"When money has nowhere to go, it
is parked in commodities, as this is one of the few
investment instruments that actually rises the more
money you pour into it." —Oliver Jakob, analyst
@ Petromatrix in Switzerland.
HEATING OIL
LOCK? (updated 01/16/12) MENA (Middle East North Africa),
Iran, lack of conservation, no energy policy, ... Make plans to
move to natural gas and be happy.
NATURAL GAS? (updated 01/16/12) There is a risk to playing
the "how low can we go" game. My budgets are happy with
$4.24. I'm staying in the cash market for NT and DS accts.
05/14/12: Busy beaver Jarod
from Hess did an analysis of all of my minor accounts. I switched
everything that was firm UGI to NT for $5/mcf. If nothing else, at
least they're all on one page! Why now? Take a look at the
$/mmbtu chart...see the price crossing over the moving average?
First in a longgggggg time......!
04/30/12: Sayonaro Sunoco...the
company was sold to Energy Transfer Partners.
Is the bottom in for gas prices???
I doubt it, but traders love to look for those bounces and pile on
expecting price to retrace its downward movement. The problem
remains a lot of supply and no demand.
04/11/12: "Another
flaw in the human character is that everybody wants to build and nobody
wants to do maintenance." Kurt Vonnegut
04/10/12: Here's a
story that is keeping me from locking down any more gas at these
prices...
04/02/12: What does that
wholesale number ($26.10) above tell you? Correct! Natural
gas is now the base load fuel while coal is getting displaced. I
can't recall seeing this occur in the last 15 years.
03/12/12: Decisions,
decisions...do I lock the remaining 20% + NT +DS or do I ride it
out? All I can say for certain is that power = gas and power is 5
cents/kwhr! Can our energy budget go to zero?!
02/27/12: Thar she blows!
6 oil just blew through the 2008 high. Meanwhile, back in reality,
gas continues to bounce around at $2.77! Despite all of the
political rhetoric regurgitated by the pundits, I think we're back to
good old supply and demand. There really IS a global worldwide
recovery under way, no matter how small, and demand is rising in Asia,
Europe is freezing, and the Soviets are thirsty. Here's a link to
a decent article:
www.businessinsider.com/heres-the-real-reason-gasoline-prices-have-been-surging-in-the-us-2012-2
Brain teaser #2: why do rising
gasoline prices always get met with saber rattling? What don't we
understand about the fact that we import 66% of our oil? Even my
sole source vendors have at least one alternate. Cheap USA oil is
NOT a global goal. This is NOT a USA issue. I think it's
great that Detroit was at the brink of extinction and survived...now why
can't we build something to compete with the Prius C? The 4x4 that
gets 35mpg will sell like hotcakes.
02/20/12: Brain teaser:
why is gasoline getting close to $4/gallon with oil at $100/bbl when the
last time this occurred oil was at $147/bbl??? Look at the #6 oil
price chart (link above). Record highs. But this is
happening at $100/bbl, not $150?
01/23/12: (Snooze you loose
alert) Howard Weil notes, in response to weak
natural gas prices, CHK has announced swift and deliberate actions
that are healthy for the overall natural gas market and prudent for the
Co. Initially, CHK plans to immediately curtail 0.5 Bcf/d of dry gas
production, with the potential to increase to 1.0 Bcf/d if conditions
warrant. As a result of these actions, CHK now expects production
declines in the Barnett and Haynesville, which will likely lead to flat
or lower natural gas production in the U.S. in 2012. Firm views the
decisions discussed above as a positive for CHK and the natural gas
industry. It also expects more producers to be reducing dry gas rig
count through 2012 as low natural gas prices persist.
01/04/412: I just analyzed the
2011 "heatmap" of all LMP prices over 24x7x365...THERE WERE ONLY 9 DAYS
WHERE PRICE > 10 CENTS...Jan 1x, Mar 1x, May 1x, Jun 3x, Jul 2x.
The average real time price for the year was 4.61 cpk. We paid 50%
over the RT price. This is exactly what was predicted. How
do you "beat" this market? I don't think it's possible.
9/365 days scattered across 5 months? Geez, I would have had to
buy contracts for 5 months. No, I think we need to plow into the
day-ahead market with some kind of limit protection.
12/21/11: (Ugh)
FBR Capital says on first read, they do
not see any major modifications to the final Utility Air Toxics Rule's
methodology, limits, or timing. As a result, they reiterate their view
that the rule is very strict and will result in significant coal
retirements. Firm expects the profile of a compliant unit to remain
largely the same, typically sporting a scrubber and fabric filter. This
means that a full suite of equipment is one of the paths to compliance
with all three silos of this Final Air Toxics rule. They are
maintaining their view that the most likely outcome is 50 GW of coal
retirements by 2016. T4 comment: without replacement
units on the drawing board, what do you think will happen to wholesale
power prices? I can't argue for mercury, but I can argue for
SOMETHING to replace the coal-fired generation.
12/12/11:
IRAN MP SAYS MILITARY TO PRACTICE CLOSING STRAIT OF
HORMUZ TO SHIPPING; IRANIAN MILITARY DECLINES TO COMMENT - RTRS
And then they retract the story! And we
wonder why oil prices are unstable?
12/05/11: Iran, drones,
threats, Syria, ... More MENA issues goosing the market yet again.
11/14/11: The IRAN issues
seem to be goosing the oil market right now because the Euro-zone is
imploding, not expanding.
The Pennsylvania Public Utility
Commission voted 5-0 to issue a Tentative Order, for public comment,
containing proposed interim guidelines to accelerate the switching
process for electric customers. Currently, switching to an electric
generation supplier (EGS) or even switching between competitive
suppliers can take between 16 and 45 days due to the various regulations
and company procedures that are in place. The procedures are designed to
protect customers from slamming or unwanted switching. However, the
delays in switching are seen by consumers as a lost savings opportunity
and can lead to customer frustration, the PUC said. The goal of the
proposed guidelines is to shorten the time frame needed for a customer
to switch electric generation suppliers while providing necessary
customer protections. The changes include elimination of the 10-day
waiting period that is initiated when the electric distribution company
(EDC) sends a letter confirming a change in EGS to the customer; and
substitution of an account transfer letter for the confirmation letter
sent by the EDC to the customer.
11/07/11: If you're looking at
the $/mmBTU graph, remember that natural gas is now trading the Dec
contract and basis has jumped. Here's a classic for those of you
who participate in demand management...we caught a load of crap because
we didn't reduce load for a PJM emergency last week...of course we were
NOT connected to the grid due to loss of both 69KV lines! Guess
they need to asterisk that one...
11/1/11: History in the
making...no power at Lehigh since Saturday at 1:06p...one campus has
never been without steam since 1960!
09/26/11: Last Monday's
meeting had some fairly timely advice, no? One week later,
precious metals (including copper) are tumbling, oil broke, and the US$
got stronger. Patience.
09/09/11: Anybody read about
the Southern CA power outage that affected 4 MILLION people? One
worker. One substation. One maintenance task. But hey,
deregulation is good for all, right? This stuff NEVER happened
when DOUGs (Dumb Old Utility Guys) were in charge.
08/29/11: There will be a brief
30-minute T4 meeting on 9/19 @ Muhlenberg, prior to LVAIC Facilities
Directors meeting.
08/09/11: Take a look at the $/mmBTU
graph...I think we're going to flatten those lines back to 2009
levels...and how about natural gas?! Under $4 last week...this
should make a serious dent in electricity prices moving forward.
08/02/11: Take a look at that
July 11 LMP that just went up...LOWER than last year despite record
temps and demand!
07/27/11: From a German study:
"Solar panels only achieve their maximum capacity in the
laboratory and at optimal exposure to the sun (1,000 watts per square
meter), an ideal angle of incidence (48.2 degrees) and a standardized
module temperature (25 degrees Celsius, or 77 degrees Fahrenheit). Such
values are rare outside the laboratory. All photovoltaic systems are
inactive at night, and they also generate little electricity on winter
days."
07/17/11: Whoa! Why did
the Cal12 basis just jump by 8 cents after sitting at 63 cents for
months??? That's a 12.6% increase...
06/27/11: I was on vacation
last week...WOW! Take a look at what happens when countries set
out to break the backs of speculators! But no, the market is
efficient, right? There is no speculation, right? See you on
Wednesday at STEPS.
06/13/11:
The WTI-Brent spread is trading over $20
this morning as WTI prices pull back to trade near $98, while Brent
prices trade toward the $120 level. Brent crude oil is sourced from the
North Sea and is used as the benchmark future for prices in Europe. WTI
crude oil is the underlying commodity for the NYMEX futures contract and
is the benchmark for crude oil trade in the US.
The spread, which traded to a record $20.93 earlier this morning,
highlights the difference in fundamental views between Europe and the US.
Brent prices are currently being driven by forecasts for higher demand
in the back half of this year, OPEC's inaction at its most recent
meeting and some premium for geopolitical risks. There are also reports
of production problems in North Sea oil fields.
While WTI appears to have some geopolitical risk priced in, high stocks
in Cushing, questions about demand, and comments out of Saudi Arabia
implying the country will hike output to whatever the market needs, have
all weighed on WTI prices.
06/09/11: Wow! One would
think that the sky is falling based on all of the Energy Connect
alerts...guess what? Price month-to-date is 6 cents average.
Last night we saw one hour at 0.46 cents. That is not a misprint!
05/16/11: Patience pays
off. I've quoted natural gas every month since last October and
just pulled the trigger on a one year deal at the lowest price in the
last nine months. I'm still not convinced that gas has bottomed,
but it has been sitting there on that 50-day moving average which is as
good as it's going to get for the short term. $5.40 for the year.
05/05/11: Cinco de Mayo.
BINGO. So there's no manipulation in commodity prices, eh?
And our supply/demand curve just shifted in one day to cause a $10/bbl
DROP in crude? No. Read my note below.
04/11/11: This commodity move,
including oil, is eerily similar to May 2008. My gut feeling is
that something will come of the blue (interest rate hike? End QE?)
to burst the bubble very quickly. If you look at the oil
storage charts, we are literally drowning in oil. The "Fukushima
bubble" in gas is also starting to deflate.
03/28/11: My Spidey sense is
tingling...take a look at the natural gas price vs. the moving average
on the $/mmBTU graph (above). This might be the week to lay out a
hedge on gas prices...
The big PPLICA meeting is tomorrow.
Time to see how our PUC complaint is progressing.
03/17/11:
Here is a TEPCO presentation on the
spent fuel storage at Fukushima. Remember when we discussed
"Black Swan" events? Who had spent fuel on the radar? At
least the Japanese had begun to consider the implications by moving
toward a dry cask system. I'm sure money prevented the full-scale
implementation of the strategy. Editorial: if you watch TV
to get your information, you are not informed. I caught a few
programs last night and they all had some kind of "spin" behind the
talking heads. Bottom line: the Japanese knew the risk and
were in the process of building off-site storage using dry casks.
The disaster hit before they completed the job. The accident
happened...now it's time to deal with it, protect citizens, clean up,
learn from the mistakes, and move on. Eliminating nuclear power is
not the solution. We're spending untold billions on protection
from terrorists, yet most of us realize that eventually someone will
succeed. Unless we give up on electricity, we need something to
create steam to turn the turbines and only a fool believes that a single
fuel source is the answer as we all know what happens to a monopoly.
03/14/11: NIMBY fear vs. a US
energy strategy? The rush to once again condemn nuclear without a
gathering of facts is foolhardy. Comparing Japan to Chernobyl is
ludicrous. One country had a 9.0 earthquake and (so far) no
meltdown. Folks who don't understand the technology and shout down
nukes offer what as an alternative? Clean coal is decades
away...if that's where we're headed, OK. But guess what?
Deregulation has essentially destroyed any hope of large central
stations in the US. We're in trouble if we rely on this 4-yr D v R
game.
03/07/11: And so it shall be,
that without any intelligent energy strategy, the USA is doomed to the
prophets of wealth: FBR Capital's analysis suggests a favorable
U.S. legal framework for exporting LNG through existing
terminals. However, they note the inherent legal risk and powerful
political opposition to widescale exports that could stall efforts to
build significant export capacity in the future. Broadly, they note that
there
is substantial policy risk to exporting LNG, including "NIMBY"
objections that helped delay construction of import projects in 2000s,
as well as opposition from powerful industrial consumers of electricity
and natural gas. However, their reading suggests that proposals to add
export capacity to existing import terminals are largely free from the
significant challenges that face green fields development, and they
detect little coordinated opposition from energy consumers or
environmentalists at this time.
02/28/11: Boom! There
goes the old $100/bbl limit! Now it remains to be seen if this is
the beginning of the end for sane oil prices or a geo-political goosing
until Libya gets settled. Oil has no impact on our budget other
than motor fuel. Natural gas drives our heating (and electric)
prices. As noted above, last July was as good as it got in terms
of lock. It would have made sense and was noted.
Interesting anomaly on the #6 oil
chart...see how Hess prices have exceeded the historical $100/bbl line?
This might be a little price fixing...but who is there to stop them?
There is no real competition.
02/25/11: Interesting story in
this month's Mechanical Engineering that supports my theory of
early adopter failure. New research indicates that vertical-axis
wind turbines spaced four diameters apart had power densities
10-15x those of "standard" wind farms! And these turbines were
only 10 meters tall...that's a heckuva lot smaller than the behemoths
we're used to seeing.
02/21/11: It looks as if
every event in the Middle East is poised to jack oil futures.
Interesting divergence between "benchmark" WTI prices and London.
As you can see on the oil chart, #6 is acting as if we're already past
$100/bbl. Gas continues to drift down toward my buy point.
02/14/11: I don't want to
start any conspiracy theories, but isn't it funny how Hess is
simultaneously goosing the #6 oil price while recalling natural gas?
Crude prices have been dropping while #6 continues upward...
02/07/11: I'm targeting
April as my short term buy point for FY12 natural gas. I believe
this cold weather will pass and we're going to hit a lull headed into
hurricane season.
02/03/11: Just returned from AHR Show in Las Vegas. Travel was dicey on Tuesday...OK late last
night. Global warming? Vegas was 28F on Tues night!
But the Europeans have it down...increased water mass means more
moisture in the air for bigger storms? I have to think about that
one. The presentation is ready. Guess we just need to pick a
sunny day to meet. The nat gas price drop is due to the fact that
we're trading the March contract now and basis is way down.
01/24/11: Just returned
from St. Martin. It's 0 F here. It was 80F there. Ugh.
First item on my desk...PPL bill...$200,000 billing error. Day 7
of a Hess/UGI gas recall...we're committed to 10 days max...hope they
planned it right. Nice little positive surprise on oil inventories
last week. Note how heating oil is now priced cheaper into the
future. I still don't like the spike in the natural gas basis
numbers.
This is an early warning on the
presentation next week. Ordinarily I have handouts, but the date
change clashes with my return from the AHR show in Las Vegas and I may
have to stick with Powerpoint and then follow-up with the file if you
want/need it. We'll see what develops over the week.
01/10/11: Uh-oh, the Alaska
pipeline has shut down. Let's see how this affects the $100/bbl
target that is so clearly where we're headed very soon.
01/03/11: Things to do in 2011:
file formal complaint against PPL with PUC. Check. Watch
commodity prices soar. Check. Return call from Matt Connor
(3p, day before holiday)...not done.
Three days and a total of less than
24 hours of time skewed the average power price for the month of
December. In other words, 4% of the time resulted in a solid 1 cpk
cost increase over average. Who manages the outage schedule on PJM?
Another unintended consequence of deregulation.
Oil inventory update...we're 4%
higher than last year and 8% above the seasonal five-year average!
Hello Mr. Tax Cut Extension, meet Mr. Gas Tax. Our "savings" just
flow right back out of the budget into oil company profits. Unless
you don't drive? But that point is moot because oil plays a role
in getting nearly every product we consume to our homes.
12/26/10: Nice little XMAS
surprise from PPL...they're trying to extort an "undercollection fee"
for real time pricing in 2011. The call to the lawyers has already
been placed...but it is a holiday week. Crude continues to destroy
US GDP as it marches toward $100 despite plentiful supply. We're
getting squeezed by speculators again as hot money is chasing paper that
will never be converted into physical.
Depressing read by Paul Krugman in
today's NY Times that implies commodity prices are rising due to demand
from the rest of the world while the US remains mired in a recession.
His economist perspective coins the term "finite resources".
12/20/10: Whoa! Tetco Jan
basis now $3.15! And the Cal12 basis just leaped higher by a
dramatic amount...
FBR Capital believes that current
operating margins are insufficient to incent the required level of shale
gas investment needed to balance the market beyond 2011. As such, firm
says either cost structure needs to adjust materially lower or natural
gas prices need to go higher for margins to become investable. As They
do not see an abatement of service costs in the near future, they
believe natural gas price increases will have to provide the margin
improvement. Therefore, they are raising their 2H11 forward natural gas
price forecast to $5.50/Mcf from $4.50/Mcf.
Plus, I just read a news clip that
said Carl Icahn now owns 5.8% of Chesapeake Energy. Here we go
again...Wall Street is in the house.
12/15/10: Note the 4 cent
jump in Cal 12 basis...that's a 9% move in one week! These are the
little "hidden" fees that really cause inflation.
12/06/10: Don't look now,
but oil is testing long-time resistance at $90/bbl. It's not a
supply issue... I'm wrestling with the gas market and whether or
not to use this $5 price point as a hedge. As for fuel oil, there
is NO futures premium, which means we don't have nor anticipate any
storage/supply issues.
12/02/10: Nearly all of the
year-over-year change in November LMP was driven by a few HOURS of high
pricing during the 11/15-11/18 time period. This was probably an
early maintenance outage constraining supply while weather didn't
cooperate. Betcha December comes in lower...
11/29/10: It's to time to
review your choices for RS service in PPL territory. If you check
out the OCA website, it looks like Dominion is in the lead for low cost
offer...maybe 10% below last year's low price.
In case you haven't noticed, the
natural gas price has established a short-term floor. If you take
a look at the $/mmBTU chart, you'll note that we've broken over the
moving average where price is now ABOVE the trend. This is the
indicator that says lock if you're so inclined.
11/08/10: QE2. Ugh.
As the dollar gets hammered, commodities (ie hard assets) spike up.
Given the Fed's preoccupation with inflation, this is exactly what we're
going to get as pump prices will soon cross $3/gallon. This has
nothing to do with supply.
Here's a
good story
about how the cost of green projects continues to scuttle them...I
especially like some of the comments regarding nuclear.
11/01/10: That big jump in
NG-spot is due to the fact that we're now looking at the December
contract and the basis jumps accordingly.
10/26/10: Beware Joe Whitaker
of EnergySavingsNow...uber-salesman. He comes on site with a 0.25
HP demo motor and black box...I use a kwhr meter to prove he's
wrong...then it's a push from the home office...then we show the papers
detailing the scam...then it's more talk... Here's the problem:
if the black box is so good, and there is a guarantee on the savings,
then why do I have to pay $3000 up front for the "survey"? I have
a bunch of white papers from EPRI and Eaton describing the scam.
If this guy were selling cars, you'd be hooked. Power factor
improvement does not help you in PPL service territory.
10/25/10: Lot's of cross
currents on the PPL rate increase/decrease...big whoop! Single
digit percentage changes after the 30+% increase amounts to rounding
error. And let's not forget that the capacity charge is set to
decrease while the T&D charges increase.
10/18/10: (Not so sure about
this one) Pennsylvania Gov. Ed Rendell has stepped in to block
the merger of Allegheny Energy with Ohio-based FirstEnergy by directing
the state Department of Environmental Protection to file a brief with
the Public Utility Commission opposing the deal. In a statement, the
governor said, “This merger would be a great deal for Wall Street and
Ohio, but terrible for Pennsylvania's workers and consumers.” He added
that the merger would reduce electricity competition, increase electric
rates and cost the state nearly 1,000 jobs. (Reduce
competition? In what way? Or are we still clinging to the
"shopping concept"?)
10/13/10:
The EIA has released it monthly Short Term
energy outlook; says it sees 2010 world oil demand up 2.1% vs 2009, sees
2011 world oil demand up 1.6% vs 2010.
Lots of press for Google on the undersea
wind power cable for the Mid-Atlantic. It's a feel-good project,
but out of the "planned" capacity of 6000 MW, they're starting with 1500
MW, which is less than the output of PPL's Martins Creek plant right up
the road on the Delaware. I guess we have to start somewhere....
10/05/10: Huge sales pitch from
Liberty Power...they started with are you paying over 8.7 cents and when
pressed claimed they could offer below 5 cents! They would never
veer from the script and could not distinguish between LMP and total
cost to consumer. I believe this is coming from PPL EU with
respect to kicking us out of LP4 HPS.
10/04/10: Yikes! One
bullish storage report and it's off to the races on oil prices!
We just received a notice from PPL that they can't be bothered with
Hourly Pricing Service (ie real time) if your "capacity obligation tag"
is less than 500 kilowatts! Thanks PA PUC...I see you're going to
force "shopping" no matter what it takes.
09/22/10: Let's examine how a
major airline is hedged: AMR Corp disclosed updated fuel
forecast and heding positions...Co disclosed that its Fuel Hedge
Position for 3Q10 is 44% hedged with an average cap of $2.37 ($89 crude
equivalent) with 43% subject to a floor of $1.80 ($65 crude equivalent)
and for 2010 is 38% hedged with an average cap of $2.42 ($91 crude
equivalent) with 37% subject to a floor of $1.83 ($66 crude equivalent).
Notice how they're not 100%?
09/07/10: Mathematical
gymnastics...April thru August 2010 cooling degree days = 970 (vs. 599
for 2009). That means it's 62% warmer than last year. This
might correlate with the Aug10 over Aug09 LMP prices, but July blew
everyone out of the water.
08/29/10: Here we go
again...51 days of summer 10 have had highs over 90F! And then we
follow up with a little fringe-hurricane?
08/19/10: (From GDF Suez
newsletter)
Warning signs this summer easily can be interpreted as indicating
that prices for electricity, natural gas and coal could soon head
higher. Spot market prices for coal have been steadily increasing for
many months. In July, near-term prices for natural gas also began to
increase significantly in late July. As a result, an increasingly large
gap has developed between the current price of the front-month natural
gas futures contract and that from last year, when natural gas prices
were at rock-bottom levels.
Just as significantly, natural gas price volatility has been rising
significantly since March 2010. This upswing in price volatility raises
a red flag, since increased volatility often is an advance indicator of
burgeoning price spikes. Additionally, electricity demand began to
increase recently, even on a weather-adjusted basis. Electricity demand,
however, still is far below peak levels in earlier years. Since
reserve margins remain ample, increased demand for electricity is not
likely to push prices significantly higher if fuel costs start to level
off. (which is kind of in line with my thoughts at the moment)
08/16/10: We finally broke the
PPL failure to bill us logjam...turns out they changed our meters and
their system crashed. Nobody told anybody that bills weren't being
generated! World class utility, eh?
08/05/10: Everything you need
to know about PPL's earnings release: PPL's supply business saw
earnings soar amid " significantly" higher pricing, though
operation and maintenance costs and depreciation rose. Its U.K. and
Pennsylvania utility businesses saw operating profit drop about 17% and
20%, respectively.
Once and again, deregulation
helped who? The consumer? No way, no how. It's all
about business and profits, or the transfer of capital from us to them.
08/02/10: Here we go again
with prices surging as the annual "hurricane approaching" news gets
rehashed.
And there it is! July. The
long-predicted summer spike came and went as the PJM cranked up air
conditioners. All I can say is if that's it, then so be it.
1 out of 12 isn't too bad. And August is starting out pretty good.
What's really irking me is that E+ was running an alternate pricing
strategy for us and EU actually demanded $106 for our data! This
from the gang that can't get a bill out in less than 90 days.
07/19/10: FY11 invoices are
out. Once again, there are economies of scale that result in a
lower year-over-year charge. Refining my economic comment below, I
think we're in the second year of a 5-7 year credit shakeout.
Given how the consumer keeps the economy humming, I think there are only
so many iPads and iPhones to sell after which housing and debt repayment
are eating up what's left of discretionary funds. It's hot, but
low gas prices have kept power prices in check.
07/05/10: As a contrarian,
I have to say that publishing a Robert Prechter interview in the Sunday
NY Times is probably a good thing as this guy is so bearish you might as
well sell everything you own, put it all into gold, and go live in a
cave! Too bad they don't take gold at Sams Club... I'm still
leaning toward the "lost decade" model of Japan.
06/28/10: Interesting
little news
article
from a GDF Suez newsletter. It seems as if some State PUCs
didn't get the "smart grid is the future" memo!
06/23/10: I'm absolutely amazed
at how "unstressed" the PJM grid remains in the face of this heat wave.
$44.64 average for June through this AM.
06/22/10: I saw the documentary
"GasLand" on HBO last night. Wow. Eye opening. I urge
you to Google it and do a little research on "fracing". The whole
Marcellus Shale find might not be as great as it has been laid out if
rural drinking water is at risk. If nothing else, excluding these
drillers from the Clean Water Act is shady.
06/21/10: Goodbye LFD...Hello
3-yr DSO of $1.37!
06/07/10:
Let’s discuss some of the mechanics behind
the hedge on gas that I just made. Short term prices broke through a 2
month base. But that’s not the whole story…long term prices have
actually been DROPPING in the face of this move! Hence the “risk
premium” of holding longer dated futures has dropped. In the end. I’m
right at my $7 target with non-interruptible supply. And if the market
goes nuts in the winter, I can sell some of that back and burn the $1
oil in my tanks.
05/20/10: LEED.
Please read this article.
Somebody finally published what our VPs didn't want to hear...
05/17/10: This gas hedge
has taken longer than what I wanted. First I locked my basis.
Then I adjusted buy-limits for 80% volume. Now I'm waiting for
confirmation.
05/03/10: Thursday's
numbers were bearish and I've adjusted my buy-limit order to $5.80.
04/26/10: Looks like
Thursday's storage numbers are do or die for my gas hedge plans.
The spot price is attacking the 50-day moving average and we've had two
serious upward price spurts since 4/1. If the storage numbers are
bullish, I'm going to hedge 80% of my forward load for 18 months.
I've missed the absolute bottom, but there are serious savings against
budget on paper. $1 million is still one million dollars.
04/19/10: Bad news for
Lafayette and Lehigh...Sunoco is exiting the #6 oil business. This
leaves Hess as practically a sole source choice for the heavy stuff
because everyone else in this area is a reseller. On the natural
gas trade, we're once again at a critical juncture. Take a look at
the $/MMBTU graph (link above). Do you see how the natural gas
price is once again threatening to break through the moving average?
I'm ready to hedge some risk, especially if the price continues to show
strength in the face of poor fundamentals.
04/16/10:
Reuters reports that
traders are looking to ship
surplus U.S. distillate stocks such as diesel and gas oil across the
Atlantic this spring as refiners boost runs faster than their
European counterparts. While Europe typically imports gas oil -known
often as heating oil- and the motor fuel diesel from the United States,
exports stopped in early 2010 and even flowed in reverse this winter as
the severe cold weather boosted demand in the U.S. east coast heating
hub. But since then, U.S. demand
has faded with the onset of milder weather, boosting stocks and
making the arbitrage play for these products profitable again. Several
oil trading companies are now looking for mid-range vessels to load with
gas oil from the U.S. Gulf to Europe, trade sources said. The diesel
arbitrage is also open and traders can make a profit of $15 a metric ton
from shipping the motor fuel from the U.S. Gulf to Rotterdam, Reuters
calculations show. A key factor behind the reopening of the arbitrage is
higher U.S. run rates as refiners return from spring maintenance. T4:
welcome to the new world economy...in the past, prices would drop due to
excess supply...
04/14/10:
WSJ reports the OPEC maintained a cautious
view about world oil demand and gave no indication it might pump more
crude to quell the recent rise in oil prices... Since last year, most
OPEC ministers have had an informal preference for prices to trade
between $70 and $80 a barrel, a level seen as helpful for promoting
energy investment but without hitting consumer pockets too hard. So far
this month, however, prices—although off an 18-month peak hit last
week—have closed between $84 and $86 a barrel. But OPEC said it isn't
convinced those prices will persist for a variety of reasons, including
excess quantities of unused crude globally. It also isn't as optimistic
about demand as others. In the monthly oil -market report, the group
said it expects global crude consumption this year to grow 900,000
barrels a day, unchanged from its report last month, but representing
just half the growth level seen by some other oil analysts. Echoing that
restrained outlook, the group said it thinks world demand for OPEC
oil will come in at just 28.8 million barrels a day, a downward revision
of 135,000 barrels a day from its March forecast.
04/9/10:
WSJ reports a bitter
political dispute between
this city's elected leaders and its
powerful municipal utility
threatens to push the city into insolvency as early as next month. Los
Angeles City Controller Wendy Greuel warned this week that the city's
general fund could run out of money and fall $10 million into the red by
May 5 unless the Los Angeles Department of Water & Power transfers a
planned $73.5 million payment it has so far said it would withhold.
Without the payment, the city would need to dip into its reserve fund,
leaving that contingency dangerously low in the event of other
emergencies. The Los Angeles utility, the nation's largest municipal
utility, said it wasn't making the payment because the city council
earlier this monthfailed to approve
substantial increases in electricity rates.
Utility officials say they need
those higher rates to help cover the costs of investing in renewable
energy, such as wind and solar, that are mandated by state and
municipal laws. T4:
this illustrates a problem generated by "feel good" legislation without
regard for cost.
04/06/10: Highlights from the just released pro-cyclical
report out of the EIA:
EIA's projections for West Texas Intermediate (WTI) crude oil
spot prices have changed very little over the last five Outlooks
even as spot crude oil prices continue to fluctuate on a daily
basis. EIA expects WTI prices to average above $81 per barrel this
summer, slightly less than $81 per barrel for 2010 as a whole, and
$85 per barrel by the fourth quarter of 2011.
EIA expects the Henry
Hub natural gas spot price to average $4.44 per million Btu (MMBtu)
this year, a $0.49-per-MMBtu increase over the 2009 average,
but a significant downward revision from the $5.17 per MMBtu
projected in last month's Outlook. The price outlook is
lower primarily because of an average 2 billion cubic feet per day (Bcf/d)
upward revision to the 2010 domestic natural gas production
forecast.
The annual average
residential electricity price changes only slightly over the
forecast period, averaging 11.5 cents per kilowatthour (kWh) in both
2009 and 2010 and then rising to 11.7 cents per kWh in 2011.
OECD Petroleum Inventories. EIA
estimates that commercial oil inventories held in the Organization
for Economic Cooperation and Development (OECD) countries stood at
2.67 billion barrels at the end of the first quarter of 2010. This
level is equivalent to about 58 days of forward cover, and
is about 69 million barrels more than the previous 5-year average
for the corresponding time of year. Although OECD oil inventories
are still projected to remain at the upper end of the historical
range over the forecast period, they are falling as a result of
higher oil consumption and OPEC production restraint.
04/05/10: WSJ reports the Energy Department is preparing
to make sweeping revisions to its U.S. natural-gas production data after
finding it has been overstating output, raising new questions about the
government's collection of energy information. The monthly
gas-production data, known as the 914 report, is used by the industry
and analysts as a guide for everything from making capital investments
to predicting future natural-gas prices and stock recommendations. But
the Energy Information Administration, the statistical unit of the
Energy Department, has uncovered a fundamental problem in the way it
collects the data from producers across the country--it surveys only
large producers and extrapolates its findings across the industry. That
means it doesn't reflect swings in production from hundreds of smaller
producers. The EIA plans to change its methodology this month, resulting
in "significant" downward revisions in some areas, according to Gary
Long, the acting director of the 914 form, who led the review.
