fernando Gonzalez. It will be a close call.

Natural Gas Futures Seasonality. Time To Buy.

This is the Natural Gas Futures seasonal graph that was sent by one the members of this trading community. As you can see this is the best time of the year to be long Natural Gas Futures. The seasonal graph shows us that September and October are the best months for Natural Gas prices increases.


As you know I bought October Natural Gas Futures last week at 2.500, very near the bottom. On friday the natural gas futures spiked higher more then 8% and I had no trouble at all in riding it higher. I am still holding it for higher prices with a stop a little above my entry price to secure a part of my profits no matter what. Anyway I think a major long term bottom in gas prices is already in.

Today I will take the day to watch the US Open. Nadal, Tsonga will be in action today and I am looking forward for the night session where the ressurgent and always spectacular Taylor Dent will meet forces with the brit Andy Murray. I love comebacks and I still remember when Jimmy Connors made a comeback at 42 years old and sent the US Open crowds wild with his fantastic play.

Shorting S&P Futures. Buying US Dollars.

On the reaction to the Employment Report I sold some more S&P Futures and I closed the Nikkei`s that I had paired with some S&P`s overnight. All this indecision makes me think that we are at an important crossroad in this market.

I will get back to the Nikkei Futures soon, hopefully after a meaningful correction.

I am turning dollar bullish again and I am testing the market with a small long US Dollar, short Euro currency position.

Natural gas futures are showing some signs of life but is this the real reaction rally?

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Waiting For The Employment Report. Consensus Is -200K On Non Farm Payrolls.

It will be important to read the market`s reaction to the data because I think we will have a major move one way or another. So I have my orders lined up on my trading platform so that i can hit them as soon as I need to.

My commitments are rather heavy so I have to read it right and act fast.

Risk Taking Appetite. Major Commitments In The Market.

My risk appetite is making multi months highs. I couldn`t stand aside the collapse in the Natural Gas Futures and I bought some futures at 2.500. I was looking at a price chart and I am pretty sure that a major rebound is imminent. I had no fear and I bought a few contracts that I plan to carry for a few trading sessions.

I was also looking into some beaten down stocks and I bought a few Hecla Mining (HL) shares. Silver and precious metals in general are trading up big time and I think Hecla Mining (HL) stocks can double in a few months. I also bought some out of fashion Dynegy Inc. (DYN) stocks which I am afraid that I will have to wait a few months to see some real price appreciation. But I read the Fitch downgrade report and I concluded that there is some upside potential to this stock. Besides Dynegy (DYN) was trading at a major support level so I gave it a shot. And while I was looking around the utilities sector I came across Duke Energy (DUK) with a 7% dividend yield so I bought it for income.

Jean Claude Trichet comments were pretty dovish and I suffered on my Euribor Futures. I expected an hawkish statement from the ECB and I got a confused and unclear statement. Anyway the pain will only be temporary as the Euribor rates are trading 20 basis points below the 1% ECB rates. So, I added a few contracts to my short trading positions and I probably got top prices for this move.

Finally the Employment Report will be released tomorrow before the trading bell. I closed my remaning short S&P Futures and I can play the market both sides tomorrow depending on the market reaction to the data.

Buying Natural Gas At 2.5000

I am buying Natural Gas Futures at 2.500. This is the most oversold market I have ever seen and I always get a big bang when I am able to buck such trend.

I am probably betting a bit more then I should but I am expecting a big rebound at any time now. I have to admit that my heart is racing but that is probably a sign that the market is about to reverse.

This futures expires in September 28th and between now and then I should be able to close it with a decent profit.

Correction Is Under Way. We Are On FED Alert.

I have seen this before. Markets are beginning to sell off worried that the easy monetary policy is coming to an end sooner then expected.

I am carrying a bigger short line having added some shorts at 1022 and 1019. I have a first target at 1000 but I think we are going a lot lower then that.

Financials like Citigroup Inc.(Public, NYSE:C) and Wells Fargo & Company (Public, NYSE:WFC) are leading on the way down today.

Very Active On The S&P Futures.

Very important economic data points are coming out later today:

- ISM Manufacturing, 50.5 is expected;
- Construction Spending, 0.0% is expected;
- Pending Home Sales, no estimate available

I am closing my short line at 1015 and waiting for the data to decide what to do next. Economic data has been stronger then consensus in general but the market reaction has been rather soft. I am leaning to the short side but I will watch these data points from the balcony.

I was awake all night watching the Nikkei`s and trading forex. I am needing a rest. It already looks thursday or friday to me. This forex system is doing so well that I am trading it day and night. I am going to pay for this sooner or later...

You can check all economic data at econoday.com. This is the site is normally use. Have a nice trading day.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Over a Barrel - The Truth About Oil

Last night, ABC's Charlie Gibson presented "Over the Barrel - The Truth About Oil." The program was a well-crafted presentation about the supply side issues of oil. However, there were some notable problems.

First, the program began with news clips about America's addiction to oil but provided minimal demand-side analysis of our appetite/need for oil. If we are truly addicted to oil, we need to address ways to use oil and energy more efficiently. With nearly two-thirds of oil used in transportation our emphasis should be in improving utilization. Petroleum is a depletable resource and we need to use it sensibly.

Second, the program didn't spend enough time on using other energy forms to displace oil. We should have initiatives that reduce and eliminate oil use in heating and power generation applications. Increased use of electric power generated from "clean" coal technology and renewables should play an increased role.

Third, in examining the cost components of gasoline, the ABC report failed to include the contribution of gasoline taxes. Taxes account for around 25% of pump prices compared to 10% added by private company margins. So State and Federal governments are making 2 1/2 times more net revenue than oil companies and gasoline stations.

Fourth, where would a news story on oil be without a conspiracy theory about the big bad oil companies. Gibson's interview with a consumer advocate did little to address the issue and only perpetuated the myth that "big oil" controls oil markets.

On the plus side, Gibson did a good job in covering the hidden costs in guaranteeing oil supply from the Middle East. We should increase Federal gasoline taxes to cover the expenses associated with "securing" this supply. This would reduce gasoline demand and help balance the budget.

It was good to see that sense of reason Boone Pickens on the program. Mr. Pickens emphasized that we are not going to drill our way out of this problem. This is a position that we have long supported. In a analogy to the illegal drug trade, the solution to addiction is not to produce more drugs. While we may produce more than the two million barrels a day from new finds that Pickens suggests, this problem is not going to be solved by supplying more oil.

The analysis of the role of speculators on oil prices was good except that Gibson gave the idea that millions of barrels of oil are being bought, sold and moved around the country. Most of the speculation is in paper barrels (options) rather than physical barrels.

The program had some good points, but fell far short of delivering on "The Truth About Oil."

Obama's Tax on Oil and Gas

I recently received a letter from Jim Hackett, Chairman, President and Chief Executive Officer of Anadarko Petroleum Corporation, asking for my help in a grassroots campaign to inform elected officials about the the $400 billion in new taxes that the Obama Administration proposes on the American oil and gas industry.

Now I found this kind of surp[rising because Mr. Hackett has never contacted me before. No cards on my birthday, no fruit cake at Christmas, and no offers to increase my retirement benefits. Not that I am really complaing. After all Mr. Hackett does have a lot on his plate. I am pleased that he contacted me on this issue and hope that other oil and gas CEOs are taking similar measures.

He suggests the following measures:
- Join the API's Partnership for America's Energy Security
at http://www.partnershipforenergy.com/
- Send a message to your elected officials through social networking sites
- Sign the Louisiana Oil and Gas Association nationwide petition on President Obama's
at http://www.loga.la./esa/stop-obamas-tax-inrease.html
- Write or call your eleted officials

During the election, I tried to contact the candidates regarding energy security. I sent them an e-mail from their web sites. The Obama Campaign asked for money, Clinton sent a automated response and I'm still waiting to hear from McCain. I was never able to present my ideas to them.

I hope that this campaign will work because even in those darkest dumb moments that we all have, I cannot see how taxing the oil and gas industry is going to help the economy or lessen US dependency on foreign oil.

Tell your legislators "Don't Bite the Hand that Fuels Them!"

Industry Needs Stable Funding

In reporting on the May Offshore Technology Conference in Houston, the Oil & Gas Journal said that "Oil and gas companies are becoming more adept at maintaining long-term business strategy in the face of short-term uncertainty stemming from oil price cycles." In a session on "Coping with price volatility: how will it affect major capital projects," executives discussed cost-cutting measures that include lowering capital budgets and renegotiating contracts.

The responses were hardly revolutionary or even evolutionary. Adjusting budgets is the time honored response to fluctuating oil prices. Unfortunately, the knee-jerk, cash-flow driven reaction is dead wrong. What it amounts to is buying high and selling low.
As profits rise, driven by high oil prices, companies increase spending and operating costs rise driven by restrictions on goods and services. When prices drop, budgets are slashed and oil field activities drop. The recent decline in drilling activity has occurred much faster than in previous down cycles. The herd mentality prevails and oil and gas companies line up to announce reductions.

Where are the contrarians? We believe that the best approach in dealing with the highly volatile oil market is to maintain constant real dollar budgets. This level spending will enable companies to focus on the long-term and take advantage of opportunities during business cycles.

From a strategic position, upstream companies should focus on development during up cycles and exploration in down times. When profits are high, build a cash reserve that can be used to fund projects when revenues drop. For downstream companies, low prices and low demand periods are opportunities to invest in capital projects to add capacity and improve efficiency.

Short-term Savings May Lead to Long-term Problems

Parade magazine had an interesting article titled "Who Profited From Oil Prices?" in the January 25, 2009 edition.

A more appropriate title might have been "Who Profited from Lower Oil Prices?" as the story indicated that the winners were consumers who benefited from a $2/gallon drop in gasoline prices for annual savings around $282 billion and hedge fund managers who shorted oil.

The losers were OPEC and other major producers who saw their revenues decline which could cause "political and economic turbulence" in Venezuela, Russia and Iran.

While oil companies lost revenue as prices declined they also saw their costs for oil field equipment and supplies drop as well. Oil producing states that earn revenue from production taxes saw their income slashed. Alaska projects a 7% drop in oil revenues and Louisiana forecasts a $2 billion budget shortfall by 2010.

Green technology suffered as well as lower oil prices made solar and wind power less attractive. T. Boone Pickens' green-tech fund lost more than $1 billion.

Another factor is the fluctuation in oil prices which drives planners nuts. National, state, and company budgets and programs suffer with price volatility resulting in delays and cancellation of programs.

A short-term mentality affects the marketplace and causes delays in development of alternative energy supplies. Consumers may benefit from short-term savings but project delays will produce long-lasting impacts and higher energy prices.

New International Gas Cartel

Add another log to the fire.

Consumers may be soon be using this option if world natural gas producers have their way.

Russia, Iran and Qatar recently met in Tehran to discuss an OPEC-style cartel to control world natural gas markets.

This poses yet another threat to the world economy and political stability. Funneling more money into Iran and Russia is hardly a formula for world peace.

These three countries control more than 55% of the world's natural gas reserves and 26% of production. Natural gas trade has grown through construction of pipelines and shipments of liquefied natural gas. Russia, Iran and Qatar account for 28% of world natural gas movements and Qatar supplies 17% of the world's LNG.

The proposed cartel is dangerous because:

1.) Russia provides 50% of natural gas used in Europe.
2.) Europe imported 57% of its natural gas in 2006 and forecasts call for that to increase to 93% by 2030.
3.) Climate change initiatives look to natural gas use as a way to reduce global warming when compared to coal or oil.
4.) U.S. LNG imports are forecast to grow 7.3% annually from 2006-2030.
5.) OPEC and Russia own 74% of the world's natural gas resources.

About twenty years ago, I asked Dr. Subruto, then Secretary General of OPEC, why the organization did not extend its charter to include all hydrocarbons. My logic for this was that exports from his home country, Indonesia, were declining and they might be forced to leave the cartel if they were no longer a significant exporter. However, I reasoned, they could continue to be a member by virtue of their natural gas exports if the organization's mission changed.

In 1988, the notion was specification. In 2008, the spectre of such a global energy monopoly seems very real.

OPEC Struggles with Eroding Prices

Our friends in OPEC are meeting November 18th to discuss the impact of the global financial crisis on oil prices.

The decline in oil prices prompted the emergency conference. Light, sweet crude oil for November delivery fell to $86.59/B on October 9th.

In the department of "liar, liar pants on fire," OPEC announced:

It would work "to ensure market fundamentals are kept in balance and market stability is maintained."

Shukri Ghanem, head of Libya's national oil company, said that "OPEC's aim is to create a balanced market, which neither harms the producers nor the importers."

If you believe either of these statements, I know where you can buy some sub-prime mortgage loans.

Where was OPEC's interest in not harming consumers when prices hit $147.27/B on July 11th?

OPEC is interested in protecting their own well being. OPEC members abdicated market control when they abandoned the market basket mechanism to maintain prices within a price band. As the world has discovered relative to regulation of financial markets, free market conditions can produce diverse economic outcomes.

Like making money from investments when the stock market is rising, OPEC has enjoyed the free ride with higher prices. Now that these prices have fueled decreased demand and economic recession, they want to cut output to firm up oil revenues.

If the past is any indication, OPEC will not be able to influence this market. If Americans are addicted to petroleum, OPEC is hooked on petrodollars. In the face of falling revenues, what OPEC countries will be willing to cut production? Historically, reductions in quotas have resulted in cheating and competition among OPEC members for market share.

For consumers, this is good news. For oil and gas companies, this brings back memories of 1986.

OCS Moratorium Expires

The ban on offshore drilling quietly expired on September 30th. However, the battle is far from over as OCS leasing opponents are expected to continue their efforts.

According to Sen. Robert Menendez (D-NJ), "Expanded OCS drilling is bad energy policy, bad environmental policy, and it will do nothing to lower the prices at the pump, now or ever. This country deserves a serious debate about energy and not just election year posturing."

Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) said: "We'll revisit this issue next spring."

The issue will no doubt be the subject of an energy discussion that will include initiatives for renewable fuels, tax increases for oil and gas producers, and assistance for low income families.

The bill will also include plenty of "pork." The measure, like all Washington initiatives, will require spending more money and result in little if any actual energy production.

[Source: "There's little celebration as OCS leasing moratoriums expire," Nick Snow in Capital Commentary, Oil & Gas Journal]

Industry Image is Battered by Ike

The oil and gas industry's already bad public persona is taking another hit. This time courtesy of Hurricane Ike.

The widespread gasoline price jumps that occurred ahead of the storm surge have further diminished the industry's image. Gasoline prices rose to $5.49/gallon in Tallahassee, FL and $4.99/gallon in Knoxville, TN. The Knoxville price of regular gasoline was $3.66/gallon on Friday.

One might expect price increases as a consequence of the storm, not in anticipation of the storm. This is clearly price gouging and industry executives should work to restrain independent station owners from taking advantage of the public.


Refinery closures and crude oil shortages will force national prices to exceed $4.00/gallon nationwide. The Energy Information Administration reported that gasoline prices on September 8th averaged $3.65/gallon. Prices in the Dallas area jumped 30 cents/gallon before the storm hit. So we've probably blown past the $4.00/gallon mark nationally as I post this.
My best advice is to postpone trips, buy only what you need immediately and report stations engaging in price gouging.

What is Energy Independence?

Over the next two months we will see the topic of energy independence discussed and dissected by candidates and commentators. In order to achieve a goal of energy independence, Americans and candidates first need to understand what the goal really means.

The place to begin is where we are today. According to the Energy Information Administration the United States used 101.563 quadrillion Btus of energy in 2007. Of that total, net imports of energy were 29.231 quadrillion Btus or 28.8% of consumption. Energy imports were 34.679 quadrillion Btus and exports were 5.448 quadrillion Btus. The imports were primarily crude oil and refined products (28.780 quadrillion Btus or 83.0% of total imports) and natural gas (4.717 quadrillion Btus or 13.6%). Our principal energy exports were crude oil and refined products (3.007 quadrillion Btus or 55.2% of total exports) and coal (1.507 quadrillion Btus or 27.7%).

Therefore the issue of energy independence is really an issue of oil and gas independence. In 2007 our imports of natural gas were 4,602 billion cubic feet (Bcf) of which 3,770 Bcf (81.9%) were from Canada and 451 Bcf (9.8%) were from Trinidad and Tobago. Natural gas imports from the Middle East were 18 Bcf from Qatar. These values indicate that natural gas imports should not be an area of concern.