Sorry for the lost week of data...I attended an
energy auditing refresher at UW-Madison. I'm intrigued by the gap
up in gas prices based on Thursday's storage report. One (holiday)
week's data point does not a trend make. It's refreshing to look
behind the curtains at a behemoth like UWM and see how a goliath
operates. Suffice it to say that we're doing pretty good.
Gotta love those LMP numbers as reported above, eh? Have I
mentioned to anyone that PPL HAS NOT BILLED US
(LP5) SINCE JANUARY! They keep calling to explain and I
keep responding that they had 10 years to prepare! Nice job
boys. And how about the little distribution rate increase kiss?
03/26/10: More data for you to consume...I started a new
row (see above) to track PPL's real-time prices for the new MP1 (old
LP4) rate.
03/23/10: California dreamin'?: PG&E asked the
California Public Utilities Commission (CPUC) for permission to
change its system of residential electric rates next year. PG&E proposes
to replace the 5 tiered rate system with 3 tiers.
Customers in Tier 5 currently
pay almost $0.50 per kWh,
compared to $0.119 for Tier 1 (baseline) usage. Under PG&E's new
proposal, the top rate that
customers would pay -- in Tier 3 would be $0.298 per kWh. In its
new proposal, which would take effect next year, PG&E would make several
other changes in its residential rates: In 2011, the baseline level of
usage in Tier 1 would be reduced from 60% to 55% of average use in each
climate zone. Some customers would see bills increase, while others
would see a reduction in rates at the highest tiers.-- Customers would
pay a flat monthly fee of $3.00 (or $2.40 for CARE customers) to cover
fixed costs of service. The CHEAPEST power in Cali is 11.9
cents/kwhr! And residential rates will top out at 30 cents!!
No wonder people are fleeing in droves!!! Hey, let's not forget
who started the whole deregulation trend.
03/19/10: WSJ reports the U.S. government faces
shortcomings in producing its oil-inventory data, according to internal
Department of Energy documents, casting doubt on figures that affect
the production and prices of the world's most important industrial
commodity. The documents, obtained through a Freedom of Information
Act request, expose several
errors in the Energy Information Agency's weekly oil report,
including one in September that was large enough to cause a jump in oil
prices, and a litany of problems with its data collection, including the
use of ancient technology and out-of-date methodology, that make it
nearly impossible for staff to detect errors. A weak security system
also leaves the data open to being hacked or leaked, the documents show.
Moreover, problems with EIA data underscore the
hazards of depending on companies or other cos to self-report data.
Internal emails and a report from a consulting firm prepared in
September describe a process at the EIA that served the oil world well
in 1983, the first year that oil futures traded, but hasn't kept up as
the inventory data have become more influential and the nation's oil
infrastructure has become more complex. Which is why I haven't
relied on EIA data for years...
03/18/10: Natural gas...how low do we go? Another
bearish storage report this AM with 70F temps through the weekend.
Meanwhile, the producers are tripping over each other to keep the income
flowing. I've delayed any forward procurement yet again as this
market continues to plummet.
03/17/10: AP reports the Saudi oil minister says OPEC
will keep output levels unchanged later today because the market is
enjoying "good demand, reliable supply, beautiful prices." Ali Naimi
spoke ahead of a formal decision by oil ministers of The Organization of
the Petroleum Exporting Countries. He says that in light of the oil
market's current conditions there is no reason to increase or decrease
output.
03/15/10: LOOK AT THOSE CAL11 GAS FUTURES...THIS NUMBER
INCLUDES BASIS. Like I said, under $7 delivered? Party like
it's 1999!
03/11/10: Here's a
lengthy article on the current natural gas market that seems to
reinforce my theory on pricing. I've just begun to solicit quotes
for 80% of my future supply, but this time I'm using 3/6/9/12 month
terms. All of this theory on pricing is moot if the weather throws
a monkey wrench into the Gulf.
03/08/10: If I can switch to LFD and lock down CY11 gas for
$7 @ the burnertip, I'm a happy camper. It's clear that I'll be
under $7 in CY10. Remember, it's actual vs. budget. We put
in for a 0 increase and that makes the Budget Office happy. This
feels like a blowoff bottom week. The futures will NOT sell off as
hard as the spot month contract.
03/05/10: “We’d love to tell you that solar power is as
economic as fossil fuels, but the reality is that it is not,” Lewis Hay
III, FPL’s chairman and chief executive, said on a recent tour of the
plant. “We have got to figure out ways to get costs down. As we saw with
wind power, a lot has to do with scale.” Good
story about challenges faced
by utilities.
03/04/10: NATURAL GAS...Bull, bear, pig time.
We're within a few % of a good buy point. Sooner or later the
geniuses on CNBC will start spewing the H word. (as in hurricane).
I'm still fence sitting with respect to power given how good we're
doing....
03/01/10: T4 is back from Saint Martin. Ugh. But
gas had a good (for us) week...down over 5%! No need for anything
other than propane in the islands for cooking. Power is good old
diesel gensets. Just saw my first LP4 bill...7.7 cents/kwhr.
Heck, that's CHEAPER than before!!!
02/19/10: T4 will be away next week and data updates
will resume on 3/1/10.
02/04/10: Take a look at this
story. Deregulation started in
California and now some out there have had enough! Of course the
utility is pissed! Events are coming full circle. Once we
get a bunch of little munis, then it will be time to reform fully
regulated utilities!
02/01/10: We had a nice little spike in the LMP in January.
Two Arctic blasts will do that to a winter peaking utility. So
what? Prices spiked to their highest when nobody was home on
campus. This cold stuff will be gone in 28 days and thoughts will
soon turn to Spring.
(we talked about this last week)WSJ reports the huge
floating stockpile of crude oil kept on tankers amid a global supply
glut is showing signs of shrinking, as
traders struggle to
make profits from the
once highly lucrative storage
play. The volume being stored at sea has nearly halved from a
peak of about 90 million barrels in April last year, according to
ship broker ICAP, and are expected to fall even further. Some analysts
have seized on the contraction as evidence that world oil balances are
tightening and the surplus that built up during the recession, when
energy demand in industrialized countries plummeted, is eroding. Crude
stocks both onshore and offshore have fallen from their peak in the
second quarter of last year, and
land-based inventories in Japan, U.S. and Europe are now back to the
middle of their five-year range. Analysts expect them to continue
to shrink this year, and J.P. Morgan has even spoken of the risks of
a price spike. But the move to sell stored offshore oil means one
group of energy speculators don't anticipate such a spike in prices
anytime soon. One reason may be that appetite for oil in industrialized
countries, which plummeted during the recession, remains depressed.
Demand in the U.S. shrank 2% in the last four weeks from a year earlier
and supply is still plentiful. Moreover, spare capacity in oil-producing
countries remains high.
(Dr. Doom speaks...)Boston Globe reports Nouriel
Roubini, the New York University professor who anticipated the financial
crisis, said yesterday that the US growth outlook remains "very
dismal.'' Speaking at the World Economic Forum's annual meeting, Roubini
underscored concern that measures to rescue banks and fight the
recession may be withdrawn too soon. Of a Commerce Department report
that showed economic expansion of 5.7% in the fourth quarter, Roubini
said, "I think we are in trouble.'' More than half of the growth was
related to a replenishing of depleted inventories, he said, and
consumption was reliant on monetary and fiscal stimulus. As these forces
ebb, the rate will slow to 1.5% in the second half of 2010, he
predicted. He said that while the world's largest economy would not
relapse into recession, US unemployment will rise from the current 10%
amid mediocre growth. "It's going to feel like a recession even if
technically we're not going to be in a recession,'' he said.
01/28/10: “Isn’t it funny when you walk into an
investment firm, and you see all of the financial advisors watching
CNBC—that gives me the same feeling of confidence I would have if I
walked into the Mayo Clinic or Sloan Kettering and all of the doctors
were watching the TV soap opera General Hospital,” said a bond manager
friend. (from Mad Hedge Fund Trader!) It's entertainment, not
real news. Do you think Goldman Sachs insider trades are reported
there?
"He sees natural gas (UNG) retesting the old lows at $2.40."
See: www.madhedgefundtrader.com
01/26/10: WSJ reports U.S. natural-gas prices, beset by
excess supply, tepid demand and mostly mild weather over the past year,
may be pressured even lower this spring if the winter heating season
ends with an excess of gas in underground storage. Utilities, marketers
and producers of natural gas stockpile the fuel during the fall and
spring when demand for gas for heating and power for cooling is muted.
Gas is typically withdrawn during the winter heating season, which the
Department of Energy defines as the period from Oct. 1 to March 31. But
if moderate temperatures leave an unusually high volume of gas in
storage by the end of March, contractual obligations and physical
constraints could force the companies contracting for storage to send
gas to market, driving prices lower. "The effect on price could be
pretty substantial and would send a very strong signal to the market,"
said Jack Weixel, a director of energy analysis for Bentek Energy.
01/14/10: Reuters reports the top U.S. futures market
regulator moved on Thursday to limit the role of big traders in once
high-flying energy markets, unveiling proposals to put a hard cap on the
size of positions that dealers can hold but offering a limited exemption
for big financial hedgers. The long awaited proposals, part of the Obama
administration's push to overhaul financial markets, will apply to the
four most-traded energy contracts on the two major exchanges. But it
remains to be seen if the limits -- which it said would affect only the
10 biggest position holders if implemented today -- are sufficient to
satisfy lawmakers who have clamored for regulatory action since oil
prices surged to a record $147 in 2008. The Commodity Futures Trading
Commission's proposals, subject to a 90-day period of public comment
before approval, would give it the power to limit big trader positions
based on a percentage of futures and options open interest across all
contract months on both the New York Mercantile Exchange and the
IntercontinentalExchange. While more rigid, the limits did not appear
strenuous compared to the exchange's own guidelines: A CFTC official
said that if the rules were applied today, for example, the limit for
NYMEX crude oil contracts across all months would be 98,100 contracts.
The NYMEX's own so-called "accountability levels", which were frequently
exceeded, is 20,000 contracts across all months.
Reuters reports
Pennsylvania Gov Rendell says to propose natgas wellhead tax that
would become effective July 1. Rendell says natgas industry does not
need to be "nurtured" any longer. Says says natgas co's will seek 5,200
marcellus shale well permits. Hey Ed, maybe you should work on
some of those legacy obligations before taxing every last inch of PA?
01/11/10: So far, the 2010 game plan is going as
expected...now it's Chinese demand goosing oil prices while the gas
bulls get slaughtered by reality. I fear that the unwinding of the
credit crisis has released the good old animal spirits in the
speculators who are once again aiming for that $100/bbl target.
Fortunately we have 0 need for oil and we're in the cash market on gas.
01/05/10: JP Morgan reduces its 2010 gas price assumption to
$4.74/Mcf from $6.50; their long term (2013 and beyond) natural gas
price assumption goes to $6.80 from
$7.50. Firm thinks the re-start of U.S. domestic production growth
and an increase in LNG imports are both supply-related problems.
01/04/10: Happy New Year! And welcome to
deregulation. Yup, the Dec LMP rose a tad...it was (and remains)
cold and PPL is a winter peaker, hence we see some price movement.
But if this is as bad as it gets...?
Natty got whacked last week. All of those bulls can't overcome
the fact that more and more supply is coming on board in the USA.
This AM, Chesapeake (a big driller) announced that production is
expected to rise in 2010 and beyond.
I've grown tired of beating my head against the wall with PPL EU
trying to get details on the hourly pricing service. Looks like I
have to wait for our first bill in mid January to figure it out.
12/28/09: Wow! I'm reminded of "irrational
exhuberance" already! Gas and oil are ramping because the CNBC guy
said it's cold outside! And one Nigerian whacko has already
reignited a war in the Middle East! IMHO, we're back to the usual
"Santa Claus rally". Gas (via the UNG) has become THE hot stock on
the Street. When everyone is pumping...I'd be a little cautious.
Nevertheless, gas is at a very important resistance level. Which
means electric futures are at a very important point. It's really
intriguing to hear that some are cashing out gold and moving back to
commodities.
Take a look at the 6 oil pricing on the MMBTU chart...clearly this
commodity isn't flying out of the tanks.
Slamming 101. I received a notice from PPL EU that one of my
big accounts had been switched. So I call them (PPL) and GOT NO
HELP. Oh you have to call the supplier! Well golly gee whiz,
if I get switched without my approval and you won't intervene, isn't
that a problem???
12/14/09: Defecate or Get Off the John time for natural
gas...
Love the Morning Call's push to make everyone aware that we're 17
days away from the end of regulation. Two whole suppliers offer an
alternative to residentials and maybe two more cherry pickers are
waiting in the wings. Meanwhile, PPL HAS NOT YET RELEASED THE
INFORMATION ON REAL TIME PRICES THAT WAS DUE 11/20/09!
Why didn't Allentown publish the price they're paying for electricity
as part of their new contract? Wouldn't that help with
competition?
12/10/09: Cap and Trade vs. Carbon Tax: (from
madhedgefundtrader) I can tell you right now that cap and trade is
going to win the political battle over a carbon tax, hands down. Don’t
waste a nanosecond of your time even thinking about it. Obama doesn’t
wants to be tarred with pushing yet another new tax, and Wall Street is
gearing up to make a fortune in the new trading vehicle. Europe has
already adopted the system, and a Paris based exchange called Bluenext,
partnered with NYSE Euronext, trades Certified Emission Reduction
credits (CERS’s). Some 4-6 million CER’s trade each day worth $50-$75
million. After peaking last year at €30, CER’s crashed to €7.5 in
February and then bounced to €13.14 today. They are traded in 1,000 unit
lots, and are backed up with far month futures contracts. Check out
their cool website by clicking here.
Morgan Stanley and Goldman Sachs
have already set up trading operations in the instrument. The EC
government grants CER’s to green companies, which then sell them to big
polluters, which must buy them to expand their business. The
true costs are passed on to
consumers. The system contributed to a 3.8% reduction in CO2
emissions in Europe last year. The current world market for carbon
credits is $126 billion, but if the US joins the system, that will jump
by $1 trillion. I was involved in the creation of the Japanese equity
warrant market in the early eighties, and I can tell you from experience
that new, poorly understood markets with spreads wide enough to drive a
truck through are a license to
print money for the early players. Perhaps there is hope after
all for the legions of traders, market makers, brokers and analysts left
unemployed by last year’s collapse.
12/09/09: WSJ reports the head of the co, the biggest
emitter of carbon dioxide in the U.S., said
advances in technology would allow the company to eliminate the
emissions from its coal-fired power plants by 2025. Mike Morris,
chief executive of Ohio-based AEP, said his company's early experience
with a carbon capture and storage project at its Mountaineer power plant
in West Virginia had exceeded expectations. As a result, he
believes AEP will be able to retire 25% of its coal-burning power plants
and install advanced carbon-capture equipment on the remaining 75%. That
optimism represents a significant change for an influential executive
who, in the past, has been skeptical about the industry's ability to
capture and store carbon dioxide, a leading greenhouse gas, in a
cost-effective manner. "This still is an extremely expensive
undertaking, but the answer is near at hand," said Mr. Morris in an
interview.
12/08/09: Well look at this one: Barclays Capital
notes after Monday's close,
Pepco Holdings announced their intention to wind down their retail
supply business, signaling the end of 2009's on-going saga. The
business is expected to remain profitable as the contracts wind down
(~50% of the backlog will roll off by the end of '10, with ~21% of the
backlog remaining at the end of '11). Firm's previous ests incorporated
minimal contributions from retail supply, and as a result its ests and
price target of $17 are unchanged. Firm views Pepco's exit of the
retail business as a longer-term positive for the co and removes one
overhang for the stock. Near-term firm likes the decreasing collateral
requirements and liquidity benefits that will occur as the contracts
roll off. RETAIL COMPETITION JUST ISN'T PROFITABLE FOR WALL
STREET!!!
12/07/09: 1.3 million residential customers in the the
PPL territory and it comes to two alternatives! Direct Energy or
Dominion...to keep your rate increase at 20% instead of 30%. And
Dominion says no more than 35000 customers! Yeah,
competition is alive and well in PA for the residential consumer.
And why are the C&I folks forced to call the used car salesmen (oops, I
mean electric suppliers) to get "quotes"? Why oh why can't these
numbers be publicly posted like prices at the gas station???
Reuters.com reports
oil prices are not reflecting
fundamentals, the United Arab Emirates oil minister said,
while his Qatari counterpart said there will be no output increase at
OPEC's meeting later this month. "It's very interesting because we
are seeing very high stocks, very high inventories on the seas and yet
the price is quite comfortable," UAE Oil Minister Mohammed l-Hamli said,
adding the market was a little oversupplied. Qatar Oil Minister
Abdullah bin Hamad al-Attiyah said OPEC will not change its production
target when the group meets later this month. T4: oil prices ARE
reflecting a weak US $.
11/30/09: That big move in spot natural gas price is due
to TETCO basis moving to its winter level, not a big spike in the price
of the underlying commodity.
11/10/09: WSJ reports the International Energy Agency
said a new global deal to limit
carbon emissions, if reached in coming months,
could sharply curtail the
growth in oil consumption in the years ahead as alternative
energy resources and efficiency measures are tapped. Global crude demand
may grow by justroughly 6 million barrels a day from current levels to a
total of around 91 million barrels a day by 2030 if a major agreement to
cut greenhouse gas emissions is signed and implemented by nations, the
Paris-based agency said in its annual World Energy Outlook. Without any
new climate change deal and developments in nonoil transport technology
like electric vehicles, global oil demand by 2030 is expected rise to
105 million barrels a day, which represents a downward revision of 1
million barrels a day from the IEA's forecast a year ago... The agency
said global oil consumption over the next five years is now expected to
grow to just 88 million barrels a day from current demand of 85 million
barrels a day. The projection is far below the 94 million barrels a day
the IEA forecast a year ago for total demand in 2015. "This [downward
revision] is a result of the financial crisis and demand policies that
developed nations are putting into place," said IEA Chief Economist
Fatih Birol.
11/02/09: Happy Monday! I've decided to change the
LMP reporting somewhat. Instead of "grossing up" the numbers, I'm
just printing straightforward averages. Then you can do the math
from there. The PPL E+ RT vig is due to be reported in less
than 3 weeks.
I wouldn't read too much into the natural gas price upward move on
the $/mmBTU chart. It's simply seasonal adjustment due to higher
TETCO basis.
10/26/09: Take a look at the $/MMBTU chart. See
that anectodal $100/bbl marker line? That's a very powerful
resistance point. The #2 and #4 are getting real close. And
nat gas is getting pounded lower (as predicted) this AM. I think
the action last week is toppy. Sooner or later we're going to get
our budget ducks in a row and this endless $ drop will change direction.
If you want to talk UGI DS negotiation, I'm available online. Lots
more on this to follow in Jan at our meeting.
10/14/09: Chesapeake Energy raised FY09 natural gas
production guidance to 815-825 bcf, up from 805-815 bcf. This
in the face of record storage? There are a lot of mixed signals coming
out of this large producer, but this is interesting: The co
said the industry's cost curve is shifting rapidly and its very
important to understand. Up until five years ago, most E&P companies
in the U.S. owned an asset base that was more or less the same as
everyone else's -- not true anymore and has significant implications!
"Shale haves" will have very low risk F&D costs <$2.00/mcfe for
decades to come (and decreasing over time as efficiencies
increase and shale gas reservoir knowledge improves) while "shale
have-nots" will have F&D costs >$3.00/mcfe and increasing over time
as most drilling will be increased-density, rate-acceleration wells in
existing fields rather than new discoveries. And then they
spill the usual nonsense: while U.S. natural gas prices are
soft today and there are strong indications that market forces will
create a strong natural gas price recovery in 2010 and 2011.
Dramatically reduced rig counts and accelerating decline curves will
lead to sharply lower supply in 2010 and 1H2011. First year U.S.
decline rates are >25%, i.e. >15 bcf/day. The co says, following a
natural lag from completion and well connection work, U.S. natural
gas production is likely to decline by 2-3 bcf/day YOY, or ~4%, by
year-end 2009 and rapidly fall to by 5-6 bcf/day YOY, or ~10% by
early summer 2010. Of course they expect prices to rise!
Their stock options are tied to it!
10/13/09: WSJ reports a new proposal to build a transmission
link to connect the nation's three major electricity grids -- Eastern,
Western and Texas -- is generating interest among energy policy makers
because of its potential to accelerate development of renewable energy.
The project, called the Tres Amigas "superstation," to be built at
Clovis, N.M., would bring a major change to the U.S. electricity
infrastructure by improving connectivity. For example, power produced in
Phoenix at this point can't be shipped to Dallas. The lack of
interconnectivity is becoming a larger problem as the nation adds more
solar and wind energy to its supply. Much of that power is produced in
remote areas and needs to travel to distant population centers, which is
problematic under the current setup. Greater connectivity among the
grids could open up the market for some renewable-energy developments
because the electricity could be sold across a wider region or moved to
where it is most needed.
10/09/09:
Life is tough, but it's tougher when you're stupid.John
WayneSorry, but that's what came to mind when I read some of the lame online
comments to the Morning Call's PPL electric rate increase story.
Sheeple just don't get it. Or how about wfmz.com? The
increase will only be 30%, not 35% as predicted? OMG!
Thanks PPL. We're glad it's not as bad as predicted.
As for the rest of us, please refer to
your PPL LMP graph and note the placement of the POLR (assumed) line.
Pretty close to reality, eh?!
10/06/09: T. Boone Pickens on CNBC says oil will average $80
per barrel next year. Hmmm... Followed by: The EIA
released its monthly short term energy and winter fuels outlook; US
oil demand expected to drop 1.7%
in Q4 compared to year earlier and
natural gas inventories are
expected to set a new record high at the end of this year's
injection season, reaching more than 3.8 trillion cubic feet.
Duh! Yet I'm still amazed how the media pundits rally around UNG
on an expectation of higher gas prices. See banner quote
above...when money has nowhere to go...
10/05/09: Interesting data on natural gas. The
near month price has moved up significantly but the calendar 2010 price
hasn't moved one red cent.
10/03/09: Wow! They just don't get it, do they?
The Morning Call runs a front page piece that might as well have been written
by a marketer. Big users pool together in "HOPE" for better
prices. Um, where does it state that anyone has been successful?
Join the crowd or risk getting run over? What about the whole crux
of the problem? In other words, real time prices? I really
learned a lot from that story! Not. I don't know if its a
conspiracy or what, but just how does the larger group help you when
nobody even looks at your load profile? Is this the way we should
procure a commodity as vital as electricity? Thanks PA Legislature
for your help in repealing this idiotic law. Welcome to the
jungle.
09/21/09: The "fast money" crowd is ready to declare a bottom
in gas and goose the prices higher. Leveraged NG ETFs have surged
to record volumes. Does any of this sound familiar? Does the
name "Amaranth" spring to mind? They tried to corner the gas
market in 2006 and it took them down.
09/10/09:
The Wall
Street Journal reports the International Energy Agency Thursday revised
up its forecast for world oil demand for the third consecutive month,
citing stronger-than-expected economic growth in developing Asian
economies and North America. Global oil demand in both 2009 and 2010 is
now expected to be 500,000 barrels a day higher than the organization's
August estimate, at 84.4 mln barrels a day and 85.7 mln barrels a day
respectively, the IEA said. Despite the increase, projected oil
consumption this year will still be down 2.2%, or 1.9 mln barrels,
compared with last year, reflecting the still weak economy. "Economic
prognoses from the OECD and IMF are being revised higher, while baseline
oil demand in the U.S., China and other Asia appears to be running
stronger than preliminary estimates suggested," the Paris-based
organization said in its monthly report. Crude-oil prices rose almost
$1 to more than $72 a barrel immediately after the release of the IEA
figures, which came hours after OPEC decided to keep its oil output
unchanged at a meeting in Vienna.
09/09/09:
Reuters.com reports OPEC ministers were all but certain to leave output
targets unchanged at a meeting late on Wednesday after the top exporter
Saudi Arabia said there was no need for action. So far, none of the 12
OPEC members has stated any need to cut production as prices above $71 a
barrel and signs of a strengthening world economy have shifted the focus
away from high inventory levels and still sluggish fuel demand. "With
the price ranging between $68 and $73, what else do you want? The price,
everybody likes, consumers and producers," Saudi Arabian Oil
Minister Ali al-Naimi told reporters when asked if OPEC needed to change
its output policy. OPEC could still ask members to comply more closely
to existing output curbs, which would amount to an unofficial supply
cut, although 100 percent discipline is regarded as impossible. In a
statement to the Saudi-owned al-Hayat published on Wednesday, Naimi
made even clearer he did not expect the Organization of the Petroleum
Exporting Countries to cut supply officially. "The Saudi Oil
Minister Ali Al-Naimi expects -- in a statement to al-Hayat in Vienna --
that the OPEC meeting, which takes place this evening in Vienna will not
amend the oil production level," the newspaper said.
09/03/09: Gas..today's
reported 65 BCF injection was on the low end of expectations. The market
appears however to be much more focused on the 3,323 BCF in storage than
on the 2 or 3
BCF miss this week. In the end we are down 17% so far this week and
ended today at the lowest level
since March 2002. Price action this week suggest that whatever
investor enthusiasm was left for nat gas has run out of patience with
that trade. See my 8/06/09 comment!
08/31/09: (Duh)
WSJ reports consumers looking to take advantage of a sharp drop in
U.S. power prices (in
other words, either you're locked into a contract or you're in the big,
bad real-time market)
increasingly are turning to new suppliers. The economic downturn,
combined with a boom in natural-gas output, hasdriven
wholesale electricity prices sharply lower in the past year, inspiring
an increasing number of recession-strapped households to shop around for
cheaper rates."All of a
sudden, we're in a situation where we have competition working," said
Ohio Consumers' Counsel Janine Migden-Ostrander, who represents
residential ratepayers on regulatory matters. To be sure,the
outright number of households switching to retail electricity provider
remains small. In Connecticut, Maryland and Ohio, the overwhelming
majority of people still get power through long-established local
utilities. Shopping for suppliers is much more common among big
commercial and industrial businesses. For now, electricity rates offered
through many utilities are higher than wholesale market conditions would
seem to dictate. Wholesale prices plunged 40% in the first half of the
year in the market that comprises 13 states located in the mid-Atlantic,
Midwest and Southeast regions. On Friday, the benchmark electricity
contract for this region fell $2.06 to settle at $31.38 a megawatt-hour.
Rates offered through the utilities are steadier since they reflect
average prices over several years.
08/25/09:
Interesting op-ed taking the other side of the "peak oil" argument.
Keywords: investor, Simmons. He has an agenda.
08/24/09: We finally broke into
the $2.xx area on natural gas! You're watching history in the
making. The spread between gas & oil is approaching historical
levels. I locked my NT gas at $6.95 and I'm riding the market on
my DS gas (60,000 mcf). My main concern at this point is the UGI
negotiation on my IS meters.
08/12/09:
WSJ reports slack demand for electricity across the U.S. is leading to
some of the sharpest reductions in power prices in recent years,
offering a break for consumers and businesses who just a year ago were
getting crunched by massive electricity bills.On
Friday, the nation's largest wholesale power market serving parts of 13
states east of the Rockies is expected to report that electricity demand
fell 4.4% in the first half of the year. That helped to push down
spot market prices by 40% during the first half of this year. Wholesale
electricity -- power furnished to utilities and other big energy users
-- cost an average of $40 a megawatt hour in the region, down from
$66.40 a year earlier. The price declines in this market, which extends
from Delaware to Michigan, come on top of a 2.7% drop in energy use in
2008 over 2007. The falloff in demand represents a
reversal of what has been
one of the steadiest trends
in business. For decades,
the utility sector could rely on a gradual increase in electricity
demand. In 45 of the past 58 years, year-over-year growth
exceeded 2%. In fact, there only have been five years since 1950 in
which electricity demand has dropped in absolute terms. Butthis
year is shaping up to have the sharpest falloff in more than half a
century,and coming on
top of declines in 2008, could be the first period of consecutive annual
declines since at least 1950.
Dramatic price reductions don't immediately mean lower power bills for
all consumers. That's
because many customers pay prices based on long-term contracts.
But lower prices will have a softening effect over time. (Stocks
mentioned: AEP, SO)
08/06/09: This is the single
biggest $ vs. reality fight on Wall Street today: Natural gas
inventory showed a build of 66 bcf, analysts were expecting a build of
61 bcf, ranging from a build of 54 bcf to a build of 63 bcf. Big
money is chasing the UNG hoping to see it rise...reality says we have
too much gas in storage and nobody is using it.
Let's see what happens:
The Federal Trade Commission today issued a Final Rule that will
prohibit market manipulation in
the petroleum industry. The Rule will prohibit fraud or deceit in
wholesale petroleum markets, and omissions of material information that
are likely to distort petroleum markets. The FTC's approval of the Rule
concludes a proceeding that incorporated several rounds of public
comment. The Final Rule will become
effective on November 4, 2009.
The Commission issued this Rule under the Energy Independence and
Security Act of 2007, pursuant to a provision included by Senator Maria
Cantwell of Washington State. "This
new Rule will allow us to crack down on fraud and manipulation that can
drive up prices at the pump," said FTC Chairman Jon Leibowitz. "We
will police the oil markets
-- and if we find companies that are manipulating the markets, we will
go after them"... Specifically, the Final Rule prohibits any person,
directly or indirectly, in connection with the purchase or sale of crude
oil, gasoline, or petroleum distillates at wholesale, from a) knowingly
engaging in any act, practice, or course of business -- including making
any untrue statement of material fact -- that operates or would operate
as a fraud or deceit upon any person; or b) intentionally failing to
state a material fact that under the circumstances renders a statement
made by such person misleading, provided that such omission distorts or
is likely to distort market conditions for any such product. Anyone
violating the Rule faces civil penalties of up to $1 million per
violation per day, in addition to any relief available to the Commission
under the FTC Act.
08/04/09: Cracks in the armor?
PPL reports Q2 (Jun) earnings of $0.32 per share,$0.08worse
thanthe First
Call consensus of $0.40;
revenues rose 65.0% year/year to $1.67 bln vs the $1.69 bln
consensus. Coreaffirms
guidancefor FY09, sees
EPS of $1.60-1.90 vs. $1.82 consensus. Co loweredguidancefor
FY10, sees EPS of $3.10-3.50 vs. $3.65 consensus. The company had
previously expected 2010 earnings to be at the low end of the prior
forecasted range of $3.60 to $4.20 per share.
08/03/09: Take a look at the
latest
rotary rig count report. This is NOT good for oil price
relief...
How about that divergence between gas
and oil?! I can't remember seeing anything like this for this long
in many moons. I still believe the entire world is watching and
waiting for that flat line (ie gas futures) to move one way or the
other...it's an important tell, but a watched pot won't boil!
Patience.
07/31/09: Important blurb from
refiner:
Oppenheimer notes that Valero senior mgmt yesterday held a dinner
meeting with 10 analysts in NYC, which was very informative, but
unfortunately painted a grim
picture for the state of the refining industry, especially in the
US, where demand may have peaked and excess capacity is likely to be
exacerbated by the start-up of Marathon's $4.5 bln ungraded refinery.
Given the weak demand due to rising unemployment and rising gasoline
inventories, the firm believes that high
gasoline margins are caused by financial speculators, not strong market
fundamentals. In addition, the firm believes that only a strong
economic rebound to boost weak demand can restore the industry's
financial health. The firm also notes that VLO expects losses in the
next two quarters.
NT GAS NEWS: I
have 3 quotes for the NT accounts and Hess is low at $7/mcf average for
1 year forward...