This brings us to the real issue. Energy independence means we should focus on oil imports. In 2007, oil imports were 13,468 thousand barrels per day (MB/D). OPEC countries provided 5,980 MB/D (44.4%). The major sources of non-OPEC imports were Canada 2,455 MB/D (18.2%) and Mexico 1,532 MB/D (11.4%). I doubt that we need to worry too much of the security of supplies from our NAFTA partners Canada and Mexico.

So our real goal is not energy independence or oil independence, it is independence from unreliable oil imports. I would classify unreliable oil imports as those from areas/countries that may be subject to supply disruptions due to political turmoil and those countries where oil revenue may be diverted to support terrorist activities. This list would essentially include all of the OPEC countries and Russia. Now there are some who would challenge this broad brush approach, however in terms of goal setting this may be a convenient way to frame the target.

Saudi Arabia wants us to consider them a friend, but their actions during this past year have done little to indicate that they will do anything to help us. Oil supplies from Iraq and Kuwait are subject to political turmoil and should be viewed as strategically vulnerable. Many of the other OPEC members have large Moslem populations (Indonesian, Libya, Algeria, and Nigeria) which may cause some oil revenue, however small, to be funneled to terrorist activities. Russia’s attack on Georgia has provided a wake-up call that the former “evil empire” may be dormant but is far from dead. The amount of oil from these sources was 6,394 MB/D in 2007.

The strategies to eliminate these sources from our oil supply have been well-defined. In the short-term they must be focused on reducing oil consumption which means improving fuel economy in cars and light trucks and increasing the supply of oil through more drilling. Intermediate efforts should be directed toward removing oil use in areas where it can be replaced by renewable energy, natural gas and “clean” coal. This means the elimination of distillate fuel oil in the residential and commercial and industrial sectors (1,118 MB/D). The major area to improve is to reduce the use diesel fuel (3,038 MB/D) and motor gasoline (9,072 MB/D) in the transportation sector.

Doing the math reveals that we would have to eliminate distillate fuel use in the residential and commercial and industrial sectors and reduce diesel fuel and gasoline use by 43.6% to eliminate unreliable oil supplies. This would require an increase in fuel economy from 17.2 miles/gallon in 2006 to around 25 miles/gallon which seems like a reasonable goal.

Unfortunately, supply and demand will not stand still while we improve car efficiencies and drill for more oil. This means that we should seek solutions that increase our supply of oil from reliable sources both domestically and internationally and adopt tougher conservation measures immediately. We need to have targets set for four, six and eight years from now to measure the effectiveness of our elected officials in moving toward oil independence.

Where’s the Oil and Gas?

With all of the discussion on offshore drilling, I thought it might be useful to examine where we might expect future domestic supplies to come from.

According to assumptions for the Energy Information Administration’s Annual Energy Outlook 2008, the U.S. has 165.67 billion barrels of technically recoverable oil and 1,364.61 trillion feet of technically recoverable natural gas. These estimates do not include areas where drilling is officially prohibited. The offshore component of these resources is 24.6% of oil and 15.7% of natural gas.

The Moratorium on Offshore Drilling signed by President Bush in June 1990, resulted in making a significant portion of estimated future natural gas and oil supplies unavailable for development. Estimated undiscovered conventionally recoverable resources in the Federal Offshore area total 75 billion barrels of oil and 362 trillion cubic feet of gas, of which an estimated 21% of the oil and 17% of the gas are in the moratorium area. As of 2000, undiscovered conventionally recoverable resources in the Gulf of Mexico were estimated at 193 trillion cubic feet of gas and 37 billion barrels of oil, with the moratorium area in the Gulf containing about 4% of the gas and 7% of the oil. Along both the East and West coasts, all estimated undiscovered conventionally recoverable resources (47 trillion cubic feet of gas and 13 billion barrels of oil) are in the moratorium area. In the North Aleutian Basin in Alaska, about 6% of the estimated 123 trillion cubic feet of gas resources are in the moratorium area and about 1% of the estimated 25 billion barrels of oil.

Oil (Billion Barrels)
Onshore = 124.9
Offshore
Annual Energy Outlook 2008 = 40.8
Restricted Federal Offshore = 15.8
Restricted Gulf of Mexico = 2.6
Restricted East and West Coasts = 13.0
Restricted North Aleutian Basin = 0.3
Total Offshore excluding restricted areas = 40.8
Total Offshore including restricted areas = 72.4
Total excluding restricted areas = 165.7
Total including restricted areas = 197.3
Percent from Offshore excluding restricted areas = 24.6%
Percent from Offshore including restricted areas = 36.7%

Natural Gas (Trillion Cubic Feet)
Onshore = 1151.1
Offshore
Annual Energy Outlook 2008 = 213.6
Restricted Federal Offshore = 61.5
Restricted Gulf of Mexico = 7.7
Restricted East and West Coasts = 47.0
Restricted North Aleutian Basin = 7.4
Total Offshore excluding restricted areas = 213.6
Total Offshore including restricted areas = 337.2
Total excluding restricted areas = 1,364.6
Total including restricted areas = 1,488.3
Percent from Offshore excluding restricted areas = 15.7%
Percent from Offshore including restricted areas = 22.7%

The statistics present two questions: 1.) “Is the restricted resource large enough to offset the risks to the environment and tourism?” and “Is the restricted resource large enough to attract bids from oil and gas companies?”

Taking the Point on Renewable Energy

Who will lead the transformation of the world’s energy supply from fossil fuels to renewable energy?

One might suggest that the current group of fossil fuel providers change their focus from depletable fuels to a different form of energy. However, this makeover seems highly unlikely.

Oil and gas companies define themselves as providers of crude oil, natural gas, refined products and petrochemicals. An examination of the mission statements indicates that none of the majors sees themselves in the broader perspective of an energy producer. The national oil companies are even more emphatic in limiting their scope.

The core technologies are different. The basic technologies of the oil and gas industry are not readily transferable to renewable energy. At the core of oil and gas supply is the extraction or removal of mineral deposits and the conversion of them into useful products. The conversion process may be regarded as a necessary product quality enhancement rather than a significant processing step. This is especially true in the natural gas value chain. Renewable energy requires manufacturing (wind turbines and solar panels) which use mechanical and electrical engineering skills. These skills are not the emphasis of oil companies recruiting efforts.

Wall Street expectations minimize strategic thinking. The short-term focus forced upon public companies by investors, limits long-term research and development. A dollar spent on solar energy research is one less dollar that the company can use in its core business of finding and producing oil and gas. Wall Street is not going to reward this effort. Oil and gas companies are valued on the basis expanding their reserve base at the lowest possible cost.

The executive orientation is limited to better utilization of core competencies within the scope of their mission. The industry is focused on process improvement and not on new product development. [See blog "Bad Information on Good Morning America" that addressed the R&D issue in more detail]. Senior executives concentrate on those areas where the company has succeeded in past (distinctive competencies) and stay within their comfort zone. There are few rewards for strategic and innovative thinking outside the realm of the mission. What executive is going to wager his current position on an outcome twenty or thirty years in the future?

The question is now who will step up and become the champion of renewable energy? If the computer industry is any indication, the solution is more likely to originate in the garage than in the boardroom.

Ideas to Reduce Gasoline Prices Now!

As our recent post noted, McCain and Obama have had little to offer in the way of immediate relief to high gasoline prices. To add salt to our wounded pocketbooks, Congress has done nothing to address this issue and will take a undeserved holiday next week.

My suggestion is to e-mail your Congressman and ask what they plan to do about this issue. We pay their salary! Isn't it about time they actually earned it by working together to address the nation's critical issues. If they don't have any solutions or blame the other political party, remind them that you will remember that when they ask for your help in the next election.

When you talk to them, if they condescend to take your call, tell them you don't want to hear about greater demand in China and India. The requirements in these economies did not cause the leap in prices.

Here are a few things that our government could do today to help this issue:

1. Reduce the speed limit on federal highways to 55.
2. Suspend the federal tax on gasoline.
3. Tighten regulations in crude oil and gasoline financial markets.
4. Stop all military related trade with oil producers especially Saudi Arabia until the producers increased output by 5%.
5. Sell oil from the Strategic Petroleum Reserve at the current market price and create a fund to replace the volume when prices drop to below $70/B. I like the concept of allocating a dollar amount each month to buy oil when prices are low and selling oil when prices are high.
6. Reduce discretionary governmental travel. Eliminate "fact-finding" trips and conferences.

These measures will help reduce demand and add new supply immediately.

The government should not impose price restrictions or nationalize the industry.

The oil industry does not need further incentives to increase production. If an oil producer cannot make money at current prices, perhaps he should consider another line of work.

Obama and McCain Offer Little Solution to Pump Prices

Senator McCain is suggesting a summer break from the Federal 18.4 cents/gallon federal gasoline tax and Senator Obama wants a Windfall Profit Tax on “Big Oil.”

McCain also wants to allow offshore drilling on federal waters, build 45 new nuclear power plants and award a $300 million prize to anyone who can develop a superior car battery.

Obama wants to go after oil speculators and wants to give subsidies to solar, wind, ethanol and other alternatives.

Only McCain’s proposal to suspend federal pump prices will have any immediate impact. Relief for this summer is fading fast as we approach the July 4th weekend. With Congress’ annual summer break coming up, it looks like nothing will be done on this issue.

The only suggestion that will increase oil supplies is McCain’s support for President Bush’s request to stop banning offshore drilling in federal waters.

Obama’s call for a Windfall Profits Tax will subsidize high gasoline prices and remove funds that oil companies could use to find and produce more oil. This redistribution of income will not help lower gasoline prices.

The other proposals for new nuclear plants and subsidies on solar, wind and ethanol will take decades to take effect. Of course, oil and gas from new offshore fields in the Atlantic and Pacific Oceans won’t add to supply for five to ten years at the earliest.
The reality of the candidates’ proposals is that 35 years of bad legislation has reduced us to few alternatives. The knee-jerk reactions show the lack of strategic thinking that has become a hallmark of governmental programs.

Exxon CEO Advocates Fuel Efficiency

At the Exxon Mobil Annual Meeting, Chairman Rex Tillerson rejected efforts by members of the Rockefeller family to invest in alternative fuels. Tillerson indicated that Exxon Mobil specializes in oil and gas and that alternatives don’t make much money.

Tillerson said that “the way to deliver meaningful environmental improvements in the short term is to improve the efficiency by which we use traditional fuels.” He said that Exxon Mobil’s strategy was to improve the efficiency of its global operations and offer products to help customers to improve efficiency.

Mr. Tillerson recognized that high gasoline prices are hurting people and suggested consumers try to conserve. He said if consumers work on the demand side, Exxon Mobil will work on the supply side.

His view of Exxon Mobil as only an oil and gas company creates a corporate mindset that limits the consideration of other energy in the company’s portfolio. While the world depends on oil and gas today, technological changes could revolutionize this overnight. We have seen how changes communication and computation have transformed these industries. From a forecaster’s perspective, the world is unlikely to ease into alternative fuels. Also today’s higher oil and gas prices, create increased economic incentives to develop alternative fuels that may hasten the demise of the oil and gas age. Tillerson’s perspective, while not a popular stance, reflects the realities of energy supply and demand and pressures from the investment community.

His suggestion that consumers try to conserve energy lacks sincerity. The rapid and uncontrolled increase in pump prices has given consumers little time to react. There are few options available to those who want to use less. Curtailing driving and adjusting thermostat settings may help, but how do consumers deal with rising food costs that are the result of out-of-control diesel fuel prices. Compounding rising energy costs is the impact on the economy that spirals toward a recession.

Tillerson tells consumers that if they will conserve more Exxon Mobil will add more to supply. According to the Company’s 2007 Annual Report, liquids production grew 4% over the past four years while natural gas output declined 7%. The resulting oil equivalent production has actually declined slightly from 2003. On the refining side, refinery throughput has only increased 1% over the period. The past performance indicates that Exxon Mobil has not added more supply. Further, there is no reason that Exxon Mobil should increase supply at the sacrifice of profit or return on capital.

Exxon Mobil may be a national treasure but it is not a national entity. The Company operates and performs for the benefit of its investors. In this capacity, they have done well as measured in terms of performance relative to competitors and return on capital employed. There is no incentive for Exxon Mobil to lower prices or to take actions that would increase supply and lower prices. This is the reality of competing on the worldwide stage. Exxon Mobil may support charities but it is not a charitable organization and to expect performance characteristic of not-for-profit organizations is naïve.

Tillerson’s comments indicate that Exxon Mobil is not a warm and fuzzy Teddy Bear seeking love, but a tough-minded, pragmatic company working hard to satisfy investor’s expectations. His short-term view of Exxon Mobil as an oil and gas company is disappointing from an investor’s perspective and begs the question: “How will management transform the company to compete in the post oil and gas age?”

House Wants to Sue OPEC

In a move that indicates Congress’ frustration with rising gasolline prices, the House of Representatives overwhelmingly approved legislation that would allow the Justice Department to pursue legal action against the Organization of the Petroleum Exporting Countries for conspiring to restrict supplies and drive up prices.

The House OPEC measure was approved 324 to 84. A similar measure, dubbed NOPEC for the No Oil Producing and Exporting Cartels Act, passed the Senate last year by a 70 to 23 vote, but was tabled after a White House veto threat.

This window dressing measure is unlikely to alleviate rising oil prices and indicates how low the level of power and esteem that the United States has fallen. President Bush's was flipped-off by King Abdullah in his personal appeal to Saudi Arabia to significantly increase oil production.

It is a sad day for America when we have to resort to pleas for help from supposed allies and suing international cartels.

The House action shouldn't be too surprising considering the legal training of our lawmakers. Filing lawsuits is how lawyers respond to most problems.

Perhaps the American public should sue Congress for 25 years of dereliction of duty in their failure to enact energy legislation. How about having them spend the Memorial Day weekend working at gasoline stations in their home districts? This would allow them to see first-hand the pain the higher prices are causing. Perhaps they might even check the oil and wash the windows. No! That would be too much for a Congress that believes that appeasement should be the hallmark of our foreign policy.

Higher Gasoline Prices Ahead

If you think that gasoline prices may peak around Memorial Day, you may be in for a big surprise.

Today, we were analyzing crude oil prices and noticed a disturbing difference in Spot Prices (Spot) and the actual price U.S. refiners pay for crude (Refiner's Acquisition Price or RAC). Over the period 2000-2007, the difference between RAC and Spot has averaged $3.85/B. However in the last year (April 2007-March 2008), the difference has increased to $9.32/B. Of more concern is the $23.45/B difference we have seen in the first quarter of 2008.

At some point the price refiners pay for crude oil has to catch up with market conditions. What this means to consumers is that we may see an additional 56 cents/gallon rise in prices over the summer. With average retail prices at $3.79/gallon (May 19, 2008), pump cost could reach $4.35/gallon.

Notes: Definitions from Energy Information Administration Glossary

<1> Refiner acquisition cost of crude oil: The cost of crude oil, including transportation and other fees paid by the refiner. The composite cost is the weighted average of domestic and imported crude oil costs.
<2> Spot price: The price for a one-time open market transaction for immediate delivery of a specific quantity of product at a specific location where the commodity is purchased "on the spot" at current market rates.

Do Oil Prices Have to Go Higher?

Brendan's comment on the inevitability of higher oil prices offers several good reasons for his conclusion.

While we also believe that the long term trend will be for higher prices, however we would like to offer the following qualifications:

Growth in Emerging Economies --> Rising Oil Consumption - The rate of development of emerging economies is the primary reason for the increase in demand. However, these economies are highly dependent on oil to meet their energy needs. Higher prices hurt their economies and those of their trading partners. So these emerging economies are more likely to be hurt by higher prices. This will, in turn, lead to lower demand and put pressure on prices.

OPEC --> Governments depend on oil income --> Cartel restricts supply - In the past few yeras OPEC has generally done a fair job at controlling prices. However, they had to abandon their market basket triggering process several years ago. So overall, OPEC would probably not get good grades as a cartel. We believe that international events (wars) have contributed more to oil price movements than specific OPEC actions. OPEC actions tend to be in agreement when prices are rising, but disunity occurs in a falling price environment.