Important blurb about
PECO/Exelon:
Chicago Tribune reports coming up empty in three consecutive buyout
attempts won't stop John Rowe from trying again, the Exelon Corp. chief
executive promised. "My own investors want me to say on a Bible that I
won't look for a while," Rowe said. But he won't take the pledge: "We'll
keep looking for something we can do," he said. "The
industry needs consolidation." Meeting with the Chicago Tribune
editorial board, Rowe defended his decision to go hostile in the recent
bid for NRG Energy Inc., which he abandoned July 21 after losing a
shareholder vote... The failed takeover attempt, following previous
unsuccessful runs at Illinois Power and Public Service Enterprise Group,
has left Exelon with iffy growth prospects. "We're not stuck with no
growth," Rowe said. "We're stuck with uncertain growth."
The utility company could
benefit dramatically from favorable market forces, such as higher power
prices. A rally in natural gas prices also would help by raising costs
for competitors. And eventually, Rowe said, the low carbon
footprint of Exelon's nuclear fleet will pay big dividends. Absent an
acquisition, however, the growth opportunities under Rowe's control are
relatively small.
Remember, what's good for the utility is bad for consumers...
07/30/09:
FT reports the FSA has called a special meeting with major oil
companies, banks, hedge funds and oil brokers to review regulation in
the oil and commodity market. The meeting, scheduled for August 5, comes
as US regulators have said that they intend to clamp down on financial
flows into the oil and other commodities markets. The Commodity Futures
Trading Commission is currently holding hearings about possible changes
to position limits. The meeting organized by the FSA
follows an episode of rogue
trading earlier this month at PVM, the London-based oil
brokerage, which triggered
losses of $10 mln for the company and pushed oil prices to their highest
level this year at $73.50 a barrel. Industryexecutives
said the London meeting was unlikely to result in significant new
initiatives, but added that the gathering would discuss "whether the
current arrangements [in the oil market] remain appropriate". They
said the FSA appeared to be taking a "proactive" role following scrutiny
in the US about the role of investors in oil and other commodities
prices. The FSA confirmed the meeting, describing it as part of its
"regular process of engagement with market participants in these
markets". It added: "The FSA, HM Treasury and representatives from the
oil industry (banks, oil producers, brokers and hedge funds) will be
meeting next week to discuss market efficiency and transparency."
It's just business,
right?
PennyMac Mortgage Investment Trust (PMT), which buys distressed home
loans and is run by several former Countrywide Financial executives,
prices its 16 mln share (down from 20 mln shares) IPO at $20. PMT is a
newly-formed specialty finance company (REIT) that will invest primarily
in residential mortgage loans, a substantial portion of which may be
distressed and acquired at discounts to their unpaid principal balances.
07/28/09:
WSJ reports the CFTC plans to issue a report next month
suggesting speculators played a
significant role in driving wild swings in oil prices -- a
reversal of an earlier CFTC position that augurs intensifying scrutiny
on investors. In a contentious report last year, the main U.S.
futures-market regulator pinned oil-price swings primarily on supply and
demand. But that analysis was based on "deeply flawed data," Bart
Chilton, one of four CFTC commissioners, said in an interview Monday.
The CFTC's new review, due to be released in August, adds fuel to a
growing debate over financial investors who bet on the direction of
commodities prices by buying contracts tied to indexes. These
speculators have invested hundreds of billions of dollars in contracts
that were once dominated by producers and consumers who sought to hedge
against oil-market volatility. The review also reflects shifting
political winds. Under Chairman Gary Gensler, appointed by President
Barack Obama, the CFTC is departing from the more hands-off approach it
took under its previous head, a George W. Bush appointee.The
agency is widely expected to adopt new rules to limit the amount of
investments in commodities by big institutions betting on their
direction purely for financial gain.
07/27/09: Slow news weekend for
the Morning Call? Let's start with the point/counterpoint
op-ed...using Pittsburgh as an example is the end of the
opinion...ever hear of the term "congestion"? And let's face
reality...we aren't shopping for power...we're shopping for a
counterparty who is hedging their risk (ie. bet) with your money.
If we were really shopping for power, we'd be knocking on the door of
PPL at Martins Creek, or Susquehanna, or Brunner Island, or Montour.
Nice to finally see a politician espouse the fact that PPL generates for
less than 2 cents/kwhr...though he's not using the true cost of system
production over one year, which is a little higher. At least
someone is finally laying out the facts.
And how about the full page SEF ad?!
This could be summed up as: Wah, wah, wah...they're cutting us out
of the loop...(note stomping feet)...we've been playing this game since
1996 and we don't want to go away. This is what happens when
legacy money gets caught up in a bureaucracy. You can't blame
PPL...they don't write the laws...it's the PA Legislature, stupid!
Head Fake (defined)...the action
in the oil market! The price broke the 50 day MA and looked to be
coming down...and WHAM! I guess this is somewhat of a bad
news/good news story since the price is speculatively inflated on the
back of expected good economic news...remember, markets are a
forward-looking discount mechanism.
Cash
for clunkers <--- everything you need to know. Click thru to
the links. My 97 Taurus didn't make the cut! 21mpg vs. 18 to
get the deal.
07/20/09: Well that didn't
last long, did it?! The fuel markets seem to be following the Wall
Street "recovery is just around the corner" band. Fundamentals
haven't changed, but good economic news lifts everything equally.
Except gas! We're pushing the limits of storage.
07/09/09: Pretty powerful
break of the 50 day moving average on oil prices! The techies will
tell you that it looks like a head & shoulders top. Could it be
some tough talk out of DC scaring the speculators? Or has Goldman
left the trade??? If they upgrade oil and/or the drillers then you
know why!
Remember what I said about Canadian gas
at our meeting?
Exxon Mobil unveils big Canadian natural gas field - WSJ
07/03/09: Anybody see this
story?
There is a lot of bad blood between the munis and PPL, hence the
deal with AEP. But we learn two things...Morgan Stanley
will write paper thru 2015 and the average cost increase already
realized is 60%. Can you see why the Lisa Boscola plan
and/or rate caps are politically difficult? These folks could be
stuck with above-market rates for years! The reason some pay
higher numbers is LP4 v. LP5. Hey Perkasie! Did anyone stop
and ask why your rates are higher today and will DECREASE in the
extended years?
06/29/09: FBR Capital
believes that the Waxman-Markey climate change bill, which the House
passed ion Friday, is likely to become law in 1H10, which should be
viewed as favorable to low-emissions nuclear and renewable generation,
transmission construction, and energy-efficiency technologies. They
believe the bill is negative for oil refiners and poses a longer-term
risk for coal and electricity demand. Higher gasoline prices also tend
to favor more fuel-efficient foreign automobile manufacturers over U.S.
competitors. They note under the bill, greenhouse gas emissions
allowances are projected to cost
$13 per metric ton CO2 equivalent (MtCO2e) in '15 and between $16
and $28/tCO2e in '20. They note
the bill seeks to reduce U.S. GHG emissions 17% below '05 levels by '20
and 83% below '05 levels by '50, using a market-based approach
that establishes an absolute cap on the emissions from certain large
entities known as "covered sources." They note GHG emitters will be
required to hold permits.
06/23/09: "Fear fades
when facts are faced."- Frank Tyger
06/18/09: (Good for Wall Street
/ Bad for us) Yesterday, Exelon announced it was awarded 17
month and 29 month residential full requirements contracts in PECO
Energy's default service procurement for approximately $100-$102/MWh,
which was above expectations. Barclays said the results are a
positive for Exelon and also Allegheny Energy and PPL Corp who have
auctions in Pennsylvania. This is ridiculous since Exelon is
a huge nuclear player. Gee, think someone other than the embedded
supplier would win? Competition has failed! Competition has
failed! Competition has failed!
06/17/09: The Wall Street
Journal reports four power companies are expected to split $18.5 bln in
federal financing to build the next generation of nuclear reactors.UniStar
Nuclear Energy, NRG Energy (NRG), Scana (SCG) and Southern Co. (SO) are
expected to share a set of loan guarantees to be awarded by the Energy
Dept.The guarantees would enable the companies to start building the
reactors as early as 2011, with the plants likely to come online by 2015
or 2016. The four companies have already selected sites for their
reactors and are at the front of the pack to receive licenses to build
and operate them from the Nuclear Regulatory Commission. The government
has yet to formally announce its picks, but interviews with Energy
Department and NRC staff members, as well as officials at energy
companies and reactor vendors, have identified the likely winners.
Seventeen companies applied for $122 bln of federal loan guarantees for
21 proposed reactors. In creating their short list, federal officials
sought companies with strong development teams and plans that could be
implemented quickly. They also wanted a mix of traditional utilities (Scana
and Southern) and newer "merchant" generators (NRG, UniStar) that sell
electricity at unregulated prices.
House
Republicans introduced energy
legislation calling for a hundred new nuclear power plants to be built
in the next two decades. The bill would not set mandatory
targets for reducing greenhouse gas emissions or for producing
electricity from renewable sources.
06/12/09: Reuters reports
oil demand is still shrinking as the world economy contracts, OPEC said
on Friday, but the worst appears to be over for the oil market and
stocks should be moving back toward more normal levels by the end of the
year. OPEC cut again its forecast for world oil consumption this year,
seeing a year-on-year fall of 1.62 mln barrels per day to 83.8 mln bpd,
and it said its own output rose slightly in May.
"The worst appears to be behind
us," OPEC said in its Monthly Oil Market Report. "Inventories
appear to have peaked," it said, adding that seasonal demand should
support a gradual decline in oil stocks, which have been near record
levels. OPEC said its oil output, excluding Iraq, rose to 25.90 mln bpd
in May, up from 25.78 mln bpd in April. The market is a
discounting mechanism...it told you this stuff months ago...
06/11/09: (A source rarely, if
ever correct) Earlier today, the IEA raised its demand
forecast for the first time since August of last year as the agency
believes the recession is starting to bottom out. Forecast global oil
demand is adjusted up 120 kb/d for 2009 following stronger-than-expected
1Q09 OECD data. Global oil demand is projected at 83.3 mb/d, -2.9% or
-2.5 mb/d compared with 2008.
Forecast global 2Q09 crude runs are raised 0.2 mb/d to 71.3 mb/d, as a
result of higher April preliminary data in OECD countries, reports of
high crude runs in China
and marginally stronger global demand. But 3Q09 crude runs are forecast
at 72.8 mb/d, representing an annual decline of 1.2 mb/d... July crude
oil ($72.03 +$0.70) used this report and some modest weakness in the
dollar to trade to its best levels at $72.30 in electronic trade this
morning. It has pulled back from its highs but remains around the $72
mark. All in all, that's not a huge global cut in demand. And
with oil priced at the margin, I'm still concerned with how fragile this
market remains.
06/01/09: Take a look at
the the $/mmBTU chart. Oil clearly above resistance, but look at
those natural gas numbers! No oomph whatsoever. Fundamentals
matter.
05/26/09: Spoiler Alert!
Take a look at the winter gas prices...the spot market is in the
toilet, but TETCO basis is quietly moving higher. In other words,
the locks we did are looking pretty good. The short term price has
broken below the moving average, which is bearish...I can't see how the
$2 gas story will gain traction. I think it's more likely that
we're in a bottoming mode whereby prices actually flatten...this is good
for us, good for power, bad for producers.
05/18/09: Wow! Bad for
Wall Street / Good for Main Street:
Credit Suisse discusses the regulated utilities and power companies,
noting that after some confusion with an early, incorrect issuance, PJM
posted results for the '12 / '13 capacity auction (RPM) with a big
disappointment for the Western RTO zone ($16.46 /MW day vs $110.00 for
11/12 and a whisper of $90-120) and modest positives for some
constrained areas. They say the drop in RTO capacity prices appears to
reflect administrative changes to the 12/13 auction that they still need
to better understand and in total had a big impact on the calculated
reserve margins that set capacity prices along the RPM pricing curve.
T4: disappointment for the Street = good news for the consumer.
These are huge numbers. We're being played...
05/14/09: The Wall Street
Journal reports the International Energy Agency Thursday said the
steep fall in global oil
consumption may be nearing its trough, but cautioned that any
recovery in demand for crude oil is still many months away and will be
sluggish. In its widely watched monthly oil report, the agency made a
relatively small downward revision of 200,000 barrels a day to its
outlook for 2009 global oil demand -- and half of that was driven by
changes to historical data. "We do expect a tapering off in the demand
contraction, but we are still left with a very big drop in demand and,
in our view, recovery really doesn't start to take root until 2010,"
said David Fyfe, editor of the report. World demand for crude oil this
year is expected to contract by 2.6 mln barrels a day, or 3%, to 83.2
million barrels a day, said the IEA, which acts as an adviser to the
world's biggest energy consuming nations, including the U.S.
The IEA's demand forecast would
represent the biggest contraction in around 25 years and is among the
most pessimistic in the industry.T4: the IEA
track record is horrible.
05/11/09: Bad. Soleil
upgrades PPL to Buy from Hold and raises their tgt to $43 from $32 as PA regulation is now looking more favorable and the stock
is a deregulated play on rapidly rising forward power prices.
(Remember, electricity is fuel at the margin and that fuel is gas).
05/08/09: Nailed it!
Energy commodities continued their recent strong performance this
session. Natural gas rose significantly and closed at $4.29 per
contract, up 4.7%. The natural gas contracts have ended the session
higher everyday so far this month; they are now up over 27% over that
time period. See my earlier comments!!! UNG rocking!!!
Thanks Morning Call! Once again, you are the ultimate contrarian
indicator.
05/04/09: I'm real close to
calling the bottom in natural gas...it's funny how some analysts are
so lost in their numbers world that they can't see the basics behind
some industries. For example, there is another pundit by the name
of Schork who prints how natural gas is the only fundamentally rational
market out there. Well Stephen, that's nice, but how does it help
your readers? Do you not lock oil because it's irrational?
Or do you ignore the gas bottom?
Here's from Chesapeake's conference
call: Co believes North American gas production will be in
freefall in the Winter 2009, which should set the stage for a turnaround
in gas prices. Co says it was
too high at $13 last year and $3.50 is too low now. Thinks
rebound will overshoot on the upside, just as it has overshot on the
downside. Says they will be
prepared to hedge 2-3 years into this price strength... It makes
sense to curtail volumes at current prices. Co says operating drilling
rigs are down 40% from peak operations in Aug of '08... Co says it has
built up gas pipeline inventories due to ramped up production last yr...
Co says it realized hedging gains in Q1 of $519 mln all from Jan-March
contracts, and unrealized mark-to-market gains of $700 mln; co will have
added $930 mln to the rev stream in FY09 vs if they left their original
hedging positions unchanged. Co
has 60-65% of FY10 hedging volumes in 1H10... Co is purchasing acreage
at values that are extremely valuable... Co says it appears the economy
is in the process of bottoming, thinks it will settle by 1Q10, 2010 will
be a lot better than 2009...
T4 Reminder: Our goal is to do
the opposite of Chesapeake! Our goal is to hedge NOW, at low
levels.
Anybody else sit through that webinar
that wasn't yesterday? How can a large Fortune 500 ute like PPL
look so lame? I guess it goes hand-in-hand with a response they
submitted to one of my questions: can you model the real time
electric market using current data? Nope. Can't do it.
That is very scary.
04/22/09: You heard it here
first...I'm beginning to wonder if OPEC has one more cut up their
sleeves? I think they want to see $60-$75/bbl prices...and it
would actually help long-term with exploration & production...today's
numbers seem to indicate that we're still swimming in crude oil...good
for short term prices, but bad for the recovery effort.
Before someone tries
to sell you on solar, think about this:
Exelon (EXC) and SPWRA announced an agreement to develop the
nation's largest urban solar
power plant at a former industrial site on Chicago's South Side. The
10-megawatt solar
photovoltaic facility is scheduled for completion by the end of this
year. The $60 mln project
is contingent upon Exelon receiving a federal loan guarantee under the
recently passed federal stimulus legislation formally known as the
American Recovery and Reinvestment Act, which includes provisions for
investment in green jobs and emissions reduction. Exelon is seeking a
loan guarantee for up to 80% of the project cost from the U.S.
Department of Energy Loan Guarantee Program Office. FWIW, Lehigh
is a 15MW peaker.
04/21/09: The US stock market
is bipolar:
Reuters.com reports the Treasury still has about $134.6 billion
available in its coffers from last fall's bank bailout package and that
should be enough for it to avoid asking Congress for more money,
Treasury Secretary Timothy Geithner said on. "We have the resources to
move forward implementing all aspects of our Financial Stability Plan,"
Geithner said in a letter to the panel overseeing the bailout. Geithner
said there was still about $109.6 billion available from the $700
billion rescue package passed last year and expects to get at least an
additional $25 billion back, bringing the total to $134.6 billion.
You don't sell off in the face of good news...you can lock down your oil
& gas cost for the next 12-24 months at 6-year lows...stress test
results are due soon...stabilization = a win.
04/16/09: Here we go:
Chesapeake announced it has elected to curtail approximately 400 million
cubic feet (mmcf) per day of its gross natural gas production due to
continued low wellhead prices. The reduction includes the 200 mmcf per
day curtailment of natural gas production previously announced on March
2, 2009. Chesapeake has resumed 7,000 barrels per day of oil production
from previously curtailed oil wells. The company's 400 mmcf per day
curtailment represents approximately 13% of Chesapeake's current gross
operated natural gas production capacity.
The American version of OPEC! You knew it was coming. Now
watch and see what a storm will do to prices...
04/13/09: Anecdotally
speaking, when the Morning Call finally prints a story noting low
natural gas prices, as they did this past weekend, then it's usually
close to a bottom. Two weeks to hurricane season...
There is a lot of pain in the biodiesel
world...Forbes is running a story in their latest issue about folks who
are heavily invested in turning $2.70 soybean oil into $1.50
diesel...anybody notice the bankruptcy filing for Aventine? They
were an early player in the ethanol world. It's all about politics
and subsidies.
04/09/09: As good as it gets?
Natural gas is trading at 6 YEAR LOWS today! Storage is above the
5-yr average. Yet I just did a check on Jan/Feb 2010 to see if
there were savings if sold my winter oil...NADA! Winter numbers
remain strong and there are no discounts on basis. A speculator
might go long something like the UNG on the expectation that a Gulf
hurricane would spike near term prices. Might...
Here's another
look at biodiesel,
one year after the oil price peak.
04/08/09: Comment from
today's NY Times about a town who bought muni bonds from an investment
bank:
“We decided we needed advice from someone who was not trying to sell us
something,” Mayor Linda Elam said.
A little reminder from T4 about the firewall between consultants and
sales.
I like this
approach to the carbon tax problem. I tend to agree that "cap
& trade" is a messy derivative. Tom Friedman seems to be the only
sane guy writing a national column on this issue.
I often debate whether or not to publish
commentary from Matt Simmons, the peak oil theorist. Nevertheless,
here is a blurb from an investment
site. There are key points such as "price is set at the
margin" and Mexico's output is declining. I tend to think along
the lines of "short term optimist, long term scared".
04/3/09: Before you start
popping champagne corks over PPL's latest rate increase projection of
"only" 30% for 2010, let's remember that the RS and GS rates in 2010 are
blended from six separate solicitations...natural gas prices are near
historically low levels right now and this is keeping a lid on prices.
For 2010...
03/26/09:
WSJ
reports the slowdown in investment in oil and gas production could lop
off nearly eight million barrels a day of future oil supply growth,
setting the stage for another big crude price surge in years to come,
according to a new study. The global credit crisis and falling oil
prices have squeezed oil companies' finances and forced many to
cut capital spending and postpone projects. That could have big
implications for supply when the global recession ends and demand for
energy recovers, the report by Cambridge Energy Research
Associates says. CERA projected last summer, before the economic crisis
set in, that world oil production capacity would rise to 109 million
barrels a day by 2014 from the current 94.5 million barrels a day. It
now says 7.6 million barrels a day -- or slightly more than half
of that increase -- is "at risk" due to project deferrals or
cancellations. The report says that reduction in capacity is a
"potentially powerful and long-lasting aftershock" following the
oil-price slide of 2008, when within a few months crude fell from a
record high of $147 a barrel. T4 concurs...I've mentioned this
a few times in the past...
03/25/09: FWIW, we stumbled
upon an alternate supplier of "B-tane", the waste oil alternative to
diesel...Nick Borrelli, Darling International, 972-717-5520.
They're based in Newark and currently quote $1.50/gallon.
03/24/09: While the talking
heads blather on about climate neutrality, carbon offsets, and stimulus,
here is where the engineers are
focusing. I repeat once again...UGI is the single
greatest impediment to cost savings and carbon reduction in the Lehigh
Valley. If we had master billing statements at NYMEX + delivery
(like some of have from the good old days), then we'd get rid of all
heating oil and convert everything to high efficiency gas boilers.
Here's another tidbit courtesy of Dan
Holohan...small
wind turbines in the UK...Turns out you actually need wind to make a
wind turbine turn, regardless of size! And nearby buildings have a
way of blocking the wind! Who knew?!
03/23/09: Blink and you
missed it! Note the impressive move off the bottom for #6 oil.
And gas turned on a dime after it hit $3.xx. I've seen this type
of action before (latest was Sep 06) and it usually marks a short term
bottom.
03/16/09: Draw your own
conclusions: OPEC did not make additional cuts in Vienna. So
the traders (short term brain) immediately force down the price of crude
on the assumption that inventory will rise. But what if OPEC
recognizes the huge lag time from well shutdown to restart and is trying
to prevent another "superspike"?
Saudi Arabia's oil minister said Monday that petroleum-producing
countries need a price of at least $60 a barrel to bring more energy
resources on the market. Plus there are rumblings that Russia will
soon join OPEC. Stay tuned!
Conflicting
stories on the PPL front.There is a story in Harrisburg
that House Democratic
leaders are introducing a bill that would prevent
power companies from raising rates more than 15 percent per year on
homeowners and small businesses after the caps expire. Of course,
this doesn't help those of us with LP4 and LP5 accounts, but it's on the
radar. And on Wall Street, analysts seem to be focusing on
"cap&trade" and the potential effects on earnings power. So I
dunno...maybe it's an attack on two fronts?
Here's
another
story from my "beating a dead horse" folder. Moody's, S&P,
Fitch, D&B, et al. They're complicit in this mess. As the
author points out, their revenue is derived from the very bonds they
rate. This reminds me of the old real estate appraiser/bank
relationship.
03/13/09: As if we didn't
have enough stuff to think about, here is the
annual commentary from China. In
Wall Street terms, they're kind of like a senior subordinate debt holder
of USA Inc. Their actions could affect the bond market, which
affects the value of the $, which affects our energy prices.
Yikes! Another brick in the wall...
03/09/09: Crude
oil ($47.54 +$2.02) is rallying today, with session highs at $48.54, and
is once again in striking
distance of the $50 mark. Today's move to the upside, which has
put crude back at levels last seen in late Jan (when it was headed in
the opposite direction), is being partially fueled by speculation that
OPEC will once again slash output when it meets in Vienna on March 15.
Estimates currently range anywhere between a cut of 500K-1000K bdp. As
the week progresses, expect more OPEC members to opine about what they
believe is necessary to help stabilize the market. However, while some,
if not most, of this commentary will make headlines, very few other than
Saudi Arabia (OPEC's largest producer) will make much difference.
If only we could
store natural gas! But this is what happens to the price when
demand disappears.
Fascinating read: The Ascent of
Money by Niall Ferguson. We're but a blip on the 400+ years of
stock bubbles/collapses...
03/07/09: I'm postulating
that the recent crude oil price rise is partially due to the Chinese
stimulus plan ($586B) that was recently announced. It's probably
why crude is rising in the face of low natural gas and heating oil
prices. The market seems to be pricing in increased global demand
with reduced supplies. Let's not forget that there is another OPEC
meeting on 3/15...if they cut again, then $60/bbl will probably be the
next stop. Of course, this might be the last cut...unless we can't
get this bank crisis resolved. $2.5T IS a lot of money and with
another 15% cut in housing prices expected, this number will probably
end up at $3 trillion. Yikes!
03/06/09: Deja vu:
WSJ reports a large participant has emerged in the oil market in recent
months, controlling nearly a fifth of the most-active oil-futures
contracts, and roiling trading in the market. The exchange-traded fund
U.S. Oil Fund LP has expanded from a $7 million ETF just three years ago
to $3.8 billion, drawing the attention of regulators and making it
harder for the fund to keep up with oil prices. U.S. Oil's size has
prevented it from tracking the price of oil. While crude has lost 2.2%
in 2009, the fund has declined 20%. The fund is designed to track oil's
daily percentage move. Since the fund is so big, it is unable to switch
in and out of contracts, a process known as "rolling," without moving
markets and giving speculators an opportunity to make bets on those
moves. It is adding to the costs of U.S. Oil's roll and raising concerns
among regulators that
traders may be manipulating prices.
03/05/09: The Street has
not reacted kindly to being told that all is well in the land of PPL.
Stock crossed under $24 this AM....that's down from a high of $54 not
that long ago...yes, it's a bear market...but if the earnings stream and
dividend are secure, then why are they getting hammered?
03/02/09: PPL went ahead
and chucked a finger at the Street by raising their dividend while
cutting heads! It's a poker game where they just raised their bet
that deregulation cannot be stopped...(see 2/20 comment below).
Could the oil traders be gambling that
the economy recovers somewhat by 2010? Everybody from OPEC on down
through the local gas drillers are cutting production...it's not as if
we have tons of spare capacity sitting out there...one big storm and
we're off to the races.
02/23/09:
The AFP reports that Algeria's minister for energy and mines said on
Sunday that Opec will probably decide on more cutbacks in oil production
in a bid to prevent further price drops, Algeria's APS news agency
reported. 'It is very likely that Opec will decide on March 15 to reduce
production again to stabilise prices that are going down,' said Chakib
Khelil, referring to the oil cartel's next meeting in Vienna, according
to APS. The minister said the Organisation of Petroleum Exporting
Countries' decision to reduce production by 4.4 million barrels per day
in September had prevented oil prices from plummeting even further. 'If
Opec had not taken the decision to reduce in September, October and
December, we would not be at 40 dollars a barrel (bpd), but probably at
20 dollars,' he said. Mr Khelil
warned that very low oil prices could shrink investment in the sector,
creating an insufficient supply to meet demand when it picks up in the
next two to three years.(see
2/10/09 comment below).
02/20/09: Stimulus Update (via
IDEA): IDEA was actively advocating for appropriation of $1.5
Billion for Section 471 of the
Energy Independence and Security Act of 2007 (EISA) for funding
district energy/CHP projects in the American Recovery and Reinvestment
Act (‘The Stimulus Bill”).
On Wednesday, Feb 11, we were quite
disappointed to learn the Section 471 provision was apparently zeroed
out during overnight conference committee negotiations, even though the
Section 471 language was approved in both the House and the Senate
versions of the Stimulus Bill. It is rare for a provision with support
in both houses to be impacted during conference, but this was a unique
bill with many competing interests and an urgent timetable. Attendees at
the Wednesday luncheon at the Campus Conference, after learning of this
status change, initiated hundreds of phone calls to their
Representatives and Senators seeking support for Section 471.
(T4-real subtle.)
IDEA remains committed to finding
support for the dozens of “shovel-ready projects” that can create
quality jobs, reduce energy costs, cut greenhouse gas emissions and
transform American energy infrastructure – the primary objectives of the
Stimulus Bill. The district energy industry is poised and ready to help
stimulate economic recovery across the country. IDEA will be seeking
incremental funding through DOE and will keep members posted as we
advance our interests in Washington DC in the weeks ahead.
T4 politically incorrect comment:
a whole world of good could be accomplished if we got rid of negotiated
delivery rates for natural gas with UGI, aggregated all campus meters,
put an end to deregulation by agreeing to cap our electrical
consumption/demand, and upgraded heating oil boilers/furnaces with high
efficiency gas units. Shovel ready indeed. Then maybe UGI
and PPL could change their focus from profits and try working on things
like service upgrades, right-of-way maintenance, and gas leaks.
When was the last time UGI came around and offered to upgrade your mains
to prevent low pressure trips in winter? Or PPL offered a second,
alternate, back-up feeder to ensure reliability? But hey, those
items aren't "green"...but they would create jobs and ultimately improve
efficiency. Think about it...if Lehigh, for example, concentrated
all critical research in one building, and I knew how much gas would
cost us for delivery, we could initiate the opposite of "snow days" in
summer when power is scarce (and costly), close campus, and run a
generator on NG to get through the peak. Sacrifice? Yes.
But then we wouldn't be at the mercy of exponential power price hikes
and we could draw natural gas when the system is barely used.
Uh-oh...PPL is
showing up all over the place on lists of companies whose dividend is in
trouble due to levered cash flow problems...as you were warned, their
price is based on EXPECTATIONS of 2010. Want to see a political
battle? If Wall Street senses that deregulation is at risk, this
stock will crash 50% AND the divy is gone. On the other hand, that
dividend going to the shareholders comes out of our pockets.
Contango 101: March oil futures contracts expired and
the spread between the March and April contracts contracted to a normal
level after seeing a big spread over the past week. Notably, the spread
between the front month and year-out contracts has narrowed as well,
diminishing the magnitude of the recent phenomenon that some had been
calling "super contango." We know that spot mkt oil prices
have plunged, but the futures for oil delivery a year out were trading
$20 higher earlier this month. Now, the spread has settled back down to
~$12, which represents a more reasonable level. This situation of higher
future prices relative to spot (current) prices is referred to as "contango"
in the futures markets. To a certain extent, contango is a normal
condition in the commodity markets because one has to account for the
price of interest foregone and storage costs (i.e. if you buy a barrel
of oil today and want to hold it for a year, you will have to pay
storage costs). However, the situation in the crude oil markets earlier
this month is being referred to by some as "super contango," where the
prices for forward prices are much higher than what they are for current
contracts... Looking at the current situation for crude oil, front month
(Mar) crude oil future prices are at ~$39, while prices a year out (Feb
2010) are now at ~$51. The current price difference between the front
month contract and the future contract is estimated to be more inline
with carrying costs (roughly $1 per barrel/per month) than it was
previously. The extreme spread seen within the past month promoted
hoarding, as there was an incentive to buy the front month contract and
selling the contract a year out and storing the oil with plans to
deliver it once the contract comes due. As a result, companies are
storing oil in storage tanks, underground pipelines and even offshore on
oil tankers (this type of arbitrage is not available to just anyone, it
is only available to the large majors or an investor with a large amount
of capital). That helped push day rates on tankers higher as more and
more tankers have been used to store the oil offshore to offset some of
the pricing pressure because of the reduced transportation demand due to
a global recession. Most believe that the higher degree of oil contango
resulted from some combination of: a supply glut in the current time
period, the increased cost of financing into the future and investor
expectations that demand will contract soon... The March 2009 contract,
which expires tomorrow, is currently at ~$39, the April 2009 contract
(which will become the new front month contract) is currently at ~$40.
The February 2010 contract is at ~$51 and the March 2010 contract is at
~$52.
Ya gotta love this
quote: "Capitalism is like a fast sports car...regulation is
like the brakes and steering." What we're seeing is an
out-of-control car skidding on the ice...the big question is whether we
total the car or fix the problems.
02/19/09: A politician finally
sees the light:
WSJ reports a Republican California state legislator on Thursday morning
backed a plan to close the
state's $42 billion budget deficit through steep cuts and new taxes.
If other legislators vote as expected, he would provide the final vote
needed to approve the budget, signaling the end of a 15-week partisan
conflict that has battered an already-crippled state economy. State Sen.
Abel Maldonado, who had voted against the budget Wednesday morning,
changed his vote to an "aye" on the plan after state leaders met his
demands that certain state-government reforms be added to the proposal
and that the plan be stripped of a gas-tax increase. The budget was
headed toward passage early Thursday morning, as the legislature began
approving some of the 30 bills that make up the proposal.
Hey, where are the tax cuts? Now let's move on to the bank
problem...
02/11/09:
WSJ reports the International Energy Agency lopped 570,000 barrels a day
off its 2009 world oil consumption forecast due to frail global economic
activity and warned that trade protectionism could further dent energy
consumption. In its latest downward demand revision, the IEA forecast
world oil consumption to slow to 84.7 million barrels a day,
representing a drop of one million barrels a day, or 1.1%, from 2008 and
the biggest annual drop in 27 years Economic recession in the U.S. and
many other developed nations is expected to rollback world oil
consumption to 2006 levels, the agency said in its widely watched
monthly oil market report. In another sign of how weak demand is, total
crude oil consumption in the U.S., the world's biggest consumer, is
expected to fall to 1998 levels. U.S. consumption is projected at 19
million barrels a day, a 2.9% drop from last year when demand fell by
more than 5%. "We seem to be on a downward escalator we can't get off
of. Until we see a bottoming out and a degree of stability on the
financial and economic side, energy market weakness is going be with us
for some time," said David Fyfe, editor of the IEA report.
02/10/09: Better them than
you...NY
Times reports that PSE&G (NJ Ute) said it would unveil a five-year,
one-of-a-kind plan on Tuesday to install solar panels on 200,000 utility
poles in its service territory. The project, which the utility must
first present to state regulators for approval, would also include
putting solar panels on schools and municipal buildings, low-income
housing and areas like closed garbage dumps. The utility expects to
spend $773 million on the project, which it said would generate 120
megawatts of electricity, one-third of which should come from the panels
on utility poles. That amounts to barely 1% of the power consumed in the
state, but is about 7% of the state's goal of power generated from
renewable energy sources by 2020. By then, 22.5% of the state's
electricity is supposed to come from renewable sources, according to New
Jersey's energy master plan. Remember,
the PUC will require PPL to supply some green power anyway, so let them
pay for it and spread the cost around.
Remember The
Sting? Deja vu...The
WSJ reports that the members of
the OPEC have collectively postponed 35 oil-drilling projects in
various stages of development -a sign that the group's members are
starting to feel the financial pain of low crude prices. Until now,
nearly all of the global oil industry's drilling projects canceled or
delayed in past months have been in non-OPEC countries, including the
U.S. and Canada, where high-cost developments such as extracting oil
from tar sands were put on the back burner as economic incentives and
financing dried up. But with crude prices below $50 a barrel in recent
months, even the world's cheapest-to-produce hydrocarbons are taking a
hit. The delayed drilling projects have been shelved for an indefinite
period, said OPEC Secretary-General Abdalla Salem el-Badri. "These
projects are on hold ... and will continue to be until the price
recovers," he said. It isn't clear exactly how much production capacity
the 35 projects had been expected to add, said Mr. Badri, adding the
distribution of the postponements was across OPEC members, which had
planned to deliver 150 projects over the next decade.
02/09/09:
Reuters reports that OPEC is willing to cut oil output further at a
meeting in March, the group's secretary-general said on Monday, adding
he would like to see full compliance with existing curbs first. Abdullah
al-Badri also told reporters in a briefing that OPEC's compliance with
existing oil supply curbs of 4.2 mln barrels per day was about 80%,
based on preliminary data, higher than some estimates. "If we think we
still need more action, I'm sure the conference will take more action to
stabilize the market," Badri said, referring to OPEC's meeting to set
supply policy on March 15. Asked whether a new cut in OPEC output was
needed to bolster prices, the secretary general said the existing
cutbacks were "a huge amount."
02/07/09: Let's not crack
the champagne just yet based on PPL's latest news release regarding
lower projected rates next year...I think they've timed it to counter
the misery of more layoffs. Remember, the blended rate is ONLY in
2010 and ONLY affects RS, GS1, and GS3. What about 2011?
02/05/09: The stock market is
the engine of growth and the banks supply the oil...currently the engine
has seized...been there, done that. It will take time and money to
get it running again. I overheard a comment at the Joe Perella
lecture yesterday: Republicans are the party of tax cuts and "No".
Sadly, I'm beginning to think that's the truth. The music has
stopped, the party is over, yet nobody wants to clean up the mess...some
folks want to keep the party going into the next day...in the end, it
has to stop because we need to get back to work. This one has been
a doozy and we're going to need a pallet of those industrial-sized trash
bags!
02/04/09: PPL:
Reports Q4 (Dec) earnings of $0.46 per share,in-linewith
the First Call consensus of $0.46; revenues rose 56.6% year/year to
$2.51 bln. Coreaffirms
guidancefor FY09, sees
EPS of $1.60-1.90 vs. $1.86 consensus. PPL
continues to forecast 2010 earnings of $3.60 to $4.20 per share.
Let's do the the math...that's a 125% increase FY10-over-FY09!
And the source of this wonderful 2x in earnings? You and me, of
course.
02/03/09: Rule #3 has been
added! See above.
01/29/09: Fuzzy Logic 101:
Roubini thinks banks ultimately are $3.6 trillion in the hole with
$1.2 trillion of capital on board today...and TARP I was worth $350
billion...yet somehow it's OK to keep doling out "bonuses" to the tune
of $18.4 billion? Dear Wall Street, you took the USA to the brink
of depression by trading phony paper back and forth in your own little
Ponzi scheme...why are you still employed? This is like that Coors
Light commercial...replace "playoffs?" with "bonuses?"
01/28/09: Lo and behold, we
have a stimulus plan! Again quoting the esteemed Sgt. Phil
Esterhaus from Hill Street Blues: "Let's be careful out there."
None of this stimulus nonsense addresses the fact that banks probably
have $3 trillion in losses on their balance sheets while the total
capitalization of all banks is $1.2 trillion. There is no simple
fix to the liquidity (or leverage) crisis we're living. Spending
money just for the sake of spending money is not a solution. Let's
focus on the basics and remain committed to paybacks, efficiency, and
basics. Congrats to Cedar Crest and Muhlenberg...patience pays
off. Your gas buys are at or very near a long term bottom.
I'm preparing myself for the onslaught of vendors hawking all sorts of
grant-related stuff that may or may not do anything to support our
mission. It's sure to be a minefield.
01/19/09: Note the addition to
the banner above...T4 Rules. Those two simple axioms could
save you a bundle of $. Because even yours truly is not immune to
market forces. I have a "test account" for some NT meters that I
forgot about and it automatically renewed. Not a lot of money, but
I didn't want to continue and now I'm stuck for another year due to the
automatic renewal. You have to be vigilant about your contract
termination dates AND the automatic renewal clauses.
01/13/09: Wow! Can you
say blank check?
Honeywell announces that it has received an
Indefinite Delivery Indefinite
Quantity (IDIQ) Energy Savings Performance Contract from the
Department of Energy. The contract allows them to implement up to $5 bln
of energy-efficiency, renewable-energy and water-conservation projects
at federally owned buildings and facilities, nationally and
internationally, over the next 10 years.
Corporate home run?
The Guardian
reports that Saudi Arabia plans to go beyond OPEC's deepest ever single
cut in supply as the world's top oil exporter looks to halt a slide that
has lopped over $110 off the oil price since July. The kingdom will pump
below its OPEC target in February and is prepared to go further still to
bring a market battered by falling demand and a global recession back to
balance, Oil Minister Ali al-Naimi told reporters on Tuesday. "We will
do what it takes to bring it back to balance," he said on arrival in
India for an energy conference. The Saudi supply target was 8.05 million
barrels per day (bpd), a little under 10 percent of global output, after
the Organization of the Petroleum Exporting Countries (OPEC) agreed to
its biggest ever cut in December. "It will be lower," Naimi said of
February output. The kingdom was currently pumping around 8 million bpd,
he added. Strict Saudi discipline has so far failed to boost oil prices,
which were below $37 a barrel on Tuesday, less than half the $75 price
which Saudi King Abdullah has named as fair. Naimi declined to comment
on whether the move was taken in anticipation of a further cut in output
by OPEC.
01/12/09: Deja vu:
Reuters.com reports top exporter Saudi Arabia plans to cut oil output by
up to 300,000 barrels per day below its agreed OPEC target -- a
pro-active step to prop up a collapsing market, industry sources said.
OPEC's most influential member has lowered supply this month to 8
million bpd, meeting its target under OPEC's pact to reduce overall
production by a record amount from Jan. 1. But strict Saudi discipline
has failed to boost oil prices -- which at close to $40 are far from the
$75 a barrel named by Saudi King Abdullah as a fair price. So Riyadh is
prepared, from February, to go beyond what is required by OPEC, the
sources said. "We've been told Saudi Arabia will cut to about 7.7
million in February," said a senior oil executive. "They want to prevent
a huge stock build up and a further decline in the oil price."
Booyah! Anybody
catch 60 Minutes last night? It's as if they read my
newsletter and did a video story on it!!! Executive summary:
speculation that speculation was/is behind the huge move in oil prices
last year. Here's a neat little
rebuttal from Seeking
Alpha. I tend to agree that you can't blame speculators for
the entire move. But you can and should blame them for igniting
the fire. We all know what happened to house prices when banks
sought unending profits. See banner comment at top of page.
01/08/09: Saudis make steep
delivery cut to refiners from Jan 1, according to trader - DJ
I think it's tragic that bears are talking down the price of crude
while ignoring the fact that steep discounts discourage new production
and/or drilling. I fear we're setting up a trap for $200+ oil when
this recession ends. I read Ferdinand Pecora's book detailing the
abuses from the 1929 crash and we've learned nothing in the last 80
years...history really has repeated itself. The good news is that
purging and re-regulation aren't the death knell for capitalism.
If you really want an eye-opener, read Joseph De La Vega's Confusion
de Confusiones. The abuses we've seen on Wall Street are
nearly the same ones seen by Amsterdam in the late 1600s. Yes, 325
years ago, speculators, shorts, trickery, inside information, ... about
the only thing different from now and then is par...in the old days,
stock was quoted as a percent above or below the par price.
01/06/09: So much for the
talking heads and $25 oil! 6 oil prices have moved $0.25 in two
weeks.
01/02/09: Happy New Year!
Blink and you missed the lows in the oil market. This also
happened a few years ago...trade is very thin over the holidays and it's
a good time to lock down prices. From the great minds think alike
file: here are a set (1 &
2) of op-eds from yesterday's
NY Times. Lots of text, but one conclusion reached by the author
is the same as something I've been harping on for some time...the
ratings agencies (S&P, Moody's, et al) are complicit in this financial
mess. Who polices the police?
I had CNBC on in the background over the
holidays as I built a bathroom...oh my! How can anyone listen to
this dribble? Every move in the commodities markets is met with
instant bull/bear talking head dribble...we're going to $25!...we'll
never break $75 again...doomsday...back to normal... Here's the
bottom line: it's a good time to lock down prices for 2009.
Period. And it's a good time to think about 2010, especially with
PPL looming. Didya see how fast oil zoomed off the bottom?
12/29/08: Natural gas
moving average is working like a charm...see how they can't move it down
despite the oil carnage? The pipeline companies are not subject to
market forces and act like a brake to falling prices...they just
increase their tolls.
12/24/08: Is this it? Are
we all just played by market manipulation? WSJ reports federal investigators trying to pinpoint
what is behind gyrations in the
price of oil in the past year and a half are scrutinizing a series of
moves by Dutch-Swiss oil trader Vitol Group. Enforcement
attorneys at the CFTC are dissecting trades of a single oil trader
at a six-person hedge fund in Houston run by Vitol in an attempt
to size up the influence of those trades, if any, on the market. His
trading contracts on the New York Mercantile Exchange, where the world
oil benchmark trades, at one point in July constituted 11% of all
crude-oil bets outstanding on Nymex around the time oil was reaching
unforeseen heights. The investigators also are looking at Vitol's use of
oil tankers for floating storage as part of a broader inquiry into
so-called physical oil trading and its impact on the futures markets.
Physical trading involves the actual commodity, rather than futures
contracts. Vitol is the largest independent physical oil trader in the
world. There hasn't been any accusation that any Vitol trades in
question were improper, and it isn't clear where the CFTC's multifaceted
inquiry into the forces behind oil's recent volatility will lead. The
agency is questioning numerous players.
12/22/08: Chart reading
101...look at the "squish" on those natural gas numbers. They're
trying to push it down, but the trend is flat. Also known in the
trade as "support". It's darn near close to a bottom per the
trend. Oil? As you know, the current month contract is
grabbing all of the press headlines...but look at the Sunoco and Hess
quotes...they're not collapsing like the prompt price...once again, we
want oil to go UP, if only because it's a forward indicator of the
health of the overall economy. I cannot remember the last time
crude traded BELOW #6 oil in absolute terms. Another first for
2008.
12/19/08: Here's the definition
of contango: Jan crude oil, which expires today at the close
of pit trade, is seeing continued weakness this morning, and has set
lows at $33.44; currently off $2.33 to $33.89; Feb crude,
which will will become the new front month, is seeing modest pressure
this morning but not experiencing the sell off that the Jan contract is.
It has given back its overnight gains and is currently unchanged at
$41.67.
12/17/08: They're cutting!
They're not cutting! It's too much! It's not enough!
Bullish! Bearish! I'm guessing the headline number of 4.2
Mbpd is out there to compensate for the "cheaters". All I know for
certain is that drilling costs haven't collapsed and the inventory
numbers aren't THAT impressive. Futures are climbing while prompt
(or current) stalls...this would be great news if we all had massive
storage tanks on site to build cheap inventory. Reality is a whole
different ballgame.
12/15/08:
AP reports that Kuwait's oil minister saysOPEC
is "undoubtedly inclined" to cut production in its upcoming meetingin
Algeria to shore up oil prices. But Mohammed al-Eleim said Monday that
any decision at the Organization of Petroleum Exporting Countries' Dec.
17 Oran, Algeria, meeting would balance the need for a cut with its
impact on the ailing world economy and producer nations' need for
revenue to fund development projects. Two earlier cuts by the 13-nation
group have failed to stem plummeting crude prices, which are currently
about 65% below a mid-July record of almost $150 per barrel. Al-Eleim,
speaking to reporters before leaving for Algeria, declined to say how
deep a cut should be implemented.
12/12/08: Talking head
banality: Goldman Sachs sees crude at $30, but if OPEC cuts
production, we could easily trade through $50...What would you do?
Where is the common sense? And this from a business channel...
Here's a fascinating look at the guts of GM:
http://www.media.gm.com/manufacturing/handbook/index.html The
media exploits that $73/hr figure without providing a distinction
between wages and total cost. Like the rest of America, what are
they supposed to do? Just whack the pension plan?
Up, down, left, right? Every Wall Street firm is out with their
latest prognostications. Who cares any longer? We're here to
watch the trends and look for turning points. We lurched upwards
from that $40 mark and we have OPEC on board on 12/17. I think
we've set the short term bottom.
12/11/08: Overnight, the
IEA issued its monthly report which predicted that
world oil demand will contract
for the first time in 25 years due to the weakening in worldwide
economic activity. Specifically, the report said they expect global oil
demand in 2008 to slide by 0.2%, or 200,000 barrels a day, to 85.8 mln
barrels a day. The report went on to say that
while the agency expects 2009 to
be lethargic, demand will grow by 0.5% or ~400K bpd YoY. It also
raised its projection for demand growth by ~100K bpd from Nov. There
were also some bullish commentary from the world's biggest exporter of
crude oil, Saudi Arabia, which said it pumped ~8.49 mln bpd in Nov. This
was less than analysts were
expecting, but inline with OPEC's target. (What have I been
saying?) Crude has set highs at $45.98 and is currently pulling back
from those highs.
12/08/08: Let the good
times roll! I warned about buying too early...and we bought too
early. Oh well. A bird in the hand... Going back to
what was said at our last meeting, I wouldn't fight the trend.
Common sense indicates that the run up was too far/too fast. I
think this dive is overdone on the backside. I especially love how
the pundits now think that OPEC's meeting on 12/17 won't have any
affect...we'll see. Let's not forget that oil is in contango...if
you wanted to lock 2009, the premium is 25%; the premium for 2010 is
50%. So the market is eyeing this price action with suspicion.
Note the gas vs. oil anomaly...basis on
TETCO is smokin' right now. NYMEX might be in the tank, but ABE
and eastern PA don't see the benefit.
$50 to $40 in 2 days! Yeah, I knew
that was coming. If you're keeping score, that means oil lost 20%
of it's value in 2 days. 2 days. 20%. And our budgets
move at what, 2% per year? There's an awful lot o money getting
made on the short trade. Just as the longs were squeezing shorts,
now the shorts are printing dough...this leads me to believe they've
pressed their bets too hard and the snapback will be brutal.
12/05/08: WOW! Take a
look at this chart of crude oil
prices. I guess an optimist would simply state that $30/bbl is
next because that's the inflation-adjusted price based on 1991's lows.
But this ignores the FACT that easy oil supplies have been depleted and
deepwater drilling extraction is way more expensive than land-based
alternatives. I think we're lulling ourselves back into a sense
that the spike was all BS and happy days are here again.
It's hard to get
excited about falling energy prices with headlines like this one:
November
nonfarm payrolls plunged 533,000 (consensus -335,000). The October
number was revised lower to -320,000 from an originally reported
-240,000 while the September number was revised lower to -403,000 from
-284,000. Cumulatively, then,
1.28 million jobs have been lost in the last three months alone.
The unemployment rate ticked up to 6.7% from 6.5%, hourly earnings
increased 0.4%, and the average workweek dipped to 33.5 hours from 33.6
hours. The latter is further evidence that hiring activity isn't going
to pick up soon. There is no sugar-coating this data. It is bad news
that will weigh heavily on consumer sentiment and will serve to increase
concerns about the depth and length of the current slowdown.
These
are the worst of times for all of the energy savings initiatives
recently started...paybacks are getting stretched. The only silver
lining (if you can call it that) might be that your budgets are now
adequate to handle the electric price increase.
12/04/08:
I cannot believe that the same firms telling us that $200 oil was
imminent (a mere 6 months ago) are now out on the stump telling everyone
how the downtrend will continue and LOWER prices are coming. It's
all a game of momentum and they can't seem to read a chart. OPEC
might only control 40% of the market, but if and when they act, it will
be felt.
Crude oil sets fresh lows at $45.12; currently off $1.60 to $45.19; how
ironic is it that we're sitting at this level as the automakers plead
for their lives? As much as I love low oil prices, the reality
remains that exploration and production budgets, as well as alternative
energy projects, are getting cut to the bone. OPEC will cut on
12/17 while we get lured back to the drug. The low prices do
nothing to encourage conservation and/or alternatives, thus prolonging
the inevitable.
12/01/08: Remember my
comment about moving averages? It's time to watch closely and see
if we break upwards and hold. If we do, that's a clear signal to
lock down some of your future supply.
11/26/08: Gas exploded to
the upside today on bearish storage numbers. I think I was clear
last week that the bottom was/is near.
11/24/08: The 6 oil to
natural gas split is getting ever more pronounced...this is where a
market player would be switching to oil. It's also saying
something about the price of natural gas in that it's rallying in this
horrible market. If you want price certainty for next year, a lock
of 50-75% would be prudent here. Remember, there is economic
catastrophe and there is cost of production...we can't get below COP for
an extended time or the demand destruction will fall victim to lack of
supply.
11/21/08: Yeah!
WSJ reports an unexpected drop in U.S. electricity consumption has
utility companies worried that the trend isn't a byproduct of the
economic downturn, and could reflect a permanent shift in consumption
that will require sweeping change in their industry. Numbers are
trickling in from several large utilities that show shrinking power use
by households and businesses in pockets across the country. Utilities
have long counted on sales growth of 1% to 2% annually in the U.S., and
they created complex operating and expansion plans to meet the needs of
a growing population.The
data are early and incomplete, but if the trend persists, it could
ripple through companies' earnings and compel major changes in the way
utilities run their businesses.Utilities
are expected to invest $1.5 trillion to $2 trillion by 2030 to modernize
their electric systems and meet future needs, according to an
industry-funded study by the Brattle Group. However, ifelectricity
demand is flat or even declining, utilities must either make significant
adjustments to their investment plans or
run the risk of building too
much capacity. That could end up
burdening customers and
shareholders with
needless expenses. To be sure, electricity use fluctuates with the
economy and population trends. But what has executives stumped is that
recent shifts appear larger than others seen previously, and they can't
easily be explained by weather fluctuations. They have also penetrated
the most stable group of consumers -- households.
11/20/08: Good meeting
yesterday! Now, holy crap! Where does it end? Dec.
Crude Oil (which expires today) closed down $4.62 at its session lows of
$49.00, the lowest levels since May 2005. The new front month
contract, crude for January delivery, closed at session lows of $51.20
-$2.90. Natural gas fell 42.3 cents to $6.32,
heating oil closed down 8.38 cents to $1.6759 (i.e. maybe
$1.89 delivered).
11/14/08: Moral hazard
101...do you let GM, et al fail? Especially with every Tom, Dick
and Harry now asking for TARP $? There is a little voice in my
head saying that Goldman Sachs, the oh-so-sophisticated money grubbers,
should go down to end this mess. Dunno, but it turns my stomach to
watch the latest AIG sales meeting in Phoenix while they cry that they
need even more $ to stabilize.
11/13/08: You know things
are tough when commentators start pulling out chart patterns from
1929-32 to discuss market strategies.
WTI Dec was up about $1
ahead of the EIA release. The Reuters survey had called for a build
of 1.2MM bbls in crude, build of 800K bbls in gasoline and build of
300K in distillates. The numbers came in
bearish with larger than expected builds in the products.
Although the numbers were bullish for crude, demand
destruction is still what participants are talking about and
crude sold off. Crude imports were down 469K bbls while refinery
utilization was down 0.7% to 84.6%. As of this writing, crude prompt
is unchanged on the day.
11/12/08: Dec crude oil
($58.73 -$0.60) made a new 20 month low this morning, touching $57.70 in
electronic trade, expanding on yesterday's move below the $60 mark.
Crude oil is now off over $89 from its all time high at $147.27 set back
in early July. Concerns about slowing demand were exacerbated this
morning when the World Bank revised growth forecasts for developing
economies caused in part by tumult in the markets and sluggish exports.
Note that weekly inventory data will be released tomorrow due to
yesterday's Veteran's Day holiday.
11/11/08:
NOTE the T4 ALERT FOR DONE DEAL...The $60 crude break hit limit orders
that were preset. Our VP chose to lock down FY10 budget at savings
> $1M. It is what it is.
Off-topic: "In one of the latest what-were-you-thinking moves, the Federal Reserve
just announced it has hired Michael Alix as a bank regulation advisor.
Who the heck is Michael Alix, you ask? He is the former chief risk
officer at Bear Stearns, a company that thought risk-management was an
oxymoron. Essentially, he is the guy that allowed Bear Stearns to get so
over-leveraged, it collapsed under its own weight. Now, he is an advisor
for the Federal Reserve. At the very least, he can tell us what not to
do. Frankly, I believe the Fed’s hiring of one of the executives at the
center of today’s market fiasco proves that the “good-old boy” system
remains alive and well in Washington. It is a disgrace." from
Today's Financial News!
Who else is tired of these breakfast
meetings to discuss the "possible" 30% rate increase? I had a
student stand up and state that he thought the projected increase in
2010 would be less than 35% "because that's what the paper said."
The PPL train will hit a mountain when reality comes home next year.
11/04/08:
Dollar falls most against Euro since currency's 1999 debut; dollar
declines 2.6% to 1.2974 per euro - Bloomberg
PPL:
Reports Q3 (Sep) earnings of $0.45 per share,$0.15worse
thanthe First
Call consensus of $0.60. Co issuesdownside
guidancefor FY08,
sees EPS of $2.00-$2.05 (vs. $2.29 consensus), this is revised from
their prior range of $2.17-$2.27. Co issuesdownside
guidancefor FY09,
sees EPS of $1.60-$1.90 vs. $2.17 consensus. "Many of the pressures that
affected our results in 2008 also are expected to continue into 2009,
including ongoing cost pressures, fixed generation prices in
Pennsylvania and higher financing costs... During the third quarter of
2008, we saw unprecedented levels of volatility in the energy
commodities market, a rapid decline in the capital devoted to energy
markets by a range of market participants and a substantial drop in
wholesale electricity prices. As a consequence, we experienced
unrealized losses in certain of our energy positions that, along with
extended outages at two of our large coal-fired plants in Pennsylvania,
resulted in third-quarter energy margins that are much lower than a year
ago."
PPL continues to forecast very strong earnings growth for 2010
with a new forecast range of $3.60 to $4.20 per share. This new range is
down from the prior 2010 forecast range of $4.00 to $4.60 per share.
Now's the time to cloud their crystal ball...hell no, deregulation must
go!
"While forward energy prices have declined
from earlier in the year, we remain extremely well positioned for 2010
and beyond because we sold
forward a significant portion of our available power at the higher
prices and have fuel contracts in place that are significantly
below current market prices," said Miller, chairman and chief executive,
in a press release. Thanks Jim. Nice job gouging the
consumers. Good for Wall Street, bad for Main Street.
11/03/08: Here's a little
reality check worth 30 minutes of your time:
www.iousathemovie.com
FT reports the credit crisis has cut off much-needed financing for the
US power sector, which equity investors have abandoned en masse, setting
the stage for a string of mergers or bankruptcy filings. In the past
month, two potential mergers have been announced: Warren Buffett bid on
Constellation Energy and Exelon offered to take over NRG Energy.
Analysts sayReliant
Energy, Dynegy, Calpine, AES and Mirant are likely to be next on the
list, with investors betting against them in both credit and equity
markets.This is similar
to the situation these companies found themselves in after Enron, when
the US's biggest unregulated
energy trader collapsed in 2001, taking with it confidence in the
entire sector. NRG and Mirant eventually sought bankruptcy protection.
The others shed valuable assets and restructured to remain afloat. "This
feels like 2001-2002 all over again,'' said Mark Williams, professor of
finance and economics at Boston University. "It's an environment exactly
like what followed Enron; investors have lost confidence and the equity
and debt markets have priced this in.''
I've decoded the
AICUP sales pitch on electricity. It's pretty simple...using the
PUC "flashcuts" as a guide for prices, timing is everything.
That's it. WHEN you commit to an electricity contact matters.
Just as WHEN you commit to a natural gas buy matters.
Anybody notice how gas and #6 oil are
nearly equal again?
10/29/08: The
FT reports output from the
world's oilfields is declining faster than previously thought, the first
authoritative public study of the biggest fields shows. Without
extra investment to raise production, the natural annual rate of output
decline is 9.1%, the International Energy Agency says in its annual
report, the World Energy Outlook, a draft of which has been obtained by
the Financial Times. The findings suggest the world will struggle to
produce enough oil to make up for steep declines in existing fields,
such as those in the North Sea, Russia and Alaska, and meet long-term
demand. The effort will become even more acute as prices fall and
investment decisions are delayed. The IEA, the oil watchdog, forecasts
that China, India and other developing countries' demand will require
investments of $360bn each year until 2030. The agency says
even with investment, the annual
rate of output decline is 6.4 per cent. The decline will not
necessarily be felt in the next few years because demand is slowing
down, but with the expected slowdown in investment the eventual effect
will be magnified, oil executives say.
10/24/08: Dec crude ($63.66
-$4.18) is trading lower this morning by over 6%, following news that
OPEC announced it will cut
production by 1.5 mln bpd, which was in line with expectations.
In its statement, OPEC said that "...oil prices have witnessed a
dramatic collapse -unprecedented in speed and magnitude- falling to
levels which may put at jeopardy many existing oil projects and lead to
the cancellation or delay of others, possibly resulting in a medium-term
supply shortage." The cartel left open the possibility of another
meeting before its December meeting. Crude saw a very modest reaction to
the news, which is not very surprising as a cut of ~1 mln bpd was a
already priced into the mkt. It
made lows at $63.05, a level not seen since June 2007, and
remains very close to those lows in current trade.
10/22/08: WOW!
Dept of Energy reports that crude oil inventories had a
build of 3182K (consensus is a build of
2650K); gasoline inventories had a build of
2709K (consensus is a build of 2700K); distillate inventories had a
build of 2156K (consensus is a build of
300K). Bearish. OPEC is going to cut at least 1M bpd.
Crude oil sees muted reaction to DOE data showing larger than expected
inventory builds... Crude now -4.12 at 68.08.
Down $4 is muted???
10/21/08: B-tane just reared
it's head...here's my response to Rex: You've got
to get ahead of the curve...#6 is selling for $1.40 today, yet that is
still far too expensive compared to natural gas at $7.33/mmBTU to the
city gate. We're locked on gas through Jun 09...it's greener than B-TANE
and significantly cheaper. I asked you to lock 1 MG @ $1.90 when oil
crossed $100/bbl but you declined. This is a game of timing and
forward-looking projections, hence the futures market. I need price
transparency, just like the banks. There needs to be a method of price
discovery and future cost stability to burn the volumes we need.
Clearly we're working toward that goal.
10/20/08: OPEC President
Khelil says non-OPEC oil producers should contribute output cuts of
their own to help stabilize price - Reuters Seriously?
Are things that bad in Dubai? Can't pay for the indoor ski slopes?
Remember...OPEC is about 40% of the market.
Terrific story in
the Sunday NY Times magazine about oil prices. It revists a
lot of turf that we've covered in our meetings. One
caveat...Sequoia is an incubator company for Silicon Valley
companies...they also have a vested interest in alternative energy.
But let's not lose sight of the ball...we still import 66% of what we
consume.
10/16/08: Crude closed off
$4.65 to $69.85, natural gas
gained 18.3 cents to $6.775, heating oil ended off 13.77 cents to
$2.0528. .
OPEC says reschedules extraordinary meeting to Oct 24 in Vienna -
Reuters
DOE Inventories: Crude and gasoline show
much larger than expected builds
for second straight week : Dept of Energy reports thatcrude
oilinventories had a
build of 5611K (consensus is a build of 2600K);gasolineinventories
had a build of 6973K (consensus is a build of 3000K);distillateinventories
had a draw of 453K (consensus is a build of 500K).
Bearish.
10/13/08: WOW.
DJ reports Goldman Sachs now
sees oil prices declining to $65/barrel in 1Q as demand declines
due to global slowdown. "The cyclical downturn will last at least
through the first half of 2009, with sustained improvement in global GDP
the key to the cycle's turning back up."
In May,
Goldman predicted oil prices would either stay above $100 for a long
period or would "super-spike" to $200 next year before falling sharply.
(Remember, they had a vested interest).
They now see the average price of oil next year at $75/barrel.
All of this from the "best of the best"? I can do better...buy low
and budget correctly.
10/10/08:
WSJ reports the Treasury and Federal Reserve need to target the right
problem - a lack of capital that has eroded confidence in the banking
system. To do that, the government needs to inject capital directly into
banks. Consider that $700 billion, the size of the TARP program, is
equal to only about 6% of U.S. commercial bank assets. That isn't going
to make a dent. That same $700 billion is equal to 58% of commercial
bank equity. Injecting capital alone isn't enough.The
government also needs to force banks to recognize losses they have so
far ignored, require banks to provide fuller disclosure of holdings,
push banks to lend to one another again, euthanize weaker banks while
helping strong banks get stronger, guarantee deposits and backstop a
portion of bank credit. Above all, the government needs to tell
banks that they have to take part in a systemic solution. The time for
negotiation by banks is over. Yet such a draconian approach should also
include market-based solutions. The strong should be encouraged to use
markets to get stronger, in some cases in conjunction with government
support. The Fed could do this by insisting on higher capital ratios,
for example, and then give banks a brief period to get there on their
own. If a bank can't, it would have to accept government help.
Roubini's solution from Day 1...
WSJ reports big oil-producing countries
are showing signs of distress as the global credit crunch and falling
crude prices begin to squeeze government budgets and delay projects.