Geopolitical Issues --> Cause disruption / thread of oil production --> Lower global spare capacity - We certainly agree with this comment as our analysis of world oil markets has shown.

Peak Oil Theory --> Declining Oil production --> Less Supply - Oil is a scarce resource and as it is produced the resources will decline. The real question is how much oil is remaining to be discovered. Scientists can only make educated guesses in this area. The utilization of oil sands and heavy oil reserves is increasing. The current oil reserve lifetime is 40 years and has increased from 29 years in 1980. Over the past ten years the lifetime has been around 40 years.

Our view of oil prices is that they will continue to increase in line with inflation and oil demand. However, we don't believe that today's prices are indicative of oil's true value.

Refinery Capacity and Gasoline Prices - Follow-up

In response to the comments posted by Corey, gasoline demand does impact retail prices but not as strongly as crude oil prices. So while both variables are important, changes in crude oil prices explain the majority of fluctuations in pump prices.

Unfortunately, it takes a significant reduction in demand to lower pump prices. So pump prices are lowered by decreasing demand.

Another aspect of this issue is the effect that higher oil prices have on the world economy. Lower economic growth means less demand for refined products (gasoline, diesel fuel, jet fuel, etc.) which translates into lower oil demand.

Consumers Rejoice - The lower demand can create a surplus and force producers to engage in price cutting to maintain market share (maintain production levels). This in turn can force more oil on the market as producers try to achieve revenue targets. The additional oil depresses prices more and leads to a collapse in prices.

OPEC Maintains Control - As demand drops, OPEC reduces production to maintain price levels. This is dependent on cohesion within OPEC as well as the speed at which they can meet to agree on lower production quotas.

This same process can occur with gasoline prices.

Consumers Rejoice - Lower demand leads to reduced prices. Oil companies engage in price wars to maintain market share. Gasoline inventories increase to capacity and prices drop further.

Oil Companies Maintain Control - Oil companies anticipate lower demand and reduce refinery operations to control the amount of gasoline on the market. This does not require a conspiracy on the part of oil companies, merely market analysis and inventory management. This action reduces the supply of gasoline to meet demand and prices are maintained.

Gasoline demand has not doubled since 2003 but crude oil prices have gone from $27.56/B to over $90/B. Gasoline prices have gone from $1.50/gal. to $3.65/gal. Gasoline demand has risen from 8,935 thousand B/D to 9,290 thousand B/D in 2007 (4% increase). These numbers support our comment that oil prices have a greater impact on gasoline pump prices than changes in demand.

Quite Whining and Take Action

Americans continue to complain about gasoline prices while doing little to help reduce their costs. Motorists grumble about oil company profits and demand government actions. However, consumers do little to seek solutions to the problem of higher transportation costs. While we cannot control gasoline prices, we can reduce our use by improving the fuel economy of our car and lowering the number of miles we drive.

The following suggestions are steps you take today to cut your costs:

1. Drive Smart
a. Observe the speed limit – fuel economy is fairly level from 30 to 60 mph but drops for speeds above 60 resulting in fuel loses of 15-20%.
b. Drive sensibly – speeding, rapid acceleration and braking can lower fuel economy from 5 to 33%.
c. Avoid excessive idling – Cars will cool down faster with the windows open
d. If you own more than one vehicle, drive the one that gets the best gas mileage.

2. Maintain your car
a. Keep your car engine tuned-up - fixing a car that is out of tune can improve mileage by 4%
b. Check and replace air filters regularly - replacing a clogged air filter can improve your car's gas mileage by 10%.
c. Remove excess weight - an extra 100 pounds in your vehicle could reduce mileage by 2%.

3. Reduce your driving mileage
a. Use carpools and ride-share programs
b. Telecommute – working from home one day a week will cut gasoline use by 20%
c. Use public transit systems
d. Plan shopping and errands to limit the number of trips.

4. Improve comuting fuel economy
a. Carpooling and ride-sharing allow vehicles with multiple passengers to use special High Occupancy Vehicle lanes.
b. Stagger your work hours to avoid peak rush hours and avoid waiting in traffic

These measures will help lower your gasoline bill, cut worldwide oil demand, and put pressure on OPEC to lower crude oil prices.

Keeping Our Options Open

I have been gradually coming around to the problem of global warming. As an oil and gas industry employee, I was somewhat skeptical of the claims made by scientists. Unfortunately, I found that my skepticism was based on ignorance of some of the scientific findings.

Let’s face it, global warming is a reality. Temperatures are rising and changes are taking place. Some people believe that the problem is overstated and that long-term climate changes are the real culprit.

I would like to present in evidence as exhibit one, mankind’s history of environmental destruction. The presence of human beings and their development is marked by efforts to subdue and control the environment. The pattern in agriculture was to plant the land until the crop yields dropped too low and the farmer had to relocate. Modern farming practices have stopped that. Industrial development brought with it air and water pollution. No longer is air that stinks and water that catches on fire acceptable by-products of progress. Left to its own devices, businesses driven by investor expectations would not spend the money to protect the environment. Therefore, unless the government mandates it, companies operating in the interest of shareholders are unlikely to be global stewards.

For exhibit two, I introduce the better safe than sorry argument. Remember your mother who insisted that you wore clean underwear and socks without holes in case you got into an accident? How about fire insurance that protects us from a low probability event and is priced much higher than the expected cost of that event? Or the atheist who prays just to hedge his bets? The consequences of being wrong on global warming are much more serious than being embarrassed in the emergency room, losing a house or one person’s eternal damnation. We are talking about events that could end life on the planet.

So let’s stop the debate and spend our resources on developing non-polluting resources. That’s not a bad thing or a waste of money. We will run out of fossil fuels at some point and creating new energy sources will allow us to continue our maturation as a species. The new energy sources could provide jobs for thousands, perhaps millions of workers; reduce our dependence on oil supplies from political volatile areas; and improve the world’s health.

2008 Crude Oil Prices

This is the time when people want to know what oil prices will be in the coming year.

As a 40+year veteran of the oil price forecasting wars, there a couple of caveats that need to be presented. First, oil price forecasting is a fundamental budgeting requirement for energy producers and consumers. Second, no matter how clever, insightful and lucky you are your forecast will be wrong.

The U.S. Energy Information Administration in their updated Short-Term Energy Outlook released January 8, 2008, projects West Texas Intermediate “prices to average about $87 and $82 per barrel, respectively, in 2008 and 2009.”

The Energy Information Administration (EIA) has been preparing price forecasts since 1982 and the percent error has ranged from a low of 22.3% (2003 forecast) to a high of 126.3% (1998 forecast). The forecast error has averaged 53.7%. (See Annual Energy Outlook Retrospective Review) This is not a criticism of the EIA analysts, but rather a reality check on all oil price forecasts.

I am certainly not going to tell you that my batting average is any better. If it was I would be spending my day poolside in some Caribbean paradise. Anyone who tells you that they have a track record of producing highly accurate forecasts is probably looking to sell you a subscription. I would avoid these sources unless you have a weak spot for sports forecasting services.

So given the inherent problems of price forecasting what should you do? The need for forecasts cited above requires you to have a credible and acceptable projection. Down at the ranch we would describe this as a “CYA” number. People are committing a lot of money based on what you say, so you better have a lot of company in your forecast. Using published and/or your banker’s forecasts are generally desirable. When the cost or revenue projections are wrong you’ve got some basis (excuses) for the error.

Another issue here is your perspective. If you are a consumer and trying to manage fuel costs, being on the high side has merit. If you are a producer and estimating future earnings, low side projections are called for. Another approach is to use a range of forecasts. This allows you to consider the consequences of lower and higher than prices. Analysts must use care in developing the price range to avoid unrealistic extremes.

We’d like to hear your thoughts on 2008 prices and pricing methodology and philosophy.

Silicon Valley's Jobless Unplug From Tech

They're going where the money is going. If the money was flowing to the whittling sector, we'd have more whittlers in the Valley, ipso facto.
From the Wall Street Journal:

As Region's Unemployment Rises to 11.8%, Above National Average, Clean Energy and Health Care Draw More Applicants


Jobless workers in Silicon Valley are giving up on the region's dominant technology industry and trying to switch to other fields, as the area's unemployment rate spikes above the national and state average.