Fears that the boom days are fading appear strongest in Iran and
Venezuela, whose governments have come to rely on oil prices to prop up
otherwise shaky economies. Both countries this week led a chorus within
the Organization of Petroleum
Exporting Countries calling for an emergency meeting of the cartel, now
set for Nov. 18, to weigh a production cut. The global
economic crisis is eating into oil demand,
particularly in the U.S. and Europe, and helping drive down crude
prices. Some forecasters said that despite a strong thirst for oil in
Asia and the Middle East, global oil consumption could flatten out next
year, potentially ending nearly a decade of steady demand growth. Oil
exporters have racked up cash surpluses as prices soared to historic
highs. But government spending also has soared within OPEC and among
other big producers such as Russia, based in part on the expectation
that oil prices would remain high. KEEP YOUR EYE ON THE
BALL...COMPLACENCY WILL NOT CHANGE THE FACT THAT WE IMPORT 66% OF OUR
OIL. DEMAND REDUCTION DRIVES DOWN PRICES...Period.
10/09/08: OK, I'm going to
put it out there...since we're so busy socializing losses and/or
nationalizing mortgages and banks, who wants to bet that the electricity
deregulation train is finally due to hit a speed bump? Free
markets don't police themselves...back to the regulated monopoly?
WSJ reports banks are beating a hasty retreat from the physical oil and
fuel markets, as the credit
crisis cuts financial institutions out of a once-promising line of
business. Over the last month, confidence in the banking sector
has been badly shaken, with several failures, a rash of forced mergers
and expectations of even more government support. In some energy
markets, banks are being kept at arm's length by oil companies and
refineries that are wary of not being paid should a counterparty join
the list of failed banks. Some large oil companies have issued internal
memos forbidding their traders worldwide from dealing with Morgan
Stanley (MS) and Merrill Lynch (MER), two of the more active banks in
physical commodities. "They are reducing their exposure," said one
broker of physical oil on the Gulf Coast, who is not cleared to speak to
the media and requested anonymity. "And they really don't have a choice
because the traders are not trading with them."
Remember how I said 33% of the price was speculation???
UGI just reared their
ugly head. It took a massive amount of hemming and hawing to get
them at $1.30 on my delivery charge. Whew! Take a look at
the chart on the left...the potential damage could have been as bad as
$4.76. NEVER EVER TELL KIERNAN THAT YOU'VE ALREADY PURCHASED YOUR
FUEL IN ADVANCE OR YOU HAVE NO LEVERAGE!!! 10% for delivery isn't
ideal, but it beats the $3.75 DS fee.
10/08/08:
Dept of Energy reports thatcrude
oilinventories had a
build of 8123K (consensus is a build of 2200K);gasolineinventories
had a build of 7175K (consensus is a build of 1500K);distillateinventories
had a draw of 489K (consensus is a draw of 900K).
BEARISH. Huge inventory build...
I'd
like to note that I recommended to Mike Brewer that he not prepay for
heating oil at this time. This is an unprecedented credit crisis
and clearly the recession is here. The price trend is DOWN and you
follow the trend. Keep in mind that heating oil was offered at
$2.44 a mere 52 weeks ago. This is the reason behind the $3 gallon
data point immediately to the left at the bottom of the $/mmBTU chart.
Support is broken and the $100 mark should be resistance for
quite some time. This is also why I've never recommended more than
a 50% lock.
I'd
also like to note that we (Lehigh) have 90% of our main gas locked down
for FY09; the 10% at market is keeping us well under budget. I DID
NOT lock the NDS account and elected to float at market...this is paying
off. And I just sealed the NT accounts.
I'm
watching FY10 very closely and I might nail Jul-Dec09 to hedge storm
risk.
10/07/08:
Steelmakers weighing output cut size before prices fall below
breakeven price - WSJ Inflation?
We don't see no stinkin' inflation...we're going from inflation to
deflation faster than any time I can remember...
10/06/08: Crude ended lower
by $5.74 to $88.14, nat gas fell 52.9 cents to $6.829, heating oil
closed off 17.68 cents to $2.4852 and RBOB gasoline finished down
16.07 cents to $2.0676. Good news on energy because it's
predicting that nobody will be buying anything in the upcoming months.
The unemployed don't need to fill up their tanks. Enough is enough
already.
Nov crude ($89.60 -$4.28) set a
new 8 month low this morning as it touched $88.89 in electronic
trade (Feb 8 was the last time crude saw the $89 mark) on unremitting
concerns that the ongoing financial crisis will continue to stymie
demand. Also pushing crude lower is the ongoing rally in the dollar
against the euro, which is now at 13 month highs. Worth mentioning is
that the OPEC President said
today that crude will continue to fall into next year and that there are
risks that could move it down to around $60 pbl. Not surprising was the
fact that OPEC plans to take the 'appropriate measures' at the next
meeting (scheduled for Dec 17) to stabilize the market.
T4
Market Update: Note how the natural gas prices are clearly in a
bottoming mode. I see 6 oil in a free fall to test that $1.70
area. If you prepaid 50% of your heating oil, it's a good time to
fill your tanks with market-priced oil. While lower prices are
great for our budgets, it's a moot point if the financial markets
collapse. The best quote I've heard is "We want a percolate up
economy, not a trickle down." Clearly we're seeing the unwinding
of all things speculative...which again leads me to the natural gas
charts...the price seems to be near a bottom. My indicators are
very close to calling oil a buy, but indicators can fail when markets
are in a crisis mode. Nevertheless, watch this $88 level
carefully. The stock market is grossly oversold and due for a
bounce. The $1 million question is whether the bounce establishes
support or is a set-up for another leg down to Dow 8000. Some
pundits think the entire decade's gains are at risk...as if the Bush
presidency is to be wiped out (Note the DOW is already lower than
1/20/01). Personally I think the Fed is out of bullets and I'm
looking for signs of stability. Watching the national debt cross
the $10 trillion mark isn't good news. On the other hand, the
doom&gloom is thicker than any crisis I can recall (87, LTCM, S&L,
dot-com bust). When all hope is lost it's usually a time to buy.
10/02/08: PPL's
latest press release. Is it possible that consumers can't do
simple math? Folks, my current generation cost is 4.7 cents/kwhr.
How in the world can a procurement of 11.194 cent power (11.194 / 4.7 =
2.38 or 238%) result in an average increase of 38 percent??? New
math? Fuzzy logic? 66% of the way to the 2010 deregulation
punch and nobody seems to understand what is coming in 2011. Now I
know how Dr. Doom felt before the bank meltdown.
Natural gas inventory saw a build of 87 bcf to 3110 bcf, analysts were
expecting a build of 73 bcf, ranging from a build of 50 bcf to a build
of 85 bcf. Bullish for school budgets! I'm already sniffing
around the first six months of FY10. These gas prices aren't
headed to zero.
10/01/08:
How I wish this were the other way around:
UGI Corp announces UGI Utilities Acquires PPL Gas Utilities form $268
mln plus capital.
Reuters.com reports legislation extending tax credits for the solar,
wind and biodiesel industries gained new life on Wednesday as U.S.
Senate leaders said they plan to
attach the tax bill to a $700 billion economic rescue package.
The Senate is expected to vote Wednesday night on this modified version
of the bailout package which failed to pass the House of Representatives
earlier this week. Senate Finance Committee Chairman Max Baucus said
with the addition of the tax incentives, the bill will help average
Americans, as well as Wall Street. "Senators and Representatives can now
know that a 'yes' vote on the financial rescue plan is now a vote to
rescue America's working families from this financial crisis, with the
right tax relief at just the right time," Baucus said in a statement...
In addition to the renewable energy tax breaks, the Senate bill included
tax incentives for other businesses and a one-year fix to the
Alternative Minimum Tax so millions of Americans will not be subject to
higher income taxes.
This is sleazy...
Dept of Energy reports thatcrude
oilinventories had a build
of 4278K (Bloomberg consensus is a build of 2750K);gasolineinventories
had a
build
of 901K (Bloomberg consensus is a draw of 2050K);distillateinventories
had a
draw
of 2359K (Bloomberg consensus is a draw of 1500K). Bearish for
(most) prices! --->Crude
ticks lower, setting new lows at $97.10. Note...massive
deleveraging, credit crisis, a recession, and we're still holding around
the $100 level. We cannot take our eye off the ball...we need to
increase taxes, pay down debt, stabilize the housing market (which
stabilizes the banks) AND still cut oil consumption.
Nobody said it would be easy!
09/29/08: This bailout (the
original plan) is
wrong. The problem is capital (or lack thereof) on a bank's
balance sheet. And purchasing bad mortgage securities does nothing
to alter cash flow expected from homeowners. Privatizing gains
while socializing losses does nothing to help the USA. See
www.rgemonitor.com for someone
who has been right all along and be sure to read some of the non-whacko
comments on the blog. Goldman has the largest amount of $
speculating in commodities TODAY...of course Hank doesn't want to see
Goldman go down... Most banks have a problem with about 5% of
their mortgages...if you understand leverage and accounting, that 5% is
causing insolvency. Put the capital on the asset side of the
balance sheet and restore cash flow!!!
09/26/08: T4's root of the crisis repost
from Bloomberg. S&P, Moody's, et al were along for the ride
and their late downgrades are now exacerbating the problem.
"The fund manager borrowed 45 x investors' equity..."!!!
And you wonder why we have problems?
09/25/08: The market seems
to think that today's gas injection numbers (51 bcf vs. 61 bcf expected)
are very bearish. I think it reflects some hurricane residual.
I'd say they're a net neutral. We have plenty of gas in storage
and the storm season is nearly over.
09/24/08: Dept
of Energy reports thatcrude
oilinventories had a draw
of 1520K (Bloomberg consensus is a
draw of 2500K);gasolineinventories
had a
draw of 5895K
(Bloomberg consensus is a draw of 3600K);distillateinventories
had a
draw of 4176K
(Bloomberg consensus is a draw of 1500K).
Moderately bullish, not great numbers.
WSJ:
T. Boone Pickens would get better marks as a policy advocate and author
than an energy investor. The
80-year-old Texas oil magnate has bankrolled a massive public campaign
for improved U.S. energy independence. But the downturn in energy
has blindsided the industry veteran, leaving one of his hedge funds that
focuses on energy stocks down almost 30% through August. A smaller
commodity-focused fund is down 84%. All in, the funds have lost around
$1 billion this year, a figure that includes $270 million of personal
losses. "It's my toughest run in 10 years," said Mr. Pickens, a former
geologist who earned billions by building an oil company and investing
in energy. "We missed the turn in the market, there's nothing fun about
it." Remember
my comments about talking your book??? He has a vested interest in
higher prices...
House Democrats will allow a quarter-century ban on drilling for oil
off the Atlantic and Pacific coasts to expire next week.Appropriations
Committee Chairman David Obey is telling reporters that language
continuing the moratorium will be omitted this year from a spending bill
to keep the government in operating funds after Congress recesses for
the election. Republicans have made lifting the ban a key campaign after
gasoline prices soared beyond $4 a gallon this summer and public opinion
turned in favor of more drilling. President Bush lifted an executive ban
on offshore drilling in July. The Interior Department estimates there
are 18 billion barrels of recoverable oil beneath coastal waters now
off-limits. Political
grandstanding...won't help crude prices, especially if OPEC cuts
production.
09/22/08:
Pickens says oil will return to $150/bbl next year - DJ; Crude oil trades to new 2-month high of $130 per barrel!!!
"When
money has nowhere to go...(see header above) Bail out the banks and
it's back to business as usual.
Take a quick look at the $/mmBTU
graph...it sure looks as if we've bottomed...the demand numbers every
Wed/Thu will tell the tale from this point forward, especially with the
demise of the $ rally due to the credit crisis.
09/19/08: You knew this was
coming...Crude rallies to new session highs at $105.25 minutes ahead of
the close; currently up $6.65 to $104.53.
NY Times reports ignoring a presidential veto threat, the House on
Thursday approved measures aimed at curbing speculation in oil and other
commodity markets. It said federal regulators did not have the tools or
manpower to track trading abuses. The bill, passed by a 283-to-133 vote
and sent to the Senate, is aimed at certain hedge fund and large
institutional investors as well as electronic trading through overseas
entities that avoid United States government scrutiny. It would give the
Commodity Futures Trading Commission authority for more staff and for
limiting the stake traders hold in certain markets. It also would
require new reporting and other limits on traders.
Oppenheimer says that despite the recent correction, firm believes oil
prices are still inflated and are not supported by true market
fundamentals, which continue to deteriorate on a bleaker economic
outlook in the wake of the global financial crisis. Firm believes the
gyration in oil prices in the last few days is caused by investors'
flight to commodities as a safer alternative to the plummeting financial
markets. (See
the header above!).
Firm thinks the demise of the large investment banks will significantly
curb market appetite for high-risk investments like commodity futures
and further deflate the oil bubble, which they helped create. Firm does
not rule out a sharp decline in oil prices in the event that the two
remaining large investment banks are acquired by commercial banks
operating under stricter rules. Their demise will end excessive
speculation, which could burst the oil bubble.
Bubble? What bubble?! As I said in the past, a lot of those
oil price forecasts were issued by firms with a vested interest in
seeing prices higher.
09/18/08:
U.S. House passes, sends Senate, bill to put position limits on
oil futures, White House opposes - Reuters;
no surprise there, eh?
Goldman's
Murti cuts crude oil price forecasts - DJ (see 8/20/08 comment
below);
it only took a meltdown of everything financial to burn the
speculators...
Natural gas inventory saw a
build
of 67 bcf to 2972 bcf, analysts were expecting a build of 63 bcf,
ranging from a build of 40 bcf to a build of 70 bcf.
Bearish!
Oil as good as it gets? Here's my
indicator chart. Grossly
oversold and bouncing back hard. Is it Fall of 2006 or are
we heading right back up? I think we stabilize, but chances of
further price erosion seem slim.
Crude continues its rally in electronic trade this
morning, moving above the $100 mark to set highs at $102.24;
currently up $4.33 to $101.52. I maintain that the speculation is
gone and we're back to supply/demand...and the $ is back in the toilet.
09/17/08: Crude oil
accelerates to the upside, now +5.21 at 96.36 ...the oil storage numbers
aren't good...
Accountants are
exacerbating this problem...S&P, Moody's, Fitch, AMBest, etc. They
need a muzzle. Each and every downgrade in credit quality, however
subjective, forces banks to raise capital that is not there.
Bankruptcy forces asset sales at depressed prices.
Let's not ignore this
data:
Dept of Energy reports thatcrude
oilinventories had a draw
of 6328K (Bloomberg consensus is a draw of 3500K);gasolineinventories
had a
draw of
3308K (Bloomberg consensus is a draw of 3500K);distillateinventories
had a
draw
of 835K (Bloomberg consensus is a draw of 1900K). We're wiping out
the speculators, as predicted, but that was only ~33% of the price hike.
Supply and demand still matter.
Here's a nice little story that reflects my comments of 9/12/08.
I keep reading Nouriel
Roubini's (Dr. Doom) blog and while he keeps writing how bad things
are (and will get) he never offers a solution. Add to that some
comments today that credit spreads might be manipulated to force even
more fear and it's clear that just as oil was overpriced at $145, the
financial meltdown has gone too far, too fast. JMHO.
WSJ reports evaporating access to credit and fears of an economic
washout are taking a toll on oil prices,
forcing
speculators
using borrowed money out of the market. Lehman Brothers' sudden
bankruptcy filing and Merrill Lynch's pending sale to Bank of America
suggest big banks may be less willing or able to absorb debt to boost
trading positions, with implications for the inherently leveraged
oil-futures markets. Analysts believe that could have a ripple effect on
other speculative investors in the market.
Widespread liquidation of
futures contracts compounded fears of faltering oil demand in
knocking oil down near $90 a barrel on Tuesday before rebounding to
settle at $91.15 on the New York Mercantile Exchange. Some traders faced
margin calls, or demands for more cash collateral, in other asset
classes, market participants said... The duress suggests investment
banks' own proprietary commodities trading could decline as banks think
twice about how much debt they take on to fund risky positions. Banks'
risk aversion could also drive their clients out of the oil market,
which could continue to weigh on prices.
Speculators goosed prices. Q.E.D.
09/16/08:
If you want to see what a rumor can accomplish, take a look at the
stock of of Constellation Energy Group (CEG), a utility similar to PPL.
It's crazy out there when a utility can be nearly wiped out in one day
with just fear and misinformation.
Oct
crude ($91.88 -$3.83) continues its sell off this morning, trading as
low at
$90.91,
on continued concern that the tumult in the financial markets will
weaken demand. This is the lowest level that crude has traded at since
early Feb, now off over 37% from its all time highs, and is
down close to $10 over the past
two sessions... Worth noting is that OPEC released its monthly
oil market report this morning, in which it revised downward its 2008
world oil demand growth by 0.9 mln bpd to average 86.8 mln bpd.
09/15/08: I have a real problem
with this "instant answer" nonsense from CNBC...Oppenheimer
analyst Meredith Whitney on CNBC says U.S. house prices are the
underlying problem, and futures prices indicate a peak to trough decline
of ~33% (she believes it will be north of 40-45%). She notes that WB
assumes peak to trough decline of only 21%, with 60% of their exposure
in California. She notes that Citigroup only assumes a 23% peak to
trough decline.
It took 10 years for my house value in 1988 to lose 10%. Suddenly
it's cut everything in half or be crucified by the ratings agencies
(S&P, Moody's). Maybe it's time to regulate the ratings agencies
and let this play out?
The good news is
crude trading at $96 with a full-blown insurgent uprising in Nigeria.
The bad news is crude trading at $96 as the US banking system implodes.
This is a recessionary signal. Now we need to figure out how bad
it will get. If we take a look at our charts, it's clear gas is in
a bottoming mode. 6 oil can fall further, but it's hard to imagine
a case where it beats gas...nothing is impossible, but it would be an
extraordinary move. We need to remember that a good part of the
world already hates us and the ultimate irony is our continuing to send
petrodollars abroad as our own economy falters. But hey, who needs
regulation? Deregulate investment banks, deregulate electricity,
deregulate everything, right? Let the markets decide...?
09/12/08: This whining
is getting old...General
Motors' Wagoner says "huge commitment" of capital spending needed to
meet U.S. fuel efficiency mandates - Reuters;
and the alternative is what? As he sits in front of Congress
asking for $50Billion.
FT reports that new steps to curb speculation in commodity markets have
been launched by US regulators in response to growing pressure from
Washington lawmakers. The Commodity Futures Trading Commission, the main
regulator of commodity markets, told the US Congress on Thursday it was
imposing "enhanced control" on dealing by Wall Street banks and forcing
them to publish new data on their positions. The CFTC's measures will
focus on swaps -private contracts between investment banks and clients
such as hedge funds or airlines that provide an exposure to commodity
prices without investing directly in futures. The swap market is mostly
unregulated, which some lawmakers in Washington have described as a
loophole for speculators and blamed for high oil prices. Swap dealers
also receive exemptions for speculative positions limits that apply to
other speculators in the commodities markets. The CFTC admitted in a
report that there was a "a need for greater transparency in the manner
and amount of trading that occurs trough swap dealers".... However, the
CFTC report released on Thursday insisted that financial investors did
not appear to be behind the rise in commodity prices in the past year,
noting that while oil prices had risen, investors in the $200bn
commodities indices industry lowered their exposure. Speculators cannot
hold more than a certain amount of commodities futures in regulated
markets, such as the Nymex where oil is traded but by entering into swap
agreements they could circumnavigate those limits.
09/11/08: Natural gas
inventory saw a build of 58 bcf to 2905 bcf, analysts were expecting a
build of 55 bcf, ranging from a build of 45 bcf to a build of 69 bcf.
Crude
makes new session lows at $100.25; currently off $2.33 to
$100.25. There's plenty of gas in storage...back to reality
with prices.
Politicians don't
get it.
Here's the latest from Rendell. Ed, we don't want to extend
rate caps, we want to get rid of LMP and use actual cost of system
generation + 12%. PA labor and talent built a low cost utility and
we want PA taxpayers to get some benefit from the nuclear and coal base
load. Note how this author has finally moved off the 30% BS
from PPL and finally printed "40, 50, or even 60%"...no kidding.
Word is spreading...
09/10/08:
George Soros on Oil.
"In
the absence of alternative sources, the price of oil is liable to rise
indefinitely. Only if we are willing to live with higher prices in order
to develop alternative fuels can we hope to see an eventual reversal in
the long-term uptrend in oil prices. In contrast to oil and other fossil
fuels whose costs of production are bound to rise, the alternative fuels
will become cheaper as we discover cheaper and more efficient
technologies to exploit them, and will eventually bring down the price
of fossil fuels as well."
Lots of news and cross currents on the wires. OPEC
has stated that they now feel $90 - $100/bbl is their target and
they are backing this with a call for a 500,000 bpd production cut.
Then we get this:
Dept of Energy reports thatcrude
oilinventories had a
draw of 5828K (Bloomberg consensus is a draw of 3500K);gasolineinventories
had a draw of 6462K (Bloomberg consensus is a draw of 4500K);distillateinventories
had a draw of 1252K (Bloomberg consensus is a draw of 2100K).
Which should be slightly bullish (bad) for prices.
Then your humble prognosticator is vindicated:
WSJ reports as crude-oil prices sink back toward $100 a barrel, dueling
reports soon will be released weighing in on whether, and how much,
investors are to blame for the gyrations in oil prices. Washington
lawmakers and a money manager, stepping up an attack on commodities
investors, will unveil a report Wednesday that they say shows
speculators are to blame for this year's rise and fall in oil prices,
which have swung by some 50%. Several Democratic senators intend to use
the findings to bolster an energy bill, which includes measures to scale
back how institutions can invest in index funds that track commodities
markets. These institutions now hold $220 billion in commodities, up
from $13 billion in 2003, according to the report, co-authored by
hedge-fund manager Michael Masters.
Then: Crude
makes new session lows at $101.87; currently off $1.20 to $102.06.
It seems clear that the speculative bubble is burst and we're back to
supply/demand fundamentals. Please see the red header above!
Given the depth and pain of this bear market, could we actually see a
50% retracement to $70? Anything is possible. One should
note that natural gas is still the attractive choice at $100/bbl and it
would take a move to this level (i.e. $70) to make 6 oil attractive
again. Could it happen? Why not? The world is
deleveraging and facing a global recession...anything is possible when
the bears are loose. Seen your retirement account lately?
09/09/08:
Barring a global conflict that could cause serious supply disruptions,
Oppenheimerexpects
average oil prices in 2009 to be much lower than 2008's. However,
they say higher oil prices could stagnate economic growth, deepen
growing U.S. budget and trade deficits, and raise inflation and
unemployment. Not a good start for a new administration, and every
effort must be made to lower oil prices and reduce dependence on
imported oil says the firm. While the Republican energy policy is
focused more on increased supply and nuclear power generation, the
Democrats are more focused on energy conservation, improving the
environment, and taxing big oils. Increased domestic drilling, in the
firm's opinion, is not the answer to the U.S. addiction to imported oil.
Neither is taxing big oils. They believe that both presidential
candidates must explain their energy policies to the voters, not in
sound bites, but in more detail and must be held accountable once they
are in office. The firm expectsoil
industry consolidation would accelerate under a Republican
administration.
Here comes my $100 target! Minutes
ahead of the open of pit trade, crude makes new session lows at $103.85;
currently off $2.45 to $103.89.
09/08/08: OPEC
Pres says there is oversupply on the market - DJ
Good is bad? The GSE rescue is goosing
the stock market and sending the bears back to the woods (today).
We never got a chance to break $100. Remember, if the economy
recovers, and banks recover, then demand will logically follow and we're
right back in the old supply/demand fundamentals market. And then
we'll have OPEC mulling supply cuts...and I read something over the
weekend where Venezuela was invited to join the cartel. Anybody
who thinks Alaska will solve our energy problem is walking around in the
dark. A little more supply is fine, but it must be coupled with
demand destruction.
09/04/08:
Big picture stuff: Pimco's Bill Gross appears in an interview on
CNBC saying there is no bull market anywhere; says there is no bull
market in bonds, stocks, real estate or in commodities because the
global market is experiencing deleveraging. Gross says most asset
classes are down right now, about 10% over the past 12 months, which is
close to depressionary levels. Wow. Doom & gloom sells.
Dept of Energy reports that crude oil
inventories had a draw of 1898K (Bloomberg consensus is a build of
450K); gasoline inventories had a draw of 1037K (Bloomberg
consensus is a draw of 1300K); distillate inventories had a draw
of 413K (Bloomberg consensus is a build of 1000K). Natural gas
inventory saw a build of 90 bcf to 2847 bcf, analysts were expecting a
build of 90 bcf, ranging from a build of 84 bcf to a build of 99 bcf.
What's the proper term...ambivalent?
Heating oil charts are bad if you expect lower prices...
09/02/08: Boone Pickens, on CNBC, says he doesn't think
crude will go below $100; believes OPEC will cut production to defend
oil prices at their Sept 9 meeting.
So Gustav was a bust for oil & gas prices. But what about Ike?
And Josephine...they're lined up! No matter...there is serious
selling off happening as I type. Storage charts will be late due
to the holiday this week, but they WILL be interesting.
Crude hit a 4-month low of
$105.46 earlier this morning, its lowest level since Apr 9.
Separately, the dollar is much
stronger against the other major currencies this morning, hitting
a 6-month high against the euro and a fresh 2-year high against the
pound.
08/28/08: Natural gas inventory saw a
build of 102 bcf to 2757 bcf, analysts were
expecting a build of 84 bcf, ranging from a build of 78 bcf to a build
of 93 bcf. BEARISH...
08/27/08: Dept of Energy reports that crude oil
inventories had a draw of 177K (Bloomberg
consensus is a build of 1100K); gasoline inventories had a
draw of 1179K (Bloomberg consensus is a
draw of 2450K); distillate inventories had a
build of 57K (Bloomberg consensus is a
build of 600K). Neutral at best...
(slightly off topic) Compare this story:
WSJ reports executives at Detroit's Big Three auto makers are
considering making a more public push to lawmakers in the near future as
they seek about $50 billion in low-cost loans that would greatly
overhaul their product portfolios, people familiar with the matter said.
Top executives at GM, F and Chrysler -- each racking up significant
losses as industry sales decline -- will likely wait until after Labor
Day, following this summer's political conventions, to travel to
Washington for meetings on the loans, these people said. They are
expected to soon give a more concrete figure to Washington in terms of
what size of a loan package is needed, they said. The forthcoming
meetings could include discussions with Congressional leaders and
potentially the Federal Reserve, these people said. Against
this one:Honda.
Here's a
great reality check on wind vs. the existing power grid. It's
a sad state of affairs when deregulation taps our budgets to move $ to
shareholders while ignoring the grid. Banks got greedy with
mortgages and CDOs...will the utilities follow and sink under the weight
of this BS?
Daily Telegraph reports leading oil producer
Kuwait expects to raise
production by about half a million barrels a day in early 2009,
in a bid to take a larger share of the world's growing demand for oil.
The Opec member currently produces just over 2.5 mln barrels daily,
according to Saad al-Shuwaib, chief executive of state oil firm Kuwait
Petroleum. Mr al-Shuwaib said KPC was on course to meet its long-term
capacity target of 4 mln barrels in 2020, despite political hurdles,
spiraling costs and a tight market. Among the plans to increase capacity
is Project Kuwait, a scheme to boost oil output from its northern
fields, which was introduced years ago but never made it through
parliament due to the involvement of foreign co.
08/25/08: OPEC likely to keep oil output unchanged at
Sept meeting, price still high according to OPEC source - ReutersCan you imagine what would happen if they cut output??? We seem
to be in balance today. But it's a precarious position...
Here's a little
support for my ZERO OIL initiative. Gas is not oil.
Period.
08/21/08: (Nasty little reversal) Oct crude
finished higher by $5.62 to $121.18, Sept natural gas settled up 18.5
cents to $8.257, Sept heating oil ended higher by 14.04 cents to $3.3039
and Sept RBOB closed up 12.87 cents to $3.039.
Gas isn't oil...Natural gas inventory saw a
build of 88 bcf to 2655 bcf, analysts were expecting a build of 84 bcf,
ranging from a build of 65 bcf to a build of 92 bcf.In the
East Region, stocks were 54 bcf above the 5-yr avg following net
injections of 67 bcf...fairly bearish for pricing...the follow the
oil guys might get burned...
(Attn Moravian/Lafayette) WSJ reports
heating-oil prices have dropped
to their lowest levels in months, but there are signs that tight
supplies could keep winter heating bills high even if crude prices
continue to tumble. Refiners have plenty of spare capacity. But because
of low profit margins, they have been reluctant to ramp up production,
running their plants at 85.7% of capacity last week compared with 91.6%
during the same period last year. Kevin Rooney, who heads the Oil Heat
Institute of Long Island, an association of heating-oil suppliers, said
current supplies can easily last until October or November, when he
expects refineries to step up production. But with heating-oil prices
falling, wholesalers and distributors may be reluctant to keep large
supplies. And limited supply
would drive up prices if, for example, the winter is colder than
expected or because of unexpected refinery outages.
T4 HEATING OIL BUY ALERT
ISSUED THIS AM...check your email.
08/20/08: Dept of Energy reports that crude oil
inventories had a build of 9390K (Bloomberg consensus is a build of
1000K); gasoline inventories had a draw of 6202K (Bloomberg
consensus is a draw of 3000K); distillate inventories had a build
of 481K (Bloomberg consensus is a build of 1000K). Bearish. Crude down a quick dollar in past 2 min, making session lows at
$113.20; now off $1.03 to $113.50. So much for the Goldman
pump. Fundamentals matter.
Goldman Sachs reiterates $149 oil price forecast - CNBC
--->Crude oil gains ~2 pts in past hour before pulling back from pre-mkt
high of 116.87 ..amazing how they can move the
market...fundamentals? Nah, it was on TV! Now think about
yesterday as they whispered to their traders that this prediction would
be broadcast today...that's how you make a ton of $$$.
NY Times reports in a plan that would drastically remake
New York City's skyline and shores, Mayor Michael R. Bloomberg is
seeking to put wind turbines on the city's bridges and skyscrapers and
in its waters as part of a wide-ranging push to develop renewable
energy. The plan, while still in its early stages, appears to be the
boldest environmental proposal to date from the mayor, who has made
energy efficiency a cornerstone of his administration. Mr. Bloomberg
said he would ask private companies and investors to study how windmills
can be built across the city, with the aim of weaning it off the
nation's overtaxed power grid, which has produced several crippling
blackouts in New York over the last decade. Mr. Bloomberg did not
specify which skyscrapers and bridges would be candidates for windmills,
and city officials would need to work with property owners to identify
the buildings that would best be able to hold the equipment. But aides
said that for offshore locations, the city was eyeing the generally
windy coast off Queens, Brooklyn and Long Island for turbines that could
generate 10 percent of the city's electricity needs within 10 years.
WSJ reports when U.S. futures regulators recently reclassified one of
the largest traders in the oil market as a speculator, they didn't
identify the co. But people familiar with the matter now say the co
whose activities helped change perceptions about the escalating pace of
oil speculation is Vitol Group, a large commodity-trading company with
headquarters in Europe. Though less well-known in the U.S., the co is
one of the biggest players in the oil mkt, linking buyers and sellers of
physical crude oil and refined products. It has interests in storage
terminals and oil exploration around the world and sold a large refinery
in Canada in 2006. In July, by changing the classification of a large
oil trader from a commercial to a "noncommercial" trader, the CFTC
showed that noncommercial speculators represented half or more of all
bets outstanding on the crude-oil benchmark traded at the New York
Mercantile Exchange, up from about 38% before the restatement. Combining
these noncommercial traders with another category of financial investors
brings the percentage of speculators in the oil market to far more than
half of all trading... It isn't clear why the CFTC decided that the
large oil trader's activities weren't primarily commercial in nature. No
longer owning the refinery could affect Vitol's ability to classify
certain trades as commercial activities.
08/18/08: Are we there yet? Crude continues to be
oversold, but if we cross our fingers we might still get below that
magic $100 line. Here's the
latest chart.
Anybody catch the fluff
piece in the Morning Call regarding the PUC's take on future electricity
prices? "Neither
scenario reflects the reality of PPL's wholesale energy costs."
It's really unbelievable...they cling to this 35% increase nonsense
while businesses (such as yourself) already know that 80% is more
likely. And what about 2011? That's been my point all
along...yeah, we get a blended rate in 2010...what about 2011? How
silly is this story? Of course the rates change by the day...they
change by the minute! It's the average, stupid! Why can't
they get that concept across?
08/14/08: Reuters.com reports Texas oil billionaire T.
Boone Pickens said crude prices may soon fall as low as $110 a barrel
amid falling gasoline demand, but should not sink below $100 because the
United States depends heavily on oil imports.
"I don't think it'll drop below
$100," Pickens told Reuters in a telephone interview. "I would
say $110 is where it might go, something like that." I said it
first! How come I'm not on Reuters?!
Natural gas inventory saw a build of 50 bcf to
2567 bcf, analysts were expecting a build of 52 bcf, ranging from a
build of 47 bcf to a build of 63 bcf. Seems right on track to
me...neutral.
July CPI y/y +5.6% vs +5.1% consensus; not
sure why this is such a surprise?
08/13/08: Crude rose $2.91 to $115.92, natural gas ended
higher by 15.2 cents to $8.482, heating oil finished up 5.07 cents to
$3.129 and RBOB gasoline closed higher by 8.43 cents to $2.9275. One
day reversal? Tomorrow will tell the tale.
Dept of Energy reports that crude oil
inventories had a draw of 316K (Bloomberg
consensus is a build of 300K); gasoline
inventories had a draw of 6394K (Bloomberg
consensus is a draw of 2150K); distillate inventories had a draw
of 1759K (Bloomberg consensus is a build of
1950K).Not the best case scenario...as I said, start
ticking down at the gas pump and start ticking up consumption is the
trend...
FWIW, have fun with this link:
www.closethegapopenthetap.comI agree with some of their
logic, but the results might not be as expected. Ignoring the
rhetoric, we import 66%...66%...66%. No matter how you cut it, the
US is the ultimate consumer and we need to wean ourselves from the tap.
Thomas Friedman has become the de facto energy
cop for the USA.
Check out his latest story. We all know that solar and wind
work, but they're not cost competitive. And we all know that
farmers and a host of other industries are subsidized. Would you
give up 0.01% of your salary if the money went to alternative energy?
I'm afraid that each downtick in crude prices will push this issue
farther from the radar of the sheeple. Why am I afraid?
Because despite a 20-year history that shows energy increasing at 15%
+/- 5% per year, our VP chose 10% as our forward projection and felt
that was still too high. Those that don't learn from history are
doomed to repeat?
08/12/08: Sept crude ($113.45 -$1.00) is modestly lower
this morning with easing tensions between Russia/Georgia and
continued strength in the dollar.
Russian President Dmitry Medvedev ordered a ceasefire in the conflict
with Georgia, thus ending the 5 day fracas over South Ossetia.
The dollar (currently at
$1.4899/euro) is stronger again, continuing its recent gains to the best
levels since late Feb. Crude is now off about $34 (or 23%) from
its all time high. Remember the SX3? Supply, speculation,
$. The oil stool has 3 legs and the market sharks are now nibbling
at the $. The spec leg has already been whittled down.
08/11/08: The (not a bubble?) commodity bubble has
burst. While everyone seems to think it's back to the good old
days, I'd say it's time to revisit moving averages and
support/resistance levels. Can oil get back under $100/bbl?
Yes. Can it get back to $70? I doubt it. All you need
to do is look at the editorial cartoons showing SUV drivers joyously
circling the pump. Remember, OPEC is a cartel. They can cut
production just as quickly as they raise it. Once the money is
flowing in, it's tough to accept less. Personally I think the
markets are pricing in a stronger US $ based on the election. Plus
they're a little upset with the hardline stance of the European Central
Bank.
I Mfested with an old friend who honestly believes that the new Repub
political mantra of "drill, drill, drill" is the reason prices are
coming down. It's tough to explain the reality of the production
charts and the import numbers. Nobody wants to hear it...we can
drill our way out! This is not a Rep/Dem issue...it's going
to take a UNITED effort to overcome.
Check out this story. We can't solve this problem without
sacrifice; i.e. it's going to cost something.
WSJ reports as major oil cos search for more
oil to meet growing global demand,
U.S. natural-gas companies face
the opposite problem: what to do with all the gas they soon will be
producing. U.S. natural-gas production is soaring, thanks to high
energy prices and new technologies that have unlocked reserves
considered too difficult or expensive to tap in earlier eras. Production
is up 8% this year, according to government data, and the growth is
expected to continue as companies drill thousands of wells in Texas,
Louisiana and Oklahoma, and look at massive new reserves in Appalachia
and Canada. Demand is growing, too, but more slowly. Total U.S.
natural-gas consumption is up 5.5% this year through May, spurred
largely by a gradual shift from coal power plants to cleaner-burning
gas-fired ones. Consumption actually fell slightly between 2003 and
2006. As some analysts have
begun to toss around terms like "gas glut," natural-gas futures
have tumbled 9.2% in the past two weeks, and they have brought
producers' stocks down with them. Shares of large natural-gas producers
CHK, XTO and EOG are all down 30% or more from their recent highs in
late June and early July.
08/08/08: Venezuela Energy Minister Ramirez says oil price
fluctuations due to speculation, would consider reduction in oil
production - Bloomberg.
Lehman
Brothers says oil prices to fall in Q4 and Q1 next year; Lehman says oil
has peaked for next few years - Bloomberg It's
pretty easy to make this call now with the price in retreat. Where
were they at $145?
Crude makes new session lows
at $115.75; now off $4.22 to $115.81.
Euro extends declines vs dollar and yen, falls the
most against the dollar since June 2004 - Bloomberg
08/07/08: Natural gas inventory saw a build of 56 bcf to
2517 bcf, analysts were expecting a build of 62 bcf, ranging from a
build of 51 bcf to a build of 65 bcf. Inventories are now 353 bcf
< 2007 and 6 bcf < 5 yr average. In other words, we're near
neutral with supply and demand in balance, hence the pricing structure
we're currently enjoying. I'm seriously thinking about going
longer on the hedge...if we expect 10% annual escalation and I can hold
the line at zero...why not? Hope for a deeper recession and more
demand destruction?
I was asked to provide a 10 year guess on energy
cost escalations. It sounds impossible, but my response is simply
15% +/- 5%. This provides a range of pricing that has worked over
the last 20 years. Use your scientific calculator's y to the x
button and plug in various scenarios. Natural gas is up 223% over
the last 5 years, which works out to about 20% CAGR.
08/06/08: Dept of Energy reports that crude oil
inventories had a build of 1614K (Bloomberg consensus was a draw of
200K); gasoline inventories had a draw of 4344K (Bloomberg
consensus was a draw of 1500K); distillate inventories had
a build of 2841K (Bloomberg consensus was a build of 2000K).
Who is doing all of that driving???
08/05/08: It's a
done deal for Lehigh...all of my limits were hit this AM and I've erased
the FY09 projected $1M deficit and now have a $100K surplus. My
average gas cost is $8.98 and my averaged basis is $1.50. Hess
trigger desk is very efficient. Bring on the Gulf storms!
Sept crude
($118.80 -$2.59) is trading well below the $120 mark this morning, with
session lows at $118 (levels not seen since early May). Traders
continue to believe that Tropical Storm Edouard will not damage
operations in the Gulf of Mexico or Texas as the storm is now forecast
to have only has about a 25% of reaching hurricane wind speeds,
according to the National Hurricane Center. It is expected to hit the
Texas coast by midday today. With diminishing concerns about the storm,
it appears traders attention will once again turn to weaker demand.
Crude oil is close to $30 off its all time high of $147.90, set back on
July 11.
08/04/08: CNBC discusses sell-off in energy
complex; says there is talk of a large hedge fund blowing up due to
incorrect position in nat gas...oh wait, there's no speculation in
these markets, right? So why does it matter?! Yeah right.
My November gas was filled this
AM : 30,000 @ $9.18. This is risk management 101.
Remember, my goal is on to under budget. The long end of the curve
isn't coming in just yet...patience.
Mr. Market sure thinks lower
energy prices are coming...big names in gas and oil can't rally and
continue to be sold off. My thought of $100/bbl as a the bottom
might not be that far-fetched...either way, use limit orders and be
patient. We've not seen a bottom yet... Crude continues to
fall fast as it is now off $4.70 to $120.46. Reminder...gas is in
a buying position, not oil.
Happy Monday. Gas continues
to appear oversold. Can it go lower? I hope so! My limit
orders are lower. Oil is still marching to the "geopolitical"
band.
07/31/08: Crude
declined $2.55 on the session to $124.22, natural gas
fell 12.9 cents to $9.119, heating oil
closed lower by 7.83 cents to $3.442.
Natural gas inventory saw a build
of 65 bcf to 2461 bcf, analysts were expecting a build of 70 bcf,
ranging from a build of 59 bcf to a build of 80 bcf. Working gas
in storage was 2,461 Bcf as of Friday, July 25, 2008, according to EIA
estimates. This represents a net increase of 65 Bcf from the previous
week. Stocks were 357 Bcf less than last yr at this time and 12 Bcf
below the 5-yr avg of 2,473 Bcf. In the East
Region, stocks were 5 Bcf above the 5-yr avg following net
injections of 55 Bcf. Stocks in the Producing Region were 12 Bcf
below the 5-yr avg of 764 Bcf no net change in stock levels. Stocks in
the West Region were 5 Bcf below the 5-yr avg after a net
addition of 10 Bcf. At 2,461 Bcf, total working gas is within the 5-yr
historical range. THIS IS A NET NEUTRAL REPORT IMHO...the
problem (or perception) is the lurking unnamed hurricane...if the
weather cooperates, we're headed lower...
Tesoro (a big refiner) says that
the market environment for petroleum products remains volatile and
demand for gasoline continues to run at rates below a year ago.
07/30/08: Let's be careful...2/3 of the oil
report was bearish while gasoline consumption suddenly moved
up...amazing how nat gas just follows it higher?! One day does not
a trend make...
(Analysts WRONG) Dept of Energy reports
that crude oil inventories had a draw of 81K (Bloomberg consensus
is a draw of 1300K); gasoline inventories had a draw of
3525K (Bloomberg consensus is a build of 350K); distillate
inventories had a build of 2396K (Bloomberg consensus is a build of
2050K). 66% BEARISH, 33% BULLISH...tiny drop in pump prices and
people starting driving again??? Crude oil chops back and forth
following mixed DOE inventory data; crude is now rising after initially
making a session low... crude is now -0.39 at
121.80.
(BEFORE) Petroleum inventory data is due out today at
10:35 E.T. According to the Bloomberg survey, analysts
believe that crude oil inventories had a draw of 1300K during the
week ending July 25 (last year crude saw a draw of 6497K); expectations
range from a draw of 2750K barrels to a build of 1500K barrels (11 out
of 11 analysts expect a draw); prior 4 week avg is a draw of 1607K...
Analysts believe gasoline inventories had a build of 350K (last
year gas saw a build of 586K); expectations range from a draw of 1500K
to a build of 1400K (8 out of 12 analysts expect a build, and 1 analyst
is unchanged); prior 4 week avg is a build of 2082K barrels... Analysts
believe distillate fuel inventories had a build of 2050K (last
year distillates saw a build of 2889K); expectations range from a build
of 800K to a build of 2700K; (12 out of 12 analysts expect a build);
prior 4 week avg is a build of 2172K barrels.
T4 NATURAL GAS BUY ALERT ISSUED
THIS AM...check your email.
07/29/08: Crude is now -2.53 at 122.23.
The dollar is gaining against other major
currencies (now at $1.56/Euro and at 108.12Yen/dollar).
Tomorrow @ 10:30A is make or break for the oil market...
I'm this close ( ) to a natural gas buy, maybe 50% of
our vols thru next June and EVERYBODY is on vacation...which is why it's
a good time to make the deal.
07/24/08: BEARISH! Natural gas
inventory saw a build of 84 bcf to 2396 bcf, analysts were expecting a
build of 80 bcf, ranging from a build of 70 bcf to a build of 85 bcf.
07/23/08: Dept of Energy reports that
crude oil inventories had a draw of 1558K (Bloomberg consensus is a
draw of 600K); gasoline inventories had a
build of 2847K (Bloomberg consensus is a build
of 200K); distillate inventories had a build
of 2419K (Bloomberg consensus is a build of 2500K). Hang
in there...we're going to test $122 soon...
Why you shouldn't listen to talking heads...CNBC
commentator..."it's amazing that oil is trading down as Dolly is
upgraded to a category 2 hurricane"...umm, maybe because it isn't
headed for the Gulf rigs? Fundamentals do matter. Maybe
because they've been pumping energy stocks for so long?
07/22/08: Oil investor Pickens says oil could
reach $300/bbl within 10 yrs if U.S. doesn't reduce dependence on
imports - Reuters It's about
consumption, stupid! Any policy that fails to address demand
reduction and/or conservation is doomed to failure. - T4
Crude drops sharply, making lows at
$127.36; currently off $3.27 to $127.77. Break $122 and NG <
$9 are the buy points...I'm prepared to lock down 80% of my needs for
FY09...
07/21/08: I'm on vacation this week, but
I'm still actively monitoring the markets and awaiting some updated
price quotes. Let's see if we can hit my $122 target on
crude...those moving average breaks on the charts are a good
signal...we're 50% of the way to a buy signal...I'm not yet calling it a
strong buy....it's a time to be ready and think about a lock.
Crude continues to sell off from session highs at
$132.05, coming all the way back to just above unchanged; currently
higher by 10 cents to $128.98; Wow. All of this in the face of a
potential Gulf storm!
07/17/08: Crude ended lower by $5.01 to
$129.59, natural gas
closed off by 84.8 cents to $10.55,
heating oil settled down 9.24 cents to
$3.748.
Natural gas inventory saw a
build of 104 bcf to 2312 bcf, analysts were
expecting a build of 88 bcf, ranging from a build of 70 bcf to a build
of 95 bcf. Yea! Bearish for prices...soon it will be
time to think about a budget commitment for the winter...Natural gas
continues its plunge, making lows at $10.66; now off 74.1 cents to
$10.657.
07/16/08: Crude ended the session lower by
$4.26 to $134.48, natural
gas settled off 7.7 cents to
$11.40, heating oil closed off 8 cents to
$3.839. Patience.
The uptrend has broken...let's see what happens at $122/bbl.
DOE Inventories: Large builds across
the board, well above expectations; Dept of Energy reports that
crude oil inventories had a build of
2952K (Bloomberg consensus was draw of
2200K); gasoline inventories had a build
of 2472K (Bloomberg consensus was draw of
800K); distillate inventories had a build
of 3189K (Bloomberg consensus was build of 2000K). Crude
falls sharply on bearish data, setting a new monthly low at $133.30;
currently down $5.25 to $133.49.
07/15/08: Where are the media trumpets?
Crude ended the session lower by $6.61 to $138.57, natural gas settled
down 49.4 cents to $11.465, heating oil closed off by 14.89 cents to
$3.916 (i.e. $4.12 delivered). Impressive in the face of this
headline: Libya announced
that it will cut oil production 100,000 barrels a day this week
due to pipeline maintenance (note that Libya has commented about cutting
production due to the fact that they believed the market was
oversupplied).
Here's the Fed statement:
Oil Price Comment: Our best judgment is that this surge in
prices has been driven predominantly by strong growth in underlying
demand and tight supply conditions in global oil markets; decline in the
foreign exchange value of the dollar has also contributed
somewhat (huh?) to the increase in
oil prices; concern that has been raised is that financial speculation
has added markedly to upward pressures on oil prices. You
already knew this...fear sells...sooner or later $ will flow from energy
(where demand is soon to die) to financials, where value is lurking.
Uh-oh... Bernanke says surge in
oil prices driven predominantly by strong demand, tight supply; Hey Ben,
what about the deficit and the comment below? It's notas if US
growth is fueling our demand. Bernanke says Fed worried
commodity prices may continue to rise, posing key risk to inflation
forecast. Ya think?
In Commodities, the dollar
is much weaker against the other major currencies, notably
setting a new all-time low of
1.6038 against the euro, and that is pushing Aug crude oil
($146/13 +0.95) back near its record high ($147.27)... As I
mentioned at the LVAIC meeting, we're toast until/unless the banks are
healthy, and this crisis is rapidly turning into a self-fulfilling
prophecy whereby the brokers keep telling us how they (the banks) all
need more money while their assets are worthless. We can't have a
market that is all energy, all the time (though we do). Freddie
and Fannie could need a $trillion bailout...except we already spent that
dough in Iraq...and yet some pols say no new taxes???
07/14/08: I trust everyone noted the
week-over-week declines in natural gas?
That's a beautiful break below the moving average. Now if we don't
get any big Gulf storms...
Boo-hoo...the oil tankers are crying this morning that
demand is way down and their profits are set to slip...demand
destruction is affecting nearly everything EXCEPT the price of
oil...because the $ is still weak...
07/10/08: Noting the spike in crude oil
into the close, a series of newspaper stories came out stating that the
head of OPEC warned against an attack on Iran. For example, the Intl
Herald Tribune reports that: "The head of the Organization of
Petroleum Exporting Countries warned Thursday that oil prices would see
an 'unlimited' increase in the case of a military conflict involving
Iran, because the group's members would be unable to make up the
lost production. "We really cannot replace Iran's production - it's not
feasible to replace it," Abdalla Salem El-Badri, the OPEC secretary
general, said during an interview.
Iran, the second-largest
producing country in OPEC, after Saudi Arabia,
produces about 4 million barrels of oil a day out of the daily worldwide
production of close to 87 million barrels. The country has been
locked in a lengthy dispute with Western countries over its nuclear
ambitions. In recent weeks, the price of oil has risen higher on
speculation that Israel could be preparing to attack Iranian nuclear
facilities. The saber-rattling intensified this week with missile tests
by Iran. That has further shaken oil markets because of concerns that
any conflict with Iran could disrupt oil shipments from the Gulf
region."
WSJ reports legislators
scrambling to respond to rising food and energy prices are questioning a
stalwart feature of those commodities' futures markets: low margin
requirements. Margin, in effect the good-faith deposit that exchanges
and brokers require investors to put up to maintain a position, has
traditionally been low in futures markets, 5% to 8% for commodities and
just a bit higher for stock and bond futures. But with oil and food
prices soaring this year, legislators are considering proposals to push
up margin requirements on speculators in an effort to drive them out.
One idea, for example, from Sen. Byron Dorgan (D., N.D.), suggests
raising margins to 25% for any energy traders that aren't commercial
producers or purchasers. The change is one of several to
commodities-markets regulation under consideration at a three-day
hearing this week before the House agricultural committee.
07/09/08: Forget the BS headlines and focus on
this: U.S. crude oil imports averaged 9.5 mln bpd,
down 621K w/w; over the last four
weeks, motor gasoline demand has averaged 9.3 mln bpd,
down by 2.1% y/y; Distillate fuel
demand has averaged about 4.2 mln bpd over the last four weeks,
up by 1.3% y/y; Jet fuel demand is
2.2% lower over the last four weeks y/y. This
trend needs to continue...I think the distillate is hoarding...Iran is a
wild card...
Here's a good
story that mimics a lot of what we discussed at the last LVAIC
meeting.
Here's
another reality
check on alternative energy. As we discussed at our last
meeting, it's not just buy a windmill or install solar, it's WHERE you
do it. Sure they work; but some places are much better than
others. Why would you invest $millions in a wind turbine if the
wind doesn't blow? Or the sun doesn't shine? I don't see
that many geothermal plants on the drawing boards for the ABE area?!
07/08/08: Boone Pickens discusses potential
scenarios for oil; says he'll stick with $150 tgt on oil. Says demand
coming down should bring things into better balance. Believes we could
have $200/$300 oil if something happened in Iran, but oil could get back
down to $100 in next two years. This time I tend to
agree...demand destruction combined with a stronger $ will help...
One day does not a trend make, but the energy short ETF
(DUG) exploded upwards yesterday and there was some carnage in the
oil/gas stocks. If the brokers start hawking BUY signals today
then it might be time for a correction. T Boone the contrarian?
07/07/08: Ugh. Take a look at this
table. Draw your own
conclusions. Big money is swimming in this pool and won't take
kindly to uninvited guests.
So it's not speculation?
The WSJ reports oil's historic ascent from $100 to nearly $150 a barrel
in just six months is lending weight to a far grimmer prediction:
Crude could reach $200 a barrel
by the end of the year. Oil at that price would wreak deeper
havoc on the world's airlines and automobile industries. In the U.S.,
$200 crude would push the price
of gasoline to well over $6 a gallon, causing commuters to alter
their driving habits more sharply than they have already, while putting
extreme strains on large sectors of the U.S. economy. In Washington,
deepening fears that oil prices will shoot still higher have stoked talk
in Congress and within the Bush administration of using one of the last
remaining cudgels to try to reverse the price rise: a sharp and
sustained release of oil from the U.S. Strategic Petroleum Reserve.
Oil's seemingly unstoppable rise has also scared off some of the very
financial players that would otherwise temper the market.
Oil producers who would normally
lock in high prices by hedging on the futures market have now backed
off, assuming that prices will continue to rise. A release of 2
mln barrels a day for long as a month, analysts say, could make a sharp
impact on prices, in part because the barrels would be sold at auction,
thus allowing buyers to set the oil's value. Please review the
oil storage charts...this is a financial crisis, not a supply crisis.
AP reports the price for a barrel of oil shed more $2
Monday with the dollar gaining
strength, but traders watched for a further weakening of the
greenback and renewed Mideast tensions.
The WSJ reports The House Agriculture Committee will
host hearings examining whether the Commodity Futures Trading Commission
has a strong-enough grip on the fast-growing, $5 trln futures market for
oil and other commodities or needs other tools. It also will examine how
that market is affected by the $9 trln "over-the-counter" market that
has mushroomed outside CFTC regulation. The committee has asked
lawmakers to outline competing bills that could significantly reshape
the commodities markets. In addition to calling for the collection of
more-detailed trading data, some measures seek to ban pension funds
from commodities; sharply increase the collateral required to make a
trade; or limit the size of some investors' trades... Economists
warn of serious unintended consequences if Congress drives away
speculators. Without as many traders, for example, energy companies
might have a harder time locking in prices for future oil production and
may curtail exploration.
07/03/08: Coal stocks are crashing and all
of those little spec plays that I mentioned at the LVAIC meeting are
also crashing this AM...and the brokers are tripping all over themselves
reiterating BUY...remember what I said? When the Street is pumping
to retail, it's nearly over...if you're feeling lucky, buy BP < $60...it
pays better then a CD and will appreciate with inflation.
Here's a reason to further jack up nat gas prices:
inventory saw a build of 85 bcf to 2118 bcf; analysts were expecting a
build of 89 bcf, ranging from a build of 73 bcf to a build of 93 bcf.
Above the middle of the expected range? Not good enough. BUY BUY
BUY!!! Or not? I see some carnage in the energy stocks this
AM...a lot of technical breakdowns...the next 5 days will tell if it's
the real deal or a "buy the dip".
07/02/08: Looks like the coal price bubble just
broke this AM...In addition to a big drop in South African coal
prices, European coal prices declined the most in several years.
According to Bloomberg, European coal prices saw their biggest
decline in three years, with fuel for delivery to Amsterdam,
Rotterdam or Antwerp with settlement next year retreating $22.50, or
10%, to $195/metric ton. That would be the biggest drop since Mar
2005. One day = biggest decline in 3 years!
07/01/08: Minutes ago, OPEC Secretary
General Abdalla El-Badri appeared on CNBC and said he thinks the
high prices in oil come from the US dollar and speculators. Says
that there is no shortage of oil in the market. They are
producing more than they should. Says storage stocks are within the 5
yr average. They have about 3 mln barrels of excess capacity this
year, so they don't see any shortage whatsoever in the market. Believes
that everyone is panicking. Says that there is not enough capacity for
heavy crude refining and that's a problem.
Says that increased production
is irrelevant if there's no one to buy the oil. PLEASE SCROLL DOWN AND READ MY 6/11/08 COMMENT!
And then we get
the usual geopolitical wild card: ABC News reports that Sr
Pentagon officials are concerned that Israel could carry out an attack
on Iran's nuclear facilities before the end of the year, an action that
would have enormous security and economic repercussions for the United
States and the rest of the world. A senior defense official told ABC
News there is an "increasing likelihood" that Israel will carry out such
an attack, a move that likely would prompt Iranian retaliation against,
not just Israel, but against the United States as well. The official
identified two "red lines" that could trigger an Israeli offensive. The
first is tied to when Iran's Natanz nuclear facility produces enough
highly enriched uranium to make a nuclear weapon. According to the
latest U.S. and Israeli intelligence assessments, that is likely to
happen sometime in 2009, and could happen by the end of this year. The
second red line is connected to when Iran acquires the SA-20 air defense
system it is buying from Russia. The Israelis may want to strike before
that system -which would make an attack much more difficult- is put in
place. Some Pentagon officials also worry that Israel may be determined
to attack before a new U.S. president, who may be less supportive, is
sworn in next January.
06/30/08: FWIW...here's what happens when a
regulated utility asks for a rate increase: The Public
Utilities Commission of Nevada approves an increase in electric rates
for co's Sierra Pacific Power Company. The increase, effective July 1,
2008, is the result of the company's mandatory rate case filing made
every three years. The general rate increase granted by the Public
Utilities Commission of Nevada allows the co to recover costs associated
with investments in new transmission and distribution lines, substation
and equipment improvements, labor and a return to the company's
shareholders. The Public
Utilities Commission of Nevada established an overall rate of return
for the company of 8.41% and a return on equity of 10.6%. The
overall revenue increase to the co is $87 mln. Boo-hoo, Wall
Street isn't happy...
The "tape" this AM is painted
with brokerage houses tripping over themselves to upgrade the stocks of
anybody and everybody related to energy. Of course none of this
was happening in February 08, so take it with a grain of salt.
Usually once they start pumping to retail investors, it's the end of the
game (a/k/a distribution). As I said at our meeting, we're
spinning our wheels if the banks aren't healthy. There will be no
global demand increase if the US doesn't pump money into the economy.
06/25/08: Here's
a chart of the EUR/$ that I
mentioned yesterday. Oil, in US $ terms, is actually the
equivalent of maybe $88/bbl to them. This is one reason you hear
the Saudis and others claim not to see a problem.
PPL Corp added to the Short-term Buy
List at UBS; like I said yesterday, they're set to fleece PA and
book record profits if nothing changes...
06/24/08: Paulson says supply-demand key
factors behind oil prices, need more output. Trzesniowski says
supply-demand key factors behind oil prices, need more conservation.
Where does it end? WSJ
reports U.S. coal producers have been largely unable to meet growing
demand because of a lengthy permitting process, lack of capital
investment and a shortage of skilled miners, which will keep supplies
tight and prices high. The underlying industrywide issues are compounded
by severe floods in the Midwest, which have stranded barges full of coal
and submerged railcars used to haul coal. It isn't clear what impact
those interruptions will have on supplies and prices. Paul Forward, a
coal analyst with Stifel, Nicolaus, expects demand for coal in the
U.S. to outstrip supply this year by 15 mln tons, in large part because
of the increase in exports, which shot up 49% through April compared
with last year. Constraints to production also played a role in the
growing shortfall, he said. "Despite the strong margins that coal cos
are seeing, the supply response has so far been limited," said Mr.
Forward. "I think it's probably a couple years worth of time where these
markets stay tight." Up to 40 million tons of potential and anticipated
coal production is being held back because of delays in obtaining
environmental permits and new safety regulations, estimates David Khani,
director of research at FBR Capital Markets.
06/23/08: Great minds think alike?
Barron's reports it's perilous to call the top in a booming market, but
the price of oil may be peaking in the current range of $130 to $140 a
barrel. In the next decade, oil indeed may hit $200 a barrel. But prices
could fall to $100 a barrel by the end of this year if Saudi Arabia
makes good on its pledge to increase production; global demand eases;
the Federal Reserve begins lifting short-term interest rates; the dollar
rallies, and investors stop pouring money into the oil market. China
raised prices on retail gasoline and diesel fuel by 18% Thursday, in a
move that is expected to curb demand. It's tough to know how much of the
surge in crude-oil prices -- up 40% just this year -- reflects
fundamental supply and demand, and how much is due to other factors,
including the dollar, commodity speculation and interest from
institutional investors. Like some others, we suspect the run-up was
fueled by more than economics.
WSJ reports natural-gas prices, up 74% since the year
began, could be headed higher amid predictions of an unusually hot
summer in parts of the nation. If those forecasts play out,
air-conditioner use will rise -- and with it, demand for electricity
production fueled by natural gas, possibly driving futures prices to
records. In Washington and Saudi Arabia, where world leaders gathered
during the weekend to discuss high energy prices, much of the focus was
on the price of oil, which remains near its highest closing on record.
Natural-gas prices have been soaring despite increased domestic
production... "We could see $15 gas this summer. All the elements are
there," said Jefferies analyst Subash Chandra. Experts attribute
high oil prices to a blend of factors: foreign turmoil, increased
speculation, industrialization in India and China, and the weak dollar.
Explaining the rise in natural-gas prices is relatively simple: It's the
weather... The long-term outlook for U.S. natural-gas prices is less
clear. Demand for natural gas for power generation is rising as
utilities look for a cleaner alternative to coal. But supply is rising
as well, thanks to a drilling boom driven by higher prices. U.S.
natural-gas production was up 7.7% in March compared to the previous
year, according to the Energy Information Administration.
06/20/08: Today it's the old "geo-political"
goose: July crude ($134.92 +$2.99), which expires today, is
trading higher this morning on the heals of a report that Israel carried
out a major military exercise earlier this month that American officials
say appeared to be a rehearsal for a potential bombing attack on Iran's
nuclear facilities. Several American officials said the Israeli exercise
appeared to be an effort to develop the military's capacity to carry out
long-range strikes and to demonstrate the seriousness with which Israel
views Iran's nuclear program. Also helping lift oil higher are reports
out of Nigeria that oil workers at Chevron's Nigerian unit plan a
disruption starting June 23 after talks with mgmt failed to resolve a
labor dispute. Expect a volatile day in the crude market with today's
expiration of the July contract as well as traders eyeing this weekend's
Jeddah meeting. The spread to August is currently -$0.67. SSDD.
06/19/08: Saudi Arabia says to increase daily
oil output by 200,000 barrels .
The National Development and Reform Commission of China
just sent notice of its decision to raise gasoline, diesel and jet
fuel price by 1000, 1000 and 1500/RMB per ton, separately, starting Jun
20th. Also, electricity prices will increase 2.5 cents per kilowatt-hour
beginning on July 1st. The increase does not include consumer retail
electricity price and electricity used by agriculture and fertilizer
producers. Also, this round of price increases does not include liquid
gas and natural gas. The NDRC said they are aware of soaring crude oil
prices and the consequentially deepened price gap between that and the
price of oil in China. To relieve the pain caused by the price
increase to domestic consumers and curb inflation, they will take
supporting measures simultaneously, such as to subsidize certain
industries including agriculture, fishery, forestry and public
transportation. The NDRC also decided to control steam coal prices from
now until Dec 31st, 2008. During this period, the coal production
companies cannot raise the price higher than the settlement price on
June 19th, 2008.