Job centers and community colleges across the region are reporting a surge in enrollment of out-of-work techies, with many looking to move into other industries. While data on the shift are scarce, the trend is evident at ProMatch, a government-funded organization in Sunnyvale, Calif., that helps unemployed professionals network, retrain and land new jobs.
Since the start of the year, ProMatch has seen its ranks swell from 180 attendees to its maximum capacity of 225, says Connie Brock, who helps run the group. Of those, about 80% are from the tech industry, and a third are seeking to transition to nontech jobs, estimates Ms. Brock. An additional 450 people have signed up for the waiting list to use ProMatch's services since January, she adds.

Many of the jobless techies are targeting new gigs in the clean-energy or health-care industries, according to ProMatch. Some are shifting even further afield, looking for jobs in teaching or financial consulting. People are leaving tech as "more tech companies are offshoring and some are shrinking, plus people are burned out and tired from having been there and done that," says Ms. Brock.

The activity at ProMatch illustrates how even workers in stronger pockets of the economy -- such as tech -- are having to adjust in the recession. For much of last year, unemployment in Silicon Valley remained under control as the tech industry initially held up in the downturn. But by late last year, tech spending had weakened, and companies such as eBay Inc. were announcing layoffs.

As a result, Silicon Valley's unemployment rate -- which was below California's average and largely tracked the national average last year -- has soared, surpassing the state average in May. By June, the area's unadjusted unemployment rate was 11.8%, worse than California's 11.6% and the national rate of 9.7%, according to the latest figures from California's Employment Development Department. The rate of job losses was particularly steep in sectors such as semiconductor manufacturing, where employment dropped more than 13% in June from a year earlier....MORE

Will History Repeat Itself?

Over the period 2001-2006

* World oil consumption increased by 6.9 million b/d or 9%
* Demand growth in China accounted for 37% of the volume
* Increased consumption in the United States contributed 14%
* This growth occurred in spite of a 280% rise in OPEC oil prices from $19.73/B to $55.35/B

This is a marked difference to what occurred between 1979 and 1982.

* OPEC oil prices rose 168% from $19.88/B to $33.48/B
* World oil demand dropped by 6.3 million b/d or 10%
* OPEC output dropped 37% and their market share declined from 48% to 35%

While consumers might hope for some price relief, today’s market is different from conditions in 1979.

* The world oil and gas industry has become more efficient through increased application of finding and development technology so consumers can’t expect a dramatic increase in supply
* The easy to apply energy savings methods are already in place so we can’t hope for simple measures to reduce oil use
* China and India’s share of world oil markets was 3.8% in 1979 and 12.0% in 2006 and their economies are using low labor costs to manage higher energy expenses
* The Federal government seems unwilling to take the necessary steps to improve automobile and truck fuel economy unlike the steps taken in the late 70s

What is the same is the lack of long-term thinking to provide a solution to the world’s energy appetite. It has been thirty-four years since the Arab Oil Embargo and the Federal government has failed to develop an energy strategy. So while the government considers new fuel sources and fossil fuel reductions that may take years to occur, consumers are left to deal with the short-term consequences of a bi-partisan policy failure

New and Old Beam Pumps


Somertimes when we think that something is a "modern" invention, it turns out to have been around a lot longer. Take for example, the beam pump, a staple of oilfield production since the early 20th century. The pump jack is used to bring oil from the reservoir below the surface to the surface.




It seems that this oil patch fixture has been around a lot longer than one might think as I discovered during a recent trip to Virginia. In Saltville, VA the commercial development of salt began in the 1780s. Th early "salt works" consisted of open wells from which brine was drawn, furnaces in which the material was boiled in iron kettles, and salt buildings that stored the salt. The brine was brought to the surface by "walking beam pumps."
During the Civil War, salt production grew from 15,000 bushels to four million barrels in 1864.

Will Cisco Kid Set The Mood For A Correction?

I think this bull run has already lived through all its seven lives. Maybe Cisco Kid can set the tone for tomorrow and all we need to begin a meaningful correction is a wide range day down. Maybe we will get it tomorrow. Cisco Systems is trading down over 3% in the after hours session.

I am short S&P Futures and I am being very patient with my short lines. Off course that the profits from my short Schatz position are smoothing the path and I can wait for the obvious correction patiently. As Jim Rogers usually says, "nothing goes straight up or straight down" and we will have a few dozen points correction.

The fundamentals have certainly improved a lot, but will they keep improving or are we going to dip again? One way or another markets are prone to a mild or severe down leg.

David went to Dave Matthews Band concert and I plead guilty to jeaulousy. I would love to be there jumping and shouting, "All the little ants are marching. Red and black antennae waving. They all do it the same. They all do it the same way." Go Dave!

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

How Severe Will The Market Correction Be?


This is the price graph of this recent run up on the S&P 500 Index. The stock market moved up more then 120 points in 17 trading session without any pullbacks. This is obviously prone to a correction that can be soft or pretty severe. If the market corrects a third of this move, it will trade down to 960. That is my target for the next few trading weeks.

Yesterday I picked up Fooled by Randomness the magnific book written by Nassim Taleb. I underlined this passage that I think its particularly interesting, "over a short time increment, one observes the variability of the portfolio, not the returns. In other words, one sees the variance, little else". Off course we are traders and we are used to attribute meaning to every single price move, to every single trading session. Sometimes its important to gain some perspective.

Have a nice trading day.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

API Inventories Released: Crude Stocks Fell 1.5 Million Barrels

U.S. crude futures rose in post-settlement trading on Tuesday, after industry data showed a surprise drawdown in crude oil inventories last week against the forecast for a stock build. Earlier, NYMEX September crude settled lower for the first time in four sessions on profit-taking ahead of supply data.

The API said that crude stocks fell 1.5 million barrels to 350.9 million barrels as imports dropped sharply. Distillate stocks declined 1.0 million barrels to 157.9 million barrels and gasoline supplies rose 2.1 million barrels to 215.7 million barrels, the API said.An expanded Reuters poll of analysts forecast an 800,000-barrel build in crude stocks in the week to July 31. The poll also predicted a 1.2-million barrel rise in distillate stocks and a 1.0-million barrel drop in gasoline stocks.

Tomorrow the EIA will release the "official" weekly inventories but the fact is that oil already had a very nice run and is prone to a mild or severe correction. I would not buy a drop of oil here

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

S&P Is As Overbought As You Will Ever See It.

This is the most overbought market I have ever seen. I have seen several times similar stretched situations but always on the downside like in March where the markets were equally oversold. But the fact is that I have been short the S&P Futures for the last few trading sessions and I am only losing 10 or 12 points. So I am only a session away from being in the money again.


Check the market situation for yourselves. I expect a meaningful correction that can take us to 940 in 2 or 3 trading sessions.

I am not a pure technical trader by any means. But I cannot overlook such an extreme technical situation.

Have you listened to Jose Gonzalez? I find his music inspiring and I like to listen to this sound during trading hours. My favourite is "Down The Line".

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Dr. House Is Going Nowhere. 2 Year Schatz Shine.

Dr. House is pretty tired and he and his cane are going nowhere. We are in the summer dollrums, and the S&P is very quiet. I don`t expect much for the remaining trading session and I keeping my S&P shorts for a few more rounds.

The 2 Year Schatz Futures keep performing beautifully. Its has the potential to turn out to be one of my best trades this year. Its doing very well so far.

I will end the session richer then I began no matter what Dr. House decides to do on the way home.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

The S&P Resembles Me Of Dr. House

The S&P was beginning to look like DR. House. He can walk but he cannot run. As you know I am short S&P Futures at 987 and I am not worried a bit because Dr. House cannot run away from me. I will catch him whenever I decide to get up and run. And it seems that will happen today because markets are looking very soft in pre-market.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Crude Oil Trades At 10 Month Highs

Oil and natural gas futures prices rose sharply today on the weakening dollar and on new signs of life from manufacturers that suggest the recession may be near the end. NYMEX Crude Oil rose 3 percent, over 2 dollars a barrel to settle at $71.58 a barrel. It was the third straight day of substantial increases on the energy futures markets and the first time in a month that crude traded above $70. Crude oil is trading near to a 10 month high.

After being short and wrong in the april-may oil rally I have been avoiding oil and focusing my trades on the S&P Futures and on the european interest rate complex.