You can't ignore the big $: DJ
is reporting Goldman Sachs
continues its bullish-on-oil campaign, raising view of oil
services sector to attractive from neutral and increasing targets for
services companies by average 12%. Firm expects "a prolonged period of
double-digit earnings growth through 2011, driven by accelerating rig
count growth, rising land and offshore dayrates and service intensity."
Drilling activity trends also are slightly better than expected in some
markets, Goldman says, lending confidence to 2Q earnings and potential
upside in 2H; record cash flow should also drive consolidation and
buybacks.
06/17/08: Only here, in the USA, could our tax
policy be so skewed: Senate blocks tax breaks for wind and solar
energy - Bloomberg. Germany, Spain, Italy, Korea, France, ...
solar is going gangbusters. God forbid we forsake some
precious tax dollars for something that cuts our dependence on power
plants. Bloomberg reports the Senate Republicans for the second
time in a week blocked a tax measure to renew dozens of tax breaks,
including a business research credit and incentives to develop wind,
solar and other renewable energy sources. Republicans objected that the
legislation would boost other taxes to avoid increasing the federal
deficit. The 52-44 vote was short of the 60 votes needed in the Senate
to move forward on the legislation. The vote was a repeat of one taken
June 10 and continues the debate over whether Congress should approve
popular business tax cuts even if they add to the deficit.
Stupid is as stupid does.
Is he talking up his position?
Reuters.com reports world crude oil production has topped out at 85 mln
barrels per day even as demand keeps climbing, helping to drive a
stunning surge in prices, billionaire oil investor T. Boone Pickens
said. "I do believe you have peaked out at 85 million barrels a day
globally," Pickens, who heads BP Capital hedge fund with more than $4
bln under management, said during testimony to the Senate Energy and
Natural Resources Committee. The United States alone has been using "21
million barrels of the 85 million and producing about 7 of the 21, so if
I could take just a minute on this point, the demand is about 86.4
million barrels a day, and when the demand is greater than the supply,
the price has to go up until it kills demand," Pickens told lawmakers.
CFTC to set position limits on ICE
futures Europe exchange - Bloomberg.
Iraq Oil Min says OPEC set for small
output increase.
Wow. A judge who actually
interprets the law in favor of the consumer...A New York
administrative law judge recommended on Monday that state regulators
disapprove Iberdrola SA's $4.5 billion takeover of US
utility Energy East Corp saying the deal is not in the public's
best interest. Not a complicated concept..."not in the
public's best interest". If only our own PUC and legislature would
follow that principle...
Different utility --- same issue:
WSJ reports The faucets in one of six U.S. homes pour water provided
by a private co. Now, some of
these communities are revolting against their corporate water systems,
attempting to put their water under government control because of
concerns over rising rates and service disruptions. Cheers broke
out in a packed senior center near the mountain village of Felton on
June 5, when the local water district officially wrested control of the
town's water from a unit of American Water Works.. Felton residents
waged a years-long battle to bring their water back to local control.
American Water finally agreed in May to sell the system to the local
public water district, which Felton recently joined, for $10.5 mln in
cash and assumption of $2.9 mln in debt. Similar conflicts have flared
up around the U.S. over the past few years -- part of a backlash against
a wave of water-works-privatization deals in the U.S. that began in the
1990s as cash-strapped municipalities sought to defray the costs of
upgrading old water plants and other infrastructure.
06/16/08: Oppenheimer believes the
current record high oil prices are not justified by supply and demand
and are mainly the result of excessive speculation. They note there
has been no meaningful supply disruption to fuel concerns about
potential shortages, and the world's refining system has been well
supplied, while oil demand growth forecast has been trimmed as a result
of the worldwide economic downturn. They say the prevailing market
fundamentals should have resulted in oil prices at or below last year's
level of around $65/barrel, but instead, oil prices surged by more
than 100% in the last 12 months. They believe the government's
inability, or unwillingness, to curb excessive speculation has
significantly contributed to the current oil bubble.
Ignore this nonsense:
Crude oil sets
new record of $139.89; currently trading +3.70 at 138.58. I
really think we're in a "short squeeze" situation whereby the folks
betting against the price rise are constantly forced to cover their bets
and buy to close their positions. Demand dropping, Saudis pumping
more oil, conservation coming along, ...It's panic buying, which is what
happens when a short squeeze occurs.
NY Times reports a prominent
Washington lawmaker said Wednesday that he would
propose next week to ban large
institutional investors, including index funds, from the nation's
booming commodity mkts. The idea is one of several outlined by
Senator Joseph Lieberman, independent of Connecticut, who is chairman of
the Senate Homeland Security and Governmental Affairs Committee. That
committee will hold a hearing on June 24 to continue examining whether
financial speculation is affecting the prices of crops and fuel. "There
is excessive speculation in the
commodity markets that is driving up the cost of food and energy,"
the senator said in an interview. "The question is, do large
institutional investors play a positive role?" His concern, he
said, is that they do not.
06/11/08: Let's put this in perspective:
Crude ended higher by $5.14 to $136.45, natural gas finished up 22.7
cents to $12.662, heating oil settled higher by 16.86 cents to $3.981
and RBOB gasoline closed up 15.4 cents to $3.4733. What
changed to justify a 3.9% price increase? That's more than the
average guy's wage increase for an entire year.
Addendum to yesterday's note...the
line in the sand, so to speak, is $135/bbl. Demand numbers show
that we're finally consuming less oil. If prices go up from here,
it's probably speculation...if prices fall, it's back to economics.
Time will tell...
US DOE says crude prices to stay
well above $100/bbl through '09; says gas prices expected
to stay around $4/gal through 09 - DJ
OPEC Secy Genl says we have to put a
brake on the futures market - DJ. Amen.
06/10/08: OK, I'm putting this in writing.
The pundits and financial shows and Wall Street all have a vested
interest in pumping energy prices higher. They smell profits from
one niche of the economy while ignoring the social implications of what
happens when the entire economy tanks. Years ago Houston was
minting millionaries from anyone working in the oil industry (Remember
Dallas? Urban Cowboy? And that cycle ended
badly...and brought us ENRON! All financial bubbles eventually
pop, whether it's tulip bulbs, Internet stocks, housing, whatever.
Buying now is playing into the hands of the speculators because you're
listening to the $200/bbl people (who are long the stocks). If
people can't afford to drive and/or heat their homes, the economy is
headed for a major shock and the "developing countries" won't be seeing
the big income gains they expect...look at China's stock market sell-off
today. I recognize inflation and rising prices, but like anything
on Wall Street, the projections have gone too far, too fast, IMHO.
Take a look at the mall parking lots. Lehigh is wrestling with
this issue and the urgency to "lock down" now is in and of itself a
contrarian indicator. Clearly there will be a change in DC come
1/20/09 and fiscal sanity should help the US $; a national energy policy
would be a bonus, as would (painful as it might sound) more tax on
gasoline, whether the $ goes to alternative research or maybe subsidies
on hybrids. The pundits assume demand continues unabated...the
charts disagree. High prices cure high demand. The Fed
fighting inflation is NOT a bad concept. Drive less, invest in
energy savings projects, fight electric deregulation, and we might get a
break. If not, move South!
Crude
continues its upward move in electronic trade; now up $3.20 to $137.55
Saudi Oil Ministry is saying production is up by
almost 500K barrels/day this qtr, putting total output at 9.45 mln bpd;
CNBC reports the Saudi Oil
Ministry also said the current price of oil is unacceptable, and oil
prices are unreasonable.
The Wall Street Journal reports The International Energy
Agency on Tuesday lowered its
forecast for global oil demand this year amid surging prices, but
said the world's hunger for oil is still knocking the market off
balance. "Supply growth so far this year has been poor and higher prices
are needed to choke off demand to balance the market," the agency said
in a monthly report. The agency predicted global oil product demand in
2008 to grow by 0.9%, or 800,000 barrels a day, down from the 1.2%, or 1
mln barrels, forecast earlier. The change follows decisions by
several developing countries to reduce fuel subsidies because of
high oil prices. The agency has also made upward revisions to its 2006
and 2007 data. The agency lowered its 2008 global demand forecast to
86.8 mln barrels a day, down 80,000 barrels from last month. The agency
has been steadily lowering its demand predictions for the past several
months as oil prices have climbed. The IEA
predicted U.S. oil demand would
contract by up to 2.5% this year to 20.3 mln barrels a day.
"Airlines are cutting flights. ... Consumers are protesting and
politicians' statements reflect that mood," the report said. Lower
fuel taxes or higher subsidies would, the agency said, be "absolutely
the worst response."
06/09/08: Reuters.com reports
Saudi Arabia said on Monday it
will call for a meeting between oil producing and consuming nations to
discuss unjustified rises in oil prices. The Saudi cabinet also
said that there were no fundamental reasons for the oil price surge
adding that markets were well-supplied.
OPEC'S Badri says OPEC has no
influence over speculation, ability to influence market limited -
Reuters Badri says member countries committed to investing
over $160 bln to add extra 5 mln bpd output by end 2012; says
no shortage of oil in market, inventories of major consumer regions at
comfortable levels, according to statement.
So, there's no speculation in the market, eh? One
need look no further than the
6 oil chart; Sunoco and
Hess have all of that inventory already refined and it's now worth 10%
more overnight? This is going to end badly. Inflation is one
thing, but prices are being manipulated while supply and demand are in
balance. And I can't believe demand isn't starting to slack off.
The failure of the emerging market argument is simple...if the US stops
consuming and spending, who is going to buy all of their goods?
And their governments can't keep subsidizing the cost of oil forever.
Or have a look at the $/MMBTU
chart. Look at the scale! Those buyers are in a panic.
THIS IS NOT THE TIME TO JOIN THE PANIC AND BUY. IF PRICES CONTINUE
AT THIS PACE THE ECONOMY WILL FALL APART.
06/06/08: Crude makes new all time highs at
$135.40; now up $7.46 to $135.25. Talk about a vicious cycle...In
Europe, mkts tumbled, after data showed a jump in the U.S. jobless rate
that sent the dollar down and led to a surge in the oil price.
Jobless rate rises, dollar gets whacked, oil goes higher, leading to
less consumption leading to more joblessness? At least we know the
US dollar is the primary driver of price.
06/05/08: Forbes.com reports is it possible
for Congress to stumble into a correct or honorable action on the
economic front? Just such an event seems to have occurred in May, with
the passage of a bill to halt deliveries of crude oil to the Strategic
Petroleum Reserve. When it takes effect July 1 the bill will cause an
immediate pullback in the price of oil, as much as $20. So says
energy economist Philip Verleger. His prediction is surprising, given
that injections into the reserve are just 60,000 barrels a day--0.3% of
U.S. oil consumption. But he notes that much of what's being hoarded by
the government is light, sweet crude from Arabia, Nigeria and the North
Sea--the stuff fetching headline prices of $135 a barrel. The market for
high-quality crude is very tight.... In a Nov. 29, 2004 column in
Forbes, Johns Hopkins economist Steve H. Hanke estimated that the
reserve was adding $10 to the price of oil ($55 at the time).
A third electricity retailer
defaulted on its obligations in Texas, slammed by a deregulated market
that continues to be roiled by extremely high -- and so far, unexplained
-- wholesale power prices. Fearing that soaring costs could
destabilize more cos, the state's grid operator is taking steps to
change some market rules, possibly in an emergency board meeting on
Friday.
Here's what our fuel binge and/or
lack of a national energy policy has accomplished: Times of
London reports Kuwait Investment
Authority is preparing to make further investments in American financial
institutions such as Merrill Lynch and Citigroup to profit from
fears that banks are still short of cash despite collectively raising
nearly $300 bln worldwide recently... KIA, which did not mention Lehman
as a target, said that it was looking to build on previous investments
in the United States, which include V, MER and C. Bader al-Saad, KIA's
managing director, said: "We are in Visa and we are already looking
at other opportunities. In Citi or in Merrill, if there is a good
opportunity, we will look into it." That's just one
example...our petrodollars are literally fueling a buying spree...
Some 35 years after the first oil shock, Brazil has
moved from dependence on imports to self-sufficiency while the United
States still relies on imported oil for more than half its needs. In the
same period, Brazil has developed the world’s most advanced ethanol
program, based on sugar cane, while the U.S. corn ethanol program is
essentially a wasteful folly of dubious carbon offset merits. Corn
is food. Turning it into fuel, which is costly and energy-intensive,
removes nourishment from the global food supply. Subsidizing
corn-ethanol production in Iowa also diverts land from soy, another
important staple.Sugar cane is not a staple. It’s eight times
more productive than corn. It grows year round.
06/04/08: Bernanke on inflation - ""For a
central banker, a particularly critical difference between then and now
is what has happened to inflation and inflation expectations. The
overall inflation rate has averaged about 3-1/2 percent over the past
four quarters, significantly higher than we would like but much less
than the double-digit rates that inflation reached in the mid-1970s and
then again in 1980. Moreover, the increase in inflation has been
milder this time--on the order of 1 percentage point over the past year
as compared with the 6 percentage point jump that followed the 1973 oil
price shock. From the perspective of monetary policy, just as
important as the behavior of actual inflation is what households and
businesses expect to happen to inflation in the future, particularly
over the longer term. If people expect an increase in inflation to be
temporary and do not build it into their longer-term plans for setting
wages and prices, then the inflation created by a shock to oil prices
will tend to fade relatively quickly. Some indicators of longer-term
inflation expectations have risen in recent months, which is a
significant concern for the Federal Reserve. We will need to monitor
that situation closely. However, changes in long-term inflation
expectations have been measured in tenths of a percentage point this
time around rather than in whole percentage points, as appeared to be
the case in the mid-1970s. Importantly, we see little
indication today of the beginnings of a 1970s-style wage-price spiral,
in which wages and prices chased each other ever upward."
This reporter from the Morning Call does no good by
continuing to parrot the 34% / 42% increase numbers from PPL. And
this story is goofy...PA tags
along on (yet another)complaint against PJM for the RPM while ignoring
LMP? We can't even take the lead? "could discourage
companies from investing in new plants..."???!!! Yeah right.
Like I've said before, why would they? Would you spend a ton of
money to LOWER your profits? No! Not in a deregulated world.
That's why we had regulation. FWIW, RPM added 19% to wholesale
power cost IN THE PPL ZONE (only).
06/03/08: Sad for the workers, but it's
overdue: General Motors to cease production at four truck
production plants; GM to cut North American truck capacity by over 700K
units. This from the CEO who vehemently opposed mandatory fuel
economy targets because they would add $5,000 to the car's cost.
The growth of funds designed to mimic the price of crude
oil and other energy futures is reminiscent of a similar craze that
precipitated the stock market crash of 1987, billionaire financier
George Soros told lawmakers Tuesday. The surge in popularity of
commodity index funds is "intellectually unsound ... and distinctly
harmful in its economic consequences," Soros told a Senate hearing.
When speculators enter a market
mostly on one side -- in this case, betting on rising oil futures -- it
"distorts the otherwise prevailing balance between supply and demand."
06/02/08: Daily Telegraph reports two of
the world's largest energy exchanges have forced traders to
deposit significantly more money
when investing to curb volatility in energy markets and
drive out speculators.
The exchanges and related clearing houses have found themselves at the
center of the growing storm over claims that speculators have been
behind the recent rise in oil prices to record levels. The NMX and ICE
Futures Europe in London, the former International Petroleum Exchange,
have now tripled "margin calls" for some contracts. They hope the
increased margin calls will reduce volatility and force out some of the
more speculative players. Nymex has announced a threefold increase in
margin calls for long-dated Brent crude futures in New York. As a result
margin calls on some contracts will jump from $100 to $300 for clearing
members.
FT reports the solar power business is bracing itself
for a collapse in prices that could lead to a shake-out in one of the
most promising areas of the renewable energy sector...prices
for solar components could drop from about $3.80 per watt to about $1.40
a watt by 2010.
WSJ reports
wholesale power prices in Texas
have surged to new heights, confounding market officials and
worrying regulators who see early signs that the situation could
destabilize the state's
deregulated electricity markets. The spikes in wholesale power
prices -- ominous and so far
unexplained -- could take a big toll on both power providers and
electricity customers if they persist. The state's utility commission
held an emergency meeting Thursday, "which shows the level of concern,"
said commission spokesman Terry Hadley. The situation will eventually
cost consumers "tens of millions of dollars," though it may take weeks
to show up in utility bills, according to Dan Jones, the state's
independent market monitor. Mr. Jones said he and other grid officials
are examining the computerized system that is used to balance generating
supplies with consumer demand, as well as market rules and the conduct
of market participants... Officials fear that if prices continue to
be high, it could create a cascading problem in which electricity
resellers are driven out of business because they are paying more for
electricity than they can charge. Even if providers do pass costs
onto customers, they may see higher default rates because consumers --
already struggling with high gasoline and diesel prices -- can't afford
the higher bills. LMP LMP LMP LMP LMP LMP LMP LMP LMP LMP LMP...it
will kill us.
Let me make something perfectly clear...there is NO
INCENTIVE for
clean coal projects and/or generation expansion due to the structure
of the deregulated market.
05/28/08: I myself grew up on horsepower
and muscle cars...but
this op-ed rings true...I've said it before...there is a reason that
Toyota is worth 100x GM. I'm personally disgusted by the latest
ads on the radio touting how we are all wrong about the Hummer.
Bloomberg reports that
crude oil fell to a one-week low
on concern record fuel prices will cut demand at the height of the U.S.
driving season. U.S. consumer confidence dropped to the lowest level
since October 1992 yesterday. The average U.S. gasoline pump price
reached an all-time high May 26, crimping demand from motorists. Oil
demand typically peaks during the summer as U.S. drivers take to the
road for vacations. Crude oil for July delivery dropped as much as $2.35
a barrel, or 1.8%, to $126.50 a barrel on the New York Mercantile
Exchange. That's the lowest since May 19. It traded for $126.79 at of
10:21 a.m. London time. Yesterday, oil fell more than $3 a barrel, the
biggest one- day drop since April 29, to close at $128.85.
Futures reached a record $135.09
on May 22 and have doubled in the past year.
05/27/08: How stupid are our politicians?
B-fast w/ PPL CEO to discuss price caps and 2010?! He has nothing
to do with deregulation, can't change the market prices, and stands to
double or triple his net worth if nothing changes. Yeah,
he's there to listen....
Another deregulation horror story: NY Times
reports the squeeze on truckers' profits from rising fuel costs is
compounded by the slowing economy, which is reducing freight traffic.
Truckers say they find it hard to impose fuel surcharges, in part
because their industry has suffered for years from over-capacity as
deregulation drew thousands of small operators into trucking.
John Seibert, a research analyst at the Owner-Operator Independent
Drivers Association, said "that a company seeking to ship something can
put a load on a dock and some trucker will come by and pick it up,
accepting the offered rate." Like the truckers, air freight operators
are being hurt by higher fuel costs, although less so. But railroads,
the third pillar in the nation's freight infrastructure, have so far
sidestepped losses, the Association of American Railroads reports.
That is partly because of rising
exports of coal and grain, which travel by rail to port cities,
and partly because some trucking companies have turned to rail to move
trailers long distances... Still, 70% of the nation's freight tonnage
moves over the highways on trucks, much of it in the diesel-powered
tractor-trailers of the nation's 350,000 independent operators, each
with a fleet of up to five vehicles, one usually driven by the
proprietor. Profit margins, notoriously thin in good times, are
minuscule now, and each rise in fuel prices pushes more truckers into
the red. (Rising exports of coal...think about that one...)
05/21/08:
Crude makes a new all-time high at $133.38, now up $4.10 to $133.06
I assume everyone recognizes that one
strategy for the 08-09 heating season is electric space heat in place of
heating oil? As you can see from the chart on the left, regulated
power is cheaper than fuel oil. Remember, your furnace is not 100%
efficient.
FOMC Minutes Signal No More Rate Cuts Even If Econ
Contracts...which is good, because inflation control is the first
step toward deficit control....FOMC says Food, Energy Prices To Keep
Boosting Overall Inflation...no kidding?
Reuters reports that
oil climbed to a life-time high
above $130 a barrel on Wednesday, driven higher by a combination
of long-term production worries and a near-term focus on tight fuel
stocks.
Here's a sobering editorial..."If this huge transfer of wealth to
the petro-authoritarians continues, power will follow. According to
Congressional testimony Wednesday by the energy expert Gal Luft, with
oil at $200 a barrel, OPEC could “potentially buy Bank of America in one
month worth of production, Apple computers in a week and General Motors
in just 3 days.”
05/20/08: EIA Administrator on CNBC says
predicting oil prices is a risky business; notes their current outlook
is for $110 average oil price this year. These guys
never get it right...
Greenspan Sees Speculative Bubble In
Oil, Grains Prices; says inflation not yet out of control. I'm
not sure Uncle Alan can spot a bubble...
June crude (which expires today) makes
highs at $129.58, now up $2.32 to $129.37. Anybody else
weary of this T Boone nonsense? I mean it's not like he doesn't
have a vested interest in higher prices....they fatten his wallet...who
in their right mind would go on a financial show to talk DOWN prices?
Another shot at Lisa Boscola...I
agree...cap extension isn't the answer. The first step toward a
solution is to admit we have a problem and deregulation needs to be
examined in the context of how it was sold and why it failed.
Boone Pickens, on CNBC, says oil
prices will continue to go up because the people who have the oil want
the price to go up. Calls it simple supply and demand. Says oil
production can not go over 85 mln bpd. Says only one fuel can
compete with oil and it's natural gas. Says it is possible to reduce oil
imports by 40% using natural gas. Calls ethanol a 'joke' - will never
amount to more then 5% of fuel use. Thinks oil will go to $150pbl this
yr. Does think there is a bubble in crude prices. (T4 note:
it's consumption, stupid! If gas demand spikes, then those prices
are headed to the moon.)
05/19/08: Guess where your budget $ are
headed...FT reports leading global fund managers and private equity
cos are quietly lining up for a chance to manage another new and
significant pool of money in the Middle East -
an endowment for a new Saudi
university with at least $10 bln in assets. The King Abdullah
University of Science & Technology
will not open until 2009
but it is already holding talks on its endowment with fund managers such
as BLK and private equity cos including Bain Capital, people familiar
with the matter say. The university has received $10 bln for its
endowment from Saudi Arabia's King Abdullah, which would make it the
sixth biggest university endowment in the world, said a university
spokesman based in Washington. People familiar with the endowment
negotiations say they have been told
the fund could grow to as much
as $25 bln.
(Today's glimmer of hope news clip) Bloomberg.com reports treasury
bond traders are telling Americans to stop fretting about inflation.
Consumers expect prices to rise 5.2% in the next 12 months, the most
pessimistic since 1982. Treasury Inflation Protected Securities, or
TIPS, show traders anticipate
inflation of about 2.9% by January, in line with its average of
3.1% the last 20 years. The disparity has never been wider. While
consumers grapple with gasoline above $3.70 a gallon, record rice prices
and the escalating cost of wheat,
TIPS say the commodities market
is a bubble about to burst. A commodity slump would worsen losses
in the $500 billion TIPS market, where investors lost 2.35% in April,
the most since December 2006.
(Followed by the negative opinion of)Keybanc believes that elevated
commodity prices relative to the past are here to stay based on the
global supply/demand fundamentals, worldwide demand growth, and
geopolitical uncertainties, as well as speculation in a new class of
assets. Firm is raising their FY08 WTI crude oil pricing assumptions to
$96.47/bbl from $90.72/bbl. Firm is also raising their Henry Hub natural
gas price ests for remainder 08 and FY09.
WSJ reports ahead of the summer driving season, all eyes
are usually on gasoline. This year, it's diesel that's going for a ride.
The rise of diesel, and more broadly, the category of fuel known as
middle distillates, is driven by stockpiling in China ahead of the
Olympic Games in August and the prospect of even more fuel needed to aid
the rebuilding effort in Sichuan province after last week's destructive
earthquake. Prices are also supported by abnormally low inventories in
Europe. And for the first time, the U.S. is playing a key role in
supplying the global market because its diesel now is more palatable to
the rest of the world. The fuel's ubiquity in transportation and backup
electricity generation means that a broader swathe of the world will
face additional inflation pressures at a time when rising food and
energy prices are already a concern. Crude markets are taking a cue from
the strong demand for diesel, hitting repeat records on a stream of
reports that nations are keen to secure additional fuel supplies.
WSJ reports as Congress debates whether to limit
carbon-dioxide emissions, one of the most vocal supporters of such
legislation -- the nuclear-power industry -- is
poised to reap a
multibillion-dollar windfall if restrictions take effect. Some
nuclear operators are already forecasting how much their profits could
increase under various versions of greenhouse-gas legislation that are
under consideration. Carbon limits could usher in a period of "supernormal
profits" for nuclear operators in markets where rates are deregulatedand have more ability to rise, says Hugh Wynne, utilities analyst
for Sanford C. Bernstein. But he warns that profits, if perceived as
excessive, run the risk of inciting a public backlash, perhaps including
calls for a windfall-profits tax. Congress is considering several
measures that would impose a so-called cap-and-trade system, which would
limit the amount of carbon dioxide cos are allowed to emit. ...where
rates are deregulated!!!...where rates are deregulated!!!..where rates
are deregulated!!! We don't want/need a windfall profits tax...get
rid of deregulation...
05/16/08: Saudi Oil Minister says Saudis to
boost output to 9.45 mln bpd in June
White House says Saudi pledges to
pump as much oil as needed to meet demand - Reuters. Not
helping with conservation??? SSDD. DJ reports Saudi
Arabia's leaders are making clear they see no reason to increase oil
production until customers demand it, the White House said Friday.
U.S. President George W. Bush
was in Saudi Arabia Friday to appeal to King Abdullah for greater
production to help halt rising gasoline prices in the U.S. But
his national security adviser, Stephen Hadley, said Saudi officials
stuck to their position that they already are meeting demand. Hadley
told reporters, "What they're saying to us is...Saudi Arabia does not
have customers that are making requests for oil that they are not able
to satisfy."
EXACTLY!!! We have plenty of oil. This is
a trader-driven market not operating on fundamentals of supply and
demand. If our genious politicians would wake up and recognize
that the weak dollar is killing us, then maybe we see some pricing
reductions. And why is the dollar weak? It's called a budget
deficit. We can't hide from it just as we can't hide from the
fact that we import 66% of our oil. The hole has been dug, now we
need to figure a way out.
Bloomberg.com is reporting
Goldman Sachs revised higher its New York crude-oil price forecast for
the second half of this year by 32%, citing supply constraints.
Goldman now forecasts West Texas Intermediate, the benchmark crude grade
traded in New York, will average $141 a barrel in the second half of the
year, up from its previous forecast of $107. Prices will rise further in
2009, averaging $148 a barrel, the bank said. ``Supply constraints and a
lack of scaleable substitutes are set to continue driving the long end
of the oil curve higher,''
(somewhat off topic; see my 5/9 comment)
Bloomberg.com reports rice
slumped for a fifth day, heading for the
biggest weekly decline in almost four years, as the prospect of
exports from Pakistan and Japan eased concern that a global food
shortage is worsening. Pakistan, the fifth-biggest exporter, will permit
shipments of 1 mln metric tons because local needs have been met,
Mohammad Azhar Akhtar, chairman of the Rice Exporters Association of
Pakistan said yesterday. The staple for half the world reached a record
last month as some exporters including Vietnam and India cut sales to
guarantee local supplies, stoking concern that hunger and unrest may
spread. The price fell 14% this
week, the biggest weekly drop since July 2, 2004.
05/13/08: U.S. Q1 crude imports lowest any
since '04; -2% on yr, according to E.I.A. - DJ
05/12/08: Another view on oil,
the non-bubble. If you read between the lines, you'll find the
same theme that I've maintained, namely a need to cut demand. I
would love to see NYMEX margins raised once and for all to test the
speculation thesis.
WSJ reports a new generation of
nuclear power plants is on the drawing boards in the U.S., but the
projected cost is causing some sticker shock: $5-$12 bln a plant,
double to quadruple earlier
rough estimates. Nuclear power is regaining favor as an
alternative to other sources of power generation, such as coal-fired
plants, which have fallen out of favor because they are major polluters.
But the high cost could lead to sharply higher electricity bills for
consumers and inevitably reignite debate about the nuclear industry's
suitability to meet growing energy needs. Solution to
petroleum? Reduce consumption. Solution to power?
Re-regulate to (cost +12%) and manage demand.
05/09/08: Where does it end? Crude breaks above the $126
level, now up $2.42 to $126.11.
T4
brainstorm: The Chinese and Indians are not eating any
more rice today than they were three months ago. The doubling of rice
prices cannot therefore be explained by a sudden shift in supply and
demand. And the same is true of oil, since the global growth of oil
output in the past two years has been substantially faster than the
growth of consumption.
Recent bubbles: housing (flipmycondo.com),
computer storage, Internet stocks, bird flu, cancer vaccines, fiber
optics, ethanol... These things are great if you happen to catch the wave
and ride it to profits...but they all end badly. I still think
high prices force hard looks at alternatives that will cut
demand/consumption. If housing deflation forces less McMansions,
then that's less driving to the 'burbs and less furniture and less trips
to Sams Club. Time will tell.
Washington Post reports Democrats
in the Senate on Wednesday unveiled a new energy package that would
revoke $17 bln in tax breaks extended to big oil cos like XOM and slap a
25% windfall profits tax on cos that don't invest in new energy sources
(i.e. why should they get paid for riding the market wave?). The
Consumer-First Energy Act -- assembled by Senate Majority Leader Harry
Reid and other key Democrats -- would tax big energy cos, halt filling
the emergency U.S. oil stockpile, and
seek to put checks on oil market
speculation. The Democrats' energy bill seeks to lay the blame
for record-high gasoline prices over $3.60 a gallon on the Bush
administration, big oil companies like Exxon and the OPEC oil cartel...
One thing missing from the bill was a plan to suspend an
18.4-cents-per-gallon federal tax on gasoline this summer - an idea that
has divided Democratic presidential candidates senators Barack Obama and
Hillary Clinton. (puh-leeze, why in the world should we drop gas
prices? We need to cut consumption, not make like it's a temporary
problem.)
Consumption, consumption, consumption, ....!!! We
need to transition/force consumption to drop. Nobody likes new
taxes, but if we don't alter the consumption mentality, we're heading
higher. I think our first stop should be 51% domestic production
and 49% imports...
05/07/08:
Crude makes new all time high at
$123.12, now up $1.20 to $123.04.Dept of Energy
reports that crude oil inventories had a build of 5654K
(Bloomberg consensus was a build of 1625K); gasoline inventories
had a build of 794K (Bloomberg: build of 100K); distillate
inventories had a draw of 107K (Bloomberg: build of 1100K)
US Treasury Secretary Paulson says worst of credit
crisis over; gas prices econ drag - DJ; in a normal world, these numbers
would be good, or bearish for crude prices. See 5/5 comment...
05/06/08:
Crude makes new all time at
$121.49, now up $1.41 to $121.38 E.I.A says global oil
supply near capacity, vulnerable to snags.
Asked and answered...Bloomberg
reports that crude oil may rise to between $150 and $200 a barrel within
two years as growth in supply fails to keep pace with increased demand
from developing nations, Goldman Sachs Group analysts led by Arjun Murti
said in a report. Murti first wrote of a "super spike" in March 2005,
when he said oil prices could range between $50 and $105 a barrel
through 2009. The price of crude traded in New York averaged $56.71 in
2005, $66.23 in 2006 and $72.36 in 2007. Oil rose to an intraday record
$120.93 today on speculation demand will rise during the peak U.S.
summer driving season. "The
possibility of $150-$200 per barrel seems increasingly likely over the
next six-24 months, though predicting the ultimate peak in oil prices as
well as the remaining duration of the upcycle remains a major
uncertainty,'' the Goldman analysts wrote in the report dated May
5. Put into perspective, this is another 66% from here; $6/gal
gasoline...and then what?