Contango is geting fatter again so I can try a small short line in the near future but for the moment I am watching oil from the balcony.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

S&P Is Resilient. Still Short.

it was a decent day all together. The Schatz Futures were crushed today (it was even better then I had wished for) and the S&P`s kept rising offsetting the P&L.

No big deal. I am keeping my short lines for the imminent market correction. Having a moderate short line I can seat patiently while other traders still feel this market has upside potential.

I am feeling pretty relaxed today. If you have a few minutes to spare check Jose Gonzalez myspace. Great musician and very good sound to go with trading during the session.

I took part of my day to enhance my S&P trading system. I have been around it trying to improve the position size algorithm. I want to make sure that I can win over 80% of the trading sessions and that I won`t lose more then 3 average profit days in a session. After Enzo`s birth I will give it a run for its money.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

ISM Data Comes Better Then Expected. Bonds Sell Off.

The ISM Index came above expectations but the Prices Paid Index shoot up to 55. Bonds sold off on the news and I think that will drag the S&P Futures lower. I am keeping my short line.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Time To Do A Test Buy on Natural Gas?

Natural Gas Futures are once again hovering near a multi year low. The million dollar question is: "Is this the bottom for Natural Gas?"

I don`t know. I wish I knew. But what I know is that Boone Pickens canceled a wind farm because natural gas was so cheap that utilities were using it to produce energy. This means a lot. Natural gas is becoming the cheapest source to produce energy and Nat Gas is trading at a very high historical multiple to oil futures. The case is strong for Natural Gas, at least longer term.

The thing is dislike about holding natural gas futures is the extreme contango. Rolling it over month after month will just kill you. You need Natural Gas to go over 40% in a year just to cover the contango. Nobody can stand that. That is why UNG, United States Natural Gas Fund has performed so badly.

So, natural gas has to be played for short term spikes or needs to be deleted from the trading platform. I think more money has been lost in Natural Gas then in Las Vegas this year.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Greenspan Says The End Of The Recession Is Near

Alan Greenspan, the ex-Chairman of the Federal Reserve made some interesting comments regarding the health of the US economy. Alan Greenspan highlighted the sucess of the cash for clunkers program that shows that the economy is picking up.

"Former Federal Reserve chairman Alan Greenspan says the economic downturn is not quite over but that the end is nearing.

Greenspan says that the health of the financial system has improved significantly. He says the collapse of the financial system is "off the table" after the system teetered for a while.

Greenspan expects unemployment and job losses to continue but at a slower rate.

The former Fed chief says the overwhelming response to the "cash for clunkers" program shows that confidence in the economy is picking up. The program gives car owners cash incentives for trading in older, less fuel-efficient cars for more efficient models.

Greenspan appeared Sunday on ABC television's "This Week."" in CNBC.com

Lets see how the markets reacts to its current overbought siuation. I am expecting the S&P to trade lower this week even if it goes up monday or tuesday. As Jesse Livermore used to say, "the big money is on the big swing". I am going to play the big swing on the short term interest rates through 2 Year Schatz Futures.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

I Believe Short Term Interest Rates WIll Come Up And Stocks Markets Will Trade Lower

As you know, I am shorting the S&P Futures and also shorting the 2 Year Schatz Futures, the 2 year german government futures. This is how I am going to play the next few weeks. My son will be born any day now and I am playing for the intermediate term because I may not be able to trade for a few days or weeks. I plan to be keep my trading platform shut down for the first 2, 3 weeks after Enzo`s birth.

I am going to a music concert tonight, trying to chill out a bit and re-energise. This week was more intense then the last and I feel that is because I traded in a discretionary way, leaving my S&P Futures system "off". I had commented on that earlier. Its much more tirying to trade this way. But its my natural style and I feel that when really opportunities present themselves nothing beats discretionary trading.

I am sensing two good intermediate term opportunities. The first is to short the stock market and the second to play the rise in german short term interest rates. The ECB has a single mandate and that is price stability. Jean Claude Trichet will begin hiking at the slighest inflation warning signals. We are not seeing any inflation in the Eurozone for now but I am pretty sure that short term rates will begin to trade up very soon. Check the 2 Year Schatz price graph to gain some perspective on its historical range.

This may be one of the greatest opportunities for the remaining of 2009. I won`t let it go by.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

US Natural Gas Fund Cannot Issue More Shares Without Authorization

Tuesday, October 13, 2009

This was the reason UNG was suspended earlier today,

"The United States Natural Gas Fund will temporarily suspend issuing new shares pending regulatory approval to expand the number of shares it can issue to 1.2 billion, the company said in a filing with the U.S. Securities and Exchange Commission on Tuesday.
The U.S. Natural Gas fund , also known as UNG, filed on June 5 with the SEC for permission to issue 1 billion new units, adding to the previously approved 200 million units.

The SEC has not yet approved the request and a spokesman for the agency said the SEC has no comment.

The UNG fund tracks the price of natural gas futures on the New York Mercantile Exchange, providing a way for smaller, retail players to invest in commodities like gas by buying shares in the fund without worrying about margin calls associated with futures trade if their bets go wrong.

The long-only exchange traded fund's move to massively expand the number units it can issue has sparked concerns among market players who say the jump in the number of units may open the natural gas market to more speculation and influence prices when it rolls positions on the futures market from month to month.

On Monday, UNG had 32.1 million units left of the 200 million it is authorized to issue. By Tuesday, all of those units had been issued and UNG suspended the issuance of "creation baskets"—UNG's term for blocks of 100,000 units.

The suspension of issuing creation baskets will have no effect on the ability of authorized purchasers to redeem baskets of units, the company said in its Tuesday SEC filing." in CNBC

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Volume Is Anemic In The US Stock Market

Bespoke has a very interesting article on the anemic volume of the US stck market, "Using the S&P 500 tracking ETF (SPY) as a proxy, the 50-day average dollar value of volume in the ETF has declined by 54% since its peak last Fall. It is also currently at its lowest level since the S&P 500 peaked in October 2007."

In the graph below we can see the drop in the dollar volume on the SPY.


Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Good Trading Quote From The Book I am Reading

I really enjoyed this passage from Curtis Faith in the "Way Of The Turtle", "Good trading is not about being right, it is about trading right. If you want to be sucessful, you need to think of the long run and ignore the outcome of individual trades".

Very good material.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Great Trading Book: "Way Of The Turtle"

This weekend I re-read the "Way Of The Turtle" while I was lying around the swimming pool. The "Way Of The Turtle" is a fantastic trading book from Curtis Faith, one of the original turtles. I read it last year but I really enjoyed this re-read. Perhaps because I am doing a lot of systematic, system generated trades these days.

Trading coach Van K. Tharp considered it one of the best five trading books ever written and I agree with him. This is a look at the legendary Richard Dennis`s Turtle Traders and his famous trading experience. Curtis Faith was the most sucessful member of this elite group and he describes the trading experience like a seasoned writer. Great trading book.

On other topic, I kept my short S&P Futures position from Thursday and I am almost 30 points in the money. My trading account made a new high for the year last Thursday and I will close this discretionary trading position in the next few sessions because I will focus again on my systematic trades. Opportunities like that, going short into the Employment Report, do not come often and as Stanley Druckenmiller once said, "trading is about capital preservation and home runs". This was a very leveraged trading position and a decent home run in my trading account. Its time to protect my equity, placing only some very risk limited systematic trades for the next few trading sessions.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Oil Had Its Biggest Quarterly Rise In 19 Years

Nymex Light Sweet Crude Oil Futures jumped 41 percent in the second quarter, the biggest since 1990.

This rise was not driven by demand at all. This is the reason why some many great traders were caught on the short side of this trade.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Bad Economic Data. 2 Good Trades.

The economic data released today was quite disappointing. Both the Chicago PMI and the Consumer Confidence Data printed below expectations.

I have made 2 good trades today, one short Crude Oil Futures trade from 71.00 to 70.50 and one short trade on the EURO Currency Futures from 1.4100 to 1.4050. They were both mechanical trades generated by a system I have developed.

I will not trade any discretionary plays until Enzo is born, and he can arrive at anytime now.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Latest Hugh Hendry Interview




Latest Hugh Hendry`s interview. Hugh is my favourite money manager but he has been completely wrong footed since March. He was on CNBC earlier today.