05/05/08: If we're in a sluggish economy,
perhaps a recession, and oil is $120/bbl, what will happen if/when we
recover?
05/02/08: Conspiracy theorists?
Bloomberg.com reports Iran more than doubled the amount stored in
tankers idling in the Persian Gulf, sending ship prices higher as demand
for some of its crude fell, people familiar with the situation said. The
10 tankers hold at least 20 million barrels of oil, equal to about 5
days of the country's output, said the people, who asked not to be
identified because the information isn't public. Rates for tankers have
more than tripled since April 8, based on data from the Baltic Exchange
and ship-fuel prices... Iran's use of ships for storage cut the supply
of available supertankers, owned by cos including FTO and Euronav NV.
The number of double-hull very large crude carriers, or VLCCs, available
to rent within the next 30 days dropped to 28 from 56 a month ago.
Demand is falling, yet the oil keeps getting pumped...but where to
go? This is an early indicator that the law of supply & demand
might finally wrest control from speculators.
05/01/08: 3 days does not a trend make...The
rise in the Dollar has contributed to the breakdown in the Commodity
ETFs with Agriculture (DBA) -2.8%, Base Metal (DBB) -3.1%, June Crude
Oil Futures -2.5%, Gold (GLD) -3.2%, Silver (SLV) -4.3%, Natural Gas (UNG)
-3.2%, Gasoline (UGA) -3.5% while the Commodity Index (DBC) is off
-3.3%. But it would be nice... Pain starts at 10% down...then
the speculators start liquidating.
04/30/08: Where does it end? UBS is
raising their long-term normalized U.S. coal price forecasts. Co is
lifting price tgts across the board.
Mr. Bush laid out a litany of complaints against
Congress, as he has done often in his final year
as president, and said he had suggested a
number of solutions that were repeatedly
shot down. As gas prices have soared in the past
year — as much as $4 a gallon in some parts of
the country after rising as much as $1.40 per
gallon on average since last year — the Bush
administration has called on Congress to allow
increased oil exploration in the Arctic National
Wildlife Refuge, and the construction of new oil
refineries on abandoned military bases. These
proposals, Mr. Bush said, would enable the
United States to
produce
as much as 27 million gallons of gasoline and
diesel a day.
Here's the
latest import chart. 27 million
gals/day is 642 thousand bbls/day. Hello?
We import 10,000 thousand bbls/day (or 10MM bpd)
right now! So let's cut the crap about
ANWR as the solution. Drill there and
people will just rush out and buy cheap trucks
on sale. We could achieve way more with
conservation and a change of driving habits.
And new refineries? Ignoring the air
permit issues, current utilization rates of our
existing plants are 85%! Meaning we can
process a lot more already. IT'S
CONSUMPTION, STUPID! USA vs. the world.
Hopefully we're smart enough to recognize that
there are no easy "solutions".
04/28/08: Off-topic slightly, but pay attention
to the next to last paragraph...Ben
Stein on banks and the credit crisis. I think he hit the nail
on the head...deregulation carried to an extreme WILL lead to
calamity.
It's Monday and oil is up again...Forbes
reports that oil leapt more than $1 to a
record high near $120 a barrel
on Monday after workers pushed ahead with a two-day strike that
shut a major North Sea oil pipeline supplying about half of Britain's
oil. Fresh violence in Nigeria and simmering tensions between the United
States and major oil exporter Iran also helped to offset the impact of a
rising U.S. dollar to boost oil prices. U.S. light crude for June
delivery rose $1.01 to $119.53 by 0603 GMT, adding to Friday's nearly
$2.50 surge and briefly striking a lifetime high of $119.93 a barrel.
Prices are up almost 25 percent since the start of the year.
OK, let's see if I get this one...a strike in the North
Sea shuts down a pipeline, thereby cutting supply (and forcing
conservation?) and the price goes up?
Interesting data trivia point #1 today...Hess and Sunoco
have identical #6 prices.
Interesting data trivia point #2 today...it's cheaper
for Lehigh to heat with (projected forward) electricity over heating
oil. I'm not sure this has ever occurred in the history of the
Lehigh Valley. I can't remember a time...
04/23/08: How bad is this action/reaction game?
US Security fires warning shots at Iran boats in Gulf, Fox says - DJ
Crude ticks higher following 10:39 comment, now up $2.34 to $118.40.
So the Arabs and Exxon just made 2% on their product because we fired a
warning shot? That has to be the most profitable round of
ammunition ever made.
Uh-oh...what's wrong with this
story? Dear Senator
XXX, maybe the problem is our fuel consumption??? OPEC does NOT
set the price of oil...our supplies are above 5-year moving
averages...there are no shortages in the USA...
04/23/08: WSJ reports
U.S. auto makers must increase
the average fuel efficiency of their cars and trucks to 31.6 miles per
gallon from today's 25 by 2015 under new rules issued by the Bush
administration. The pace of the increase is somewhat faster than was
mandated in last year's big energy bill. The rules are the first step
toward meeting a congressional mandate that U.S. cars and trucks average
35 mpg by 2020. Under the rules, each of the major auto makers has a
different target for cars and trucks, based on its future product plans.
General Motors's projected target for its light-truck fleet, for
example, is 27.4 mpg in 2015, while Honda Motor will have to meet a 29.6
mpg target in 2015.
Where do the eco-friendly Europeans go when reality
bumps up against electricity demand? Yup.
Coal plants.
Environmental Enemy #1. Here's a
similar story from 2 years
ago.
04/22/08:
Here's a great story.Replace farm with school and replace
crops with fuel and you have the same problem that we are facing.
Once upon a time, the futures market was a tool to stabilize your
budget. Today, it's financial fodder. What if you had locked
fuel oil last year at $2? Feeling pretty good today? Not
really, because your budget would probably not be ready for the near
double in cost that is coming next year. Our goal is price
stability, not trading futures. NOTE: see my 4/14/08
comment below! Once again, great minds think alike?
04/21/08: From a
Paul Krugman column in today's NYT, (which camp are you in regarding
oil prices?), here are three competing views on oil prices:
The first is that it’s mainly speculation — that investors, looking
for high returns at a time of low interest rates, have piled into
commodity futures, driving up prices. On this view, someday soon the
bubble will burst and high resource prices will go the way of
Pets.com. The second view
is that soaring resource prices do, in fact, have a basis in
fundamentals — especially rapidly growing demand from newly meat-eating,
car-driving Chinese — but that given time we’ll drill more wells, plant
more acres, and increased supply will push prices right back down again.
The third view is that the era of cheap resources is over for good —
that we’re running out of oil, running out of land to expand food
production and generally running out of planet to exploit.
Personally, I still believe in economics and that the supply/demand
curve will set prices. Eventually the speculators go bust, but
when is anybody's guess. Maybe we need $5 gas to really create
meaningful change? If everyone commits to at least one Prius in
the family, would that make a dent in our oil consumption? Dunno...
but I do know that is one reason Toyota is worth $186 billion while GM
sits at $12 billion. Maybe we should share pickup trucks when
needed instead of driving them daily?
The oil price goose du jour:
Crude moves towards session highs of $117.40 in electronic trade after
Shell declares Force Majeure following attack on Nigeria pipeline; now
up 58 cents to $117.27. Pick a day, pick an event...anywhere,
anytime...it will spike oil futures...yet we have no supply
interruptions and our reserves are near 5-year highs. Where does
it end? What is the point of maximum pain? This commodity
price is linear and upwards. There hasn't been an opportunity to
lock down prices since Christmas 07. My opinion remains the
same...why now? What signal is flashing that says a linear
unending climb higher is coming? Consumption numbers dropped off a
cliff the last time gasoline neared $4. Hey, it's a global
economy, right? If the US stops consuming, where are the Indians
and Chinese going to turn for revenue?
04/17/08: Boone Pickens taking long
position in oil, says previous short position was 'mistake' - Bloomberg.
LONDON (Dow Jones)--Natural
gas prices in the second half of 2008 are forecast to be higher in a Dow
Jones Newswires poll of 16 financial institutions amid rising oil
prices, a falling dollar and worries over the shutdown of a major gas
distribution hub and below-average storage levels. (T4
clarification: 3 Bcf below the 5-yr avg of 1,264 Bcf is technically
below, but come on, it's a tiny, tiny amt) The median
price for gas deliverable at Henry Hub in the third quarter was forecast
at $8.89 per million British thermal units,
up 11.1% from last month's
survey. The median for the fourth quarter was up 12.5% to $9.00/MMBtu.
Early Thursday, oil in New York hit a new record high of $115.45 a
barrel and the dollar held close to an all-time low against the euro
Thursday as the U.S. economic outlook continued to blacken. Compounding
macro-economic problems, front-month
gas futures hit a 27-month high of $10.489/MMBtu Wednesday as the
shut down of Independence Hub, a major gas distribution point in the
Gulf of Mexico, entered its second week. Independence Hub operator
Enterprise Products Partners (EPD) declared force majeure last week
after a leak was discovered in a pipeline connected to Independence Hub.
Enterprise reiterated Wednesday that repairs could take up to four
weeks. The outage means a slow start for what is likely to be a long
storage injection season. Current gas in U.S. storage totals 1.234
trillion cubic feet, 22.1% below last year's levels and 1.8% below the
five-year average for this time of year, according to the U.S. Energy
Information Administration.
04/16/08: WSJ reports in a significant
shift on global warming, President Bush will propose stopping growth in
U.S. greenhouse-gas emissions by 2025 and signal that he is open to
lawmakers reining in pollution from power cos. The stance, set to be
unveiled Wednesday at a White House speech, indicates Mr. Bush's
willingness to grapple with the growing legislative debate over global
warming. It marks an acknowledgment by the Bush administration that the
U.S. likely will adopt some sort of broad new legal system to curb
greenhouse-gas emissions in coming years. Mr. Bush has opposed
comprehensive legislation to curb emissions. But like an increasing
number of utilities and manufacturers, he is aiming to join the
discussions in hopes of shaping the debate and creating a system that
won't be too costly to industry or consumers.
Ugh. Here's another
bullish story on why oil prices
remain stubbornly high. Now $125/bbl is the new target, which
coincidentally would be $4/gallon gas. One former CBOT floor
trader described crude oil futures: "Crude oil rallying is like asking
to an eight-year-old why they didn't do their homework. You're going to
get a ton of excuses and none of them are going to make any sense."
Now that traders and speculators have seized the new target, what's to
stop the train?
04/14/08: If you don't have something nice
to say, then don't say anything? I have never seen energy track
higher & higher every single day with a total disconnect from supply &
demand. This simply proves that we are locked in a cycle where our
costs are driven by Wall Street. Anyone who has ever watched a hot
stock climb higher and higher without a pause understands this concept.
We are not trading on fundamentals, we're trading because we're told
that commodities are a great investment. If you study the history
and purpose of the New York Mercantile Exchange (NYMEX), you'd recognize
that the system has been hijacked. The banks thought they were too
smart to fall/fail...et tu Exxon?
More on carbon caps:
Coal producers and coal-fired
electric utilities are voicing concerns about
federal and state governments
each setting up their own carbon regulations, saying such "dual
regimes" would be detrimental to the economy and would raise costs for
companies to comply with the regulations. I dunno...one could
argue both sides here.
04/07/08: Before you rush out and endorse
carbon trading or caps as a solution to emissions, please
check out this story. Note my comment below on 3/28.
IMHO, the back end, or balance-of-plant, is the least glamorous aspect
of power plant engineering and might be one reason why it has lagged in
the engineering committee. The primary focus has always been
availability and heat rate. The BTG guys need to be redirected to
carbon sequestration.
A little off-topic, but the State of Ohio has had enough
with the 2008 NEC and
reverted
back to the 2005 edition because of the cost of AFCIs and tamper
resistant receptacles which are estimated to add $1,000 to the cost of a
new home.
04/02/08: WSJ reports
natural-gas producers are swarming into Pennsylvania to chase
what many are betting could be the next big thing: a thick wedge of
gas-bearing rock called the Marcellus Shale. The recent surge in
interest was triggered by disclosures in the fall from producer Range
Resources Corp. of Fort Worth, Texas, that it had drilled a well there
producing more than three mln cubic feet of natural gas a day, proving
that Marcellus Shale wells can be profitable. Since then, Range has
reported wells that produce even more gas. The result is a land rush
unmatched anywhere else in North America as companies try to snap up
drilling acreage on a giant swath of rock stretching from West Virginia
across Pennsylvania to the northeast corner of the state, 90 miles from
New York City. RRC plans to spend $426 mln in Appalachia this year.
Other out-of-state companies, such as EOG, CHK and APC have either begun
drilling or are planning to drill wells targeting the Marcellus Shale...
Still, there have been relatively few completed Marcellus Shale wells,
and it isn't clear whether the rock will produce prolific wells across
the state or only in certain pockets. Cos could be spending a lot of
money leasing acres and drilling wells in counties where there won't be
enough gas for the wells to offer a reasonable return.
04/01/08: Here's a news blip from the land
of regulated utilities: Wisconsin Public Service Corp.
filed a request with state regulators on Tuesday to increase retail
electric and natural-gas rates. The utility asked the Public Service
Commission of Wisconsin for permission to lift electric rates by about
7.75 percent in 2009 and 0.33 percent, plus an adjustment for fuel
costs, in 2010. It also asked to increase natural-gas rates by
2.16 percent in 2009, with no increase in 2010. That's a little
less than 42% No?
I mention this not because I'm a
conspiracy theorist, but mainly because I believe that all of this hedge
fund crap has seriously skewed the fundamental concepts behind investing
for the long haul: CNBC commentator says LEH CEO Fuld has told
Wall St. execs and regulators that he has information that short-selling
hedge funds colluded to bring about the demise of BSC. Fear
sells. Period. Short sellers can make a windfall much
quicker than a buy&hold investor. Sure, there are frauds...but
Bear failed because their counterparties no longer would trust
them...and if they didn't trust them due to misinformation and/or BS
rumors, then THAT is the bigger problem.
03/31/08: Clarification: The meeting
with the PUC ALJ on Wednesday at NCC regards PPL's plan to collect money
in advance of the rate hike.
Wailing at an ALJ to stop
deregulation or stop the rate hike will do no good. Judges
interpret laws...they don't pass nor repeal them. If you want to
vent, then attend. But don't go with misconceptions about what you
can or can't achieve. The only people who could stop this train
are PA legislators.
NEXT FY: We set our budgets at $100/bbl oil and
they're already blown. There's risk management and there's trend
following. The forward curves aren't really curves...they're like
straight lines up. It's not hard to see the case for $125/bbl oil
given a straightline projection. Same can be said for natty at
$12. Now natty should be closer to $8. But it's not.
Because it can. There is no resistance to its price following oil
upwards. I continue to believe that buying now is playing into the
hands of speculators, but it's a tough game. I still have summer
and fall to stay on market gas.
03/28/08: Interesting story in this month's
Mechanical Engineering: Engineering's 14 Grand
Challenges...Sustainability...Make solar energy affordable,
commercialize fusion energy, develop carbon sequestration, manage the
nitrogen cycle. I mention this because these challenges indicate
that we have problems that are not solved...problems that the media is
using as buzzwords. Solar isn't a solution in PA (yet) and we have
a lot of coal but no good way to keep the carbon out of the atmosphere.
03/27/08: FT reports
Crude oil prices on Thursday
surged above $107 a barrel after saboteurs attacked a key export
pipelines in Iraq, reversing most of last week's losses. Ah
yes, back to the old global terror premium.
03/26/08: Common Sense 101; Why do you think
that FPL is building this in the desert? Co announces
plan to add significantly to its solar power generating capability. FPL
Energy has filed an Application for Certification with the California
Energy Commission to construct, own and operate a 250-megawatt solar
plant in the Mojave Desert to be called the Beacon Solar Energy Project.
FPL expects to begin construction on the project late in 2009 and take
approximately two years to complete. Why not in
Central PA, like near Harrisburg? Maybe because it would make
absolutely no sense????
Crude spikes, following smaller
than expected build in DOE inventories, up $3 to $104.22; DOE
Inventories: Crude shows smaller than expected build for second straight
week Dept of Energy reports that crude oil inventories had a
build of 88K(Bloomberg consensus was a build of 1800K);
gasoline inventories had a draw of 3285K (Bloomberg consensus was a
draw of 1500K); distillate inventories had a draw 2141K
(Bloomberg consensus was a draw of 1750K).
Anybody else tired of the new ESCO sales pitches using
GHG and/or sustainability? Saving energy will cut greenhouse gas
emissions. No kidding? Wow. Sign me up. Cost
doesn't matter! Not. It's amazing how they continue to
pitch as if you can't figure out that less energy = less GHG. Duh.
Or what, you don't know where every single molecule is used? Well,
yes we do. And in the end, oh by the way, we work with this
company called Johnson Controls... Really? What do
they do?!
03/25/08: Crude makes lows of the session
at $99.35, now off $1.44 to $99.42. Boone Pickens, on CNBC,
says he believes in the second half of the year we will see oil above
$100; says he is pretty bullish on nat gas.
Jim Rogers, CEO of Duke Energy; from Forbes: he is
hoping to add a few nuclear plants to existing sites while he waits for
more affordable technologies to remove the 100 million tons or so of CO2
(27 million tons of carbon) his power plants send up the stack each
year. "How can I change my business model to make money in a
low-carbon world?...Carbon is going to drive consolidation (of
utilities)."
03/24/08: Great minds think alike?
Citigroup says that powerful
performance in commodities over the last couple of years raises the
plausibility that aggressive assumptions have further driven up prices
that appear to be on the verge of correcting meaningfully;
moreover, industries such as related resource extraction equipment and
engineering services also face downward revaluation potential. Firm
thinks the notion of unwinding "crowded trades" could make the decline
sharper than probably is justified. In other words, patience.
Stay nimble and don't lock prices...yet.
03/20/08: Here's a pretty good summation of the
"credit crisis" facing our economy. Keyword:
leverage. If someone could regulate the futures contracts by
simply requiring more margin, then oil speculation would decline
significantly. As it stands, it's easy to control huge contracts
with 5-10% down; your gain is magnified by what you have at risk...as is
your loss...which is why Wall Street will keep the balls in the air as
long as possible. They're not making any money in real estate!
03/17/08: Wow. I'm reminded of an old
saying: Don't fight the Fed. But it's a real, knock-down,
drag-out fight right now. Banks will be forced to cut dividends to
preserve capital which will drive their stock prices even lower.
Greed won this round and fear is now running rampant. Given that
the fuel markets are married to the US dollar, it's not a pretty
picture. Cash is king. As I've said, let speculators choke
on their contracts while supply and demand return to balance.
Oh look, Apr crude oil ($106.71 -3.50) is seeing
aggressive profit-taking this morning (low of $105.50) on worries
the U.S. economic slowdown could lead to reduced energy demand. Apr
natural gas ($9.614 -0.254) is following suit, plunging from an
overnight high of $10.103 to as low as $9.563 in morning trade. Also,
short-term weather forecasts call for above normal temps in most regions
of the U.S.
03/13/08:
Everybody up to speed on
ZigBee? PPL is hot on this technology...Here is
Wikipedia summary.
Crude touches $111pbl, now up 80
cents to $110.72.
With electricity demand projected
to grow at twice the rate of new electricity generation over the next
decade, the investor-owned utility industry is facing critical decisions
on new generating capacity, says Moody's Investors Service in a new
report. Pending carbon control legislation and changing renewable
portfolio standards will have a significant influence on the industry's
overall generation mix. "These resource decisions will entail
substantial capital costs and have long-lasting repercussions on a
utility's generating mix, fuel costs, and competitive position," says
Moody's Vice-President Michael Haggarty. New coal plants, which were
expected to provide a significant portion of the industry's new
generating needs over the near term, are facing both public opposition
and uncertainty relating to carbon and other greenhouse gas emission
costs, says Moody's. "The
most immediate impact of an inability to add significant coal generation
will be an increased reliance on natural gas,"
says Haggarty. This reliance on
natural gas as a fuel source is likely to reduce fuel diversity
and increase fuel cost volatility at some utilities, he explains.
03/12/08: Just what is inflation? Example:
Pilgrim's Pride to close chicken processing complex and six distribution
centers..."The cost burden is already enormous, and it's growing even
larger. Based on current commodity futures markets, our company's
total costs for corn and soybean meal to feed our flocks in fiscal 2008
would be more than $1.3 bln higher than what they were two years ago. We
simply must find ways to pass along these higher costs..."
WSJ reports diesel has followed
the petroleum surge, ending yesterday at $3.82 a gallon, based on govt
data. Much as gasoline has pressured consumers, diesel is pressuring
businesses that depend on the fuel. But some in the refining industry
see an opportunity. Their bet: Diesel is poised to take off. While
skyrocketing prices have weakened demand for gasoline in recent months,
global diesel demand has been growing. Some analysts expect
continued strong diesel-demand growth. In Europe, diesel will continue
gaining mkt share at the expense of gasoline as consumers switch to
diesel-powered cars. Developing countries such as China and India are
consuming more energy. Those countries often prefer diesel over gasoline
because of its flexibility: the fuel can be used to power industrial
plants as well as transportation. In the U.S., demand is expected to
grow as car manufacturers introduce more diesel-powered cars. If
U.S. consumers take to diesel, that would put them in line with drivers
in place like Europe. As the current price dynamic for diesel and
gasoline shows, that can be a mixed blessing. Because many refineries
outside the U.S. are set up to produce more diesel, increasing U.S.
reliance on that fuel means the U.S. would have more sources. But those
refineries are also feeding demand at home. As demand for diesel grows
elsewhere in the world, consumers could increasingly find themselves in
a tug of war over supplies -- a dynamic that is contributing to higher
diesel prices today...
Electricity Update: Yikes! All day meeting
with top PPL execs yesterday at Air Products.
Nothing will stop the D train.
You will soon see a brand new account rep from PPL Utilities. They
continue to tout real time pricing and demand response as the only
logical alternatives to fixed prices which they think will be skewed
very high to compensate for so many unknowns.
2007 PJM average wholesale price
of electricity = $70.98/mWh. PJM soon will drop the hammer
on Energy Connect and others who have attempted to "game" the demand
response project. The Competitive Bridge Plan - 2010 is the name
of the plan for 1/1/2010...PL
will offer you both hourly price service and fixed price service (FPS).
There will be a single solicitation in 10/2009 for FPS. Interested
customers required to express interest in FPS prior to solicitation.
After price is established, you have 30 days to elect FPS option.
Lots of noise in the State House, but little worthy of realistic impact.
03/10/08:
NOW WE HAVE A PROBLEM:
Goldman sees $200 oil- CNBC...you don't become the wealthiest
of the wealthy without having some pretty savvy financial types on your
staff...let's hope it was a 10 year prediction.
Anybody else notice that the
price of #6 has not confirmed these new highs in crude? (see the
$/mmBTU chart) Yet heating oil is in the stratosphere? Clearly
natural gas is playing follow-the-leader. The only good news is
that just like stock prices, speculation results in a rapid price
decline while the ascent is slow and steady. I see a blow-off top
in light oil coming soon. I think heavy oil is already turning.
Let's see how this pans out...
Understatement of the year: U.S. Treasury's
Ryan says recent financial turbulence underscores need for robust risk
management - Reuters. Ya think?
03/07/08: Welcome to the area between a
rock and a hard place:
Crude oil spikes to session highs at $106.31pbl, now up 54 cents
to $106.04pbl. And this in the face of an imploding stock market
and 4.3% inflation. It's not a pretty picture...
I hope everyone realizes that PPL sold the gas business
to UGI because the profits from manipulating power prices dwarf anything
from the old staid regulated gas business? Why deal with regulated
rates when you can look at 5-minute LMP pricing and make a killing?
Free markets vs. regulation...hmmmm....
This is surreal: White House's Lazear says
concerned about U.S. economy, believes Q1 will be weakest quarter -
Reuters Lazear says says expects strong growth by summer after
stimulus package kicks in...Do our politicos think we're stupid???
Um, can you tell me how a $1000 check is going to help with $4 gas, 4.3%
inflation, and 15-30% housing price "corrections"? Mortgage rates
are not that complicated...just add the rate of inflation to the yield
on the 10 year Treasury bond. They're gonna have to cut interest
rates to 1% to get mortgages < 5%.
03/06/08: Horrible news: UGI
Corporation announced that its subsidiary, UGI Utilities, Inc., has
signed a definitive agreement to acquire the stock of PPL Gas Utilities
Corporation (PPL Gas), the natural gas utility and retail propane
distributor of PPL Corporation for approximately $268 million plus
working capital. PPL Gas will add approximately 76,000 customers to
UGI's current utility operations in Pennsylvania. PPL Gas serves natural
gas to customers in 35 counties in eastern and central Pennsylvania and
one county in Maryland. Through its wholly-owned subsidiary, Penn Fuel
Propane, LLC (Penn Fuel), PPL Gas sells approximately 15 million gallons
of propane annually to 33,000 customers in eastern Pennsylvania.
PPL was a decent gas utility...by the book, fair, customer-oriented.
When I worked at PPL, the thought was for THEM to buy UGI and
consolidate energy supply in PA.
03/05/08: Exxon Mobil CEO Rex Tillerson
said the record run in oil prices is related more to speculation and a
weakening dollar than supply and demand in the market. "It's pretty
crazy," Tillerson said at a press conference at the New York Stock
Exchange after oil hit a fresh
record of $104.56 a barrel. A weak dollar accounts for about a
third of the recent record run in oil prices, another third on
geopolitical uncertainty and the rest on market speculation, he said.
Despite the concerns about political instability hurting oil supply,
history suggests that supply disruptions are actually quite rare, he
said. "In terms of fundamentals, fear of supply reliability is
overblown," he said. None of Exxon's energy development projects are
based on $100 a barrel oil, he said.
EIA projects 'real-world crude' at $57/bbl in 2016.
That really helps when we have daily new highs. Remember what I
said about past predictions? They're not worth the pixels that
display them.
03/03/08:
Crude sets new record high, now
+1.60 at $103.44...This pretty much sums up our biggest
problem today: Oppenheimer says a production cut by OPEC could
spike oil prices, induce a recession, and fuel inflation, which would
curtail demand and (then, i.e. months later) trigger a selloff in
oil futures by speculators that could sink oil prices. However, by not
cutting production in response to the weak demand, OPEC risks an oil
glut and sharply lower prices. Firm believes
oil prices are inflated by
speculation, as reflected by the 50% price rise in six months without
changes in supply or demand. However, given the government
inability, or unwillingness, to regulate the energy markets, don't
expect the oil price bubble to burst anytime soon. Deregulation
= free market theory = capitalism = profits. The hardest part of
the free markets theory is the fact that energy isn't a cell phone or a
car or toilet paper. It's not discretionary, unless
you believe the business folks who will argue that you can consume less
power or turn off the heat. Can you say between a rock and a hard
place? The stock market continues to tank, interest rates are
below 3% and oil makes new highs each and every day. Welcome to
the free market. What will it take to end this action?
02/25/08: We have an important data point
to note today...current nat gas prices have run up to meet the futures
prices. In other words, the futures market is not assigning a
premium price to supply one year forward, BUT, the price trend is UP,
which is not good. All of this pricing pressure is flying in the
face of an impending recession...or so the stock market is predicting.
All I know is that the last runup in housing prices (1983-87) took
nearly a decade to resolve and this one will probably follow the same
track due to inflation. Big $ smells big $ in commodities, which
is not helping us...it all contributes to inflation and the FED can't
help with lower interest rates.
02/23/08: Here's
a decent wind story. T
Boone wants to build a 4,000 MW wind farm on his 150,000 acre ranch.
And someone will pay him $16M per year just for the space.
Nice. BTW, PPL makes about 10,000 MW (of fossil/nuke) here in PA. A big
keyword in all of this is subsidy.
02/21/08: Another APPA broadast email sales
pitch is making the rounds. My response to
www.celeron.com is that they do
what I do for people who don't have a me. If you can get their
service for less than $2000 per year, you should sign up. In fact,
I'd like to see one LVAIC sign up and let me audit what is done over the
next FY. That would be the best way for all of us to learn.
You should recognize that Philly-area schools already face much higher
embedded utility costs and the big sales brochure highlights Immaculata
with a whopping 13 buildings....nearly the same size as Central Moravian
Church in Bethlehem! Note, their pitch says no existing consulting
agreements need to be terminated.
Oil investor T.
Boone Pickens said on Thursday he has a short position on oil and
natural gas on expectations that prices will fall in the near term.
Pickens, speaking on CNBC television, said he expects the price of oil
to fall $10 to $15 a barrel in the second quarter from the $100 it hit
on the U.S. market this week. But he said he expects the price of oil to
be back above $100 a barrel in the second half of year.
02/20/08: I've tried to avoid the herd with
respect to the latest pop in oil.The AP reports that oil
prices retreated Wednesday after
closing above $100 a barrel for the first time as investors
seized on a refinery explosion and the possibility that
OPEC may cut its output. Many recent forecasts have said demand for oil
this year will be less than initially expected -yet prices continue to
rise. That suggests oil may continue its climb as the weakening
dollar attracts new investors to the futures market.
Forget supply and demand and fundamentals...it's all a financial shell
game right now.
FT reports that
the biodiesel industry is anticipating a round of consolidation in the
next 18 months, key industry executives and financiers told
mergermarket. After an initial flurry of investment in biodiesel
startups, many new companies in the sector are now unable to secure
adequate financing. Plant closings, consolidation and an industry
shakeout, coupled with the possibility of buyouts by "vulture funds,"
may proceed, said James Eiler of Eiler Capital at the recent Biodiesel
Finance & Investment Summit in New York. Daniel Oh, CEO of Renewable
Energy Group, said smaller plants could benefit from mergers to create
economies of scale. Biodiesel plants producing from 20m to 30m gallons
per year will be hit the hardest, as they have neither the economies of
scale of very large facilities nor the local contacts of smaller plants,
said Chris Sorrells of NGP Energy Partners. He said he believes these
plants may gain the most from mergers. Some of the larger and more
established companies like REG, which has approximately 27% market
share, may drive consolidation of these midsized plants, Oh said.
Smaller producers like Tri-State Biodiesel acknowledged the challenges
facing the industry, and could consider a merger with its joint venture
partner Connecticut Biofuels, this news service previously reported.
02/12/08: This would be funny if it weren't
so serious...can you say full court press? Yep,
PPL with their record
projected profits actually pulled the Enron/California story out of the
closet to vehemently oppose a rate cap extension.
02/08/08: Bloomberg.com reports that OPEC
may cut crude production when it meets next month to keep the price
above $80 a barrel, oil ministry officials from four of the
group's nations said. OPEC would trim output if prices slip to $80,
according to one delegate, while another said
$70 would be unacceptable to
most members. Two of the four officials, who all asked not to be
identified because such discussions are private, said if prices stay
above $85 the group probably won't change supplies at its next
conference on March 5. The combination of falling crude prices and the
dollar's 12 percent drop in the past year on a trade-weighted basis puts
pressure on OPEC's 13 members to reduce supplies as slowing economies in
the U.S. and Europe threaten energy demand. Oil fell 30% and the group
reduced production quotas three times in 2001, the year of the last U.S.
recession. Saudi Arabian Oil Minister Ali al-Naimi, who sets policy for
OPEC's largest producer, declined to comment to reporters on prices or
production levels at last week's meeting. Al-Naimi said only that the
outlook for supply and demand is "sound".
02/06/08: Is the green movement about the
environment or green, as in money? Although it has not yet
ratified the Kyoto Protocol, the U.S. would be the key market for carbon
offsets, and CCX aims to become the established exchange. It currently
allows companies to prepare for ratification, and
gain "green" credibility, by
buying credits to offset their pollution on a voluntary basis.
02/05/08: NY Times