"Fears about inflation and hyperinflation could create another economic downturn, bigger than the one the world went through, Hugh Hendry, chief investment officer at hedge fund Eclectica, told CNBC Tuesday." in CNBC

Use Internet Explorer or Google Chrome browsers to watch this video. Mozilla has some problems with these CNBC videos.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

IEA Cuts Oil Demand Through 2013

The IEA, has cut five-year forecasts for global crude demand because of the economic slump, predicting that consumption will not regain last year’s levels until 2012.

The IEA cut its oil demand estimates for every year through 2013 by about 3 million barrels a day, stating that consumption will average 86.76 million barrels a day in 2012, the first year it will rise above 2008’s level of 85.76 million barrels a day.

“The deep economic recession that has spread worldwide in the past year has taken a severe toll on oil demand,” the IEA said in the report, updating estimates made in December. “This marks a break after several years of strong oil demand growth.”

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Taking A Trading Vacation.

After having a fantastic start to the year these last few weeks have been rather difficult. I got trapped on the short side of the oil market and I was only able to do some good S&P Futures trading and two other good trades on Natural Gas and on the 2 Year Schatz Futures on the ECB meeting day.

But I am feeling out of sync with the markets and a bit tired. I have closed all my trading positions and I will do a small trading vacation. The imminent birth of Enzo, excess trading and a very stubborn oil market have taken its toll.

Every trader needs a rest once in a while. And its better to rest before a big drawdown and not after. So the time is right. After two consecutive flat trading months its time to stop and re-energise.

As Stanley Druckenmiller once said, "trading is all about capital preservation and home runs". I will play good defense for now and I will try to hit some home runs later.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

Buzz On The Oil Trading Desks

Oil trading desks are a busy place. Today the talk was about economic news, Iran, stock market and hope:

"Any shred of decent economic news gives bulls a positive reinforcement while bears continue to shake their heads. Hope has been a big factor in the oil market in the past two months." Andy Lebow, senior vice president for energy at brokerage MF Global

"The market got a little support from the stock market and consolidated its recent gains," Peter Donovan, vice president at Vantage Trading.

"The market is stubbornly holding up. Prices are up on expectations that the economy is recovering and demand will strengthen.” Peter Beutel, president of Cameron Hanover Inc., an energy consulting company

“Down the road, it is likely that we see a sharp downward correction in the market because recent rallies look very fragile. If we don’t get some clear and concrete visible signs that the economy is recovering, we might see some profit-taking in the market by some funds in the next two or three months.” Frederic Lasserre, Societe Generale SA’s Paris-based head of commodities research

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage.

ENI`s CEO Says Demand Is Not Behind This Rally

The rise in oil prices this year has not been caused by a rise in demand, the head of Italian energy firm ENI said on Wednesday. "I don't see the consumption, I don't see the reason why oil prices should move up again," ENI Chief Executive Paolo Scaroni told reporters during a presentation about mechanisms to reduce volatility in the oil market.

I am still short Nymex Crude Oil Futures but I was able to reduce some positions when oil traded down to below 69 dollars moments after the Oil Inventories data release. As I said eralier today I had some buy orders around the 69 dollars level, to close those added shorts. I may put those added short lines tomorrow.

I could only trade for the first hour of the US trading session and I did 2 Guerrilla Trades in the banking sector. They both went OK.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage. Trading is not as hard as some think and definitely not as easy as some wanted it to be.

G8 Finance Minister Says Extra Liquidity Is Fueling Oil Speculation

"Italy's finance minister Saturday expressed concern that the big stimulus used by the Group of Eight leading economies to fight the recession was already recreating the kind of financial speculation that was at the root of the economic crisis.

Giulio Tremonti told a news conference at the end of a meeting of G8 finance ministers that financial speculation had returned, especially in oil markets, where prices have recently risen sharply, posing a threat to the recovery.

"Instead of financing the real economy, the extra liquidity in the system has this tendency to fuel speculation," Tremonti said." in the WSJ

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage. Trading is not as hard as some think and definitely not as easy as some wanted it to be.

What Is Driving The Oil Market?













A look at this week's energy inventory data, with Ray Carbone, Paramount Options. Ray explains what is driving this market. Very interesting.

Is The Market Topping? Guerrilla Trading.

It was a very stressful day, holding a big short S&P position. I got scared a few times with the several rally attempts but the S&P`s ended the day flat. Bull forces were still at work for the most part of the trading session.

I did some guerrilla trades like buying EUR/USD for a 30 ticks profit and some Nasdaq`s for a quick scalp after 2pm in the afternoon NY time, the "institutional prime time hour for buying". So the trading day was OK, slightly profitable.

I have reduced my S&P`s by a third taking some profits on those I had sold at 944 yesterday. The remaning shorts are still well off the money.

Changing subjects, I was thinking about the traits of sucessful traders. While most trading books refer discipline as the best quality of a trader, I think the best traders are agressive, fearless and flexible. I rank high on the first two and low on flexibility. I like to keep trading on the same side of the market for extended periods of time. I would like to know your thoughts on this subject.

I will try to post my guerrilla trades in real time tomorrow if I can spot any market opportunities.

I did not even mentioned oil because it was flat today. I am still short with a very moderate line. I may add to this short position on market weakness. I sense good days ahead.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage. Trading is not as hard as some think and definitely not as easy as some wanted it to be.

Less Oil, More S&P`s

I closed half of my short oil position and added the S&P Futures that I closed last Friday at 910. Now I have re-shorted them at 936.50, almost 25 points higher in less then 24 hours. I think the stock market will probably have a bigger sell-off then oil.

I am short with a pretty big position on the S&P Futures. I think the time is right.

Keep a close eye on the long term bonds today. They may sell off again and push the stock market lower.

I will add to my short oil position if and when the market reverses and begins to flash some red.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage. Trading is not as hard as some think and definitely not as easy as some wanted it to be.

Oil Rises 30% in May. Biggest Gain in 10 Years.

Oil prices have risen roughly 30 percent this month — their biggest monthly gain in 10 years.

This is a good example of an overbought market becoming more and more overbought disregarding conditions. Profit taking and fundamentals will send this overbought down for a big correction soon and then I will be able to quote Jesse Livermore, "But I can tell you after the market began to go my way I felt for the first time in my life that I had allies - the strongest and truest in the world; underlying conditions."

When it turns, I will add agressively to my shorts. Playing the next downturn in oil will be the best trade for the next few months.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage. Trading is not as hard as some think and definitely not as easy as some wanted it to be.

Exxon`s CEO Comments On Oil Prices

"The recent run-up in crude prices to $60-plus from under $40 earlier this year isn’t necessarily evidence that the economy is recovering", Exxon Mobil Chairman and CEO Rex Tillerson said Wednesday.

"Oil demand remains down while supply is robust amid the lingering global recession, so those fundamentals don’t support crude’s slow uptick."

The weak dollar and “green shoots” — initial signs of a stabilizing economy and market momentum — could be contributing, but oil traders’ optimism is “just a bet on their part,” Tillerson said after the company’s annual shareholder meeting.

But without change to fundamentals, Tillerson isn’t betting. “I think it’s too early to call this economy,” he said.

But with the market this strong even the most bearish oil traders like myself are beginning to have second thoughts. But like Pit Bull Marty Schwartz wrote in his fantastic trading book, "When it gets so bad that you want to puke, you probably should double your position". I am not there yet, not even close. But this rally is giving me a major headache. I have to keep my calm, because I want to double up that position and make a home run on the sell off. But I will seat on my hands for now...

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage. Trading is not as hard as some think and definitely not as easy as some wanted it to be.

S&P`s Selling Off. Reacting to Bonds

it looks like the S&P Futures are selling off, reacting to the weakness in the long term bonds. Yields are surging and that will affect the stock market.

Let`s see how this unfolds. We can have a major sell-off on the S&P Futures.

When I first posted, the S&P was at 905. Its trading at 897 now. We can have a brutal sell-off. Fasten your seat belts. I have added slightly to my shorts with XLF.

Petroleum Oil Gas info Blog is a website for active online futures and stock traders. I will provide my real time trading decisions and my market thoughts on this webpage. Trading is not as hard as some think and definitely not as easy as some wanted it to be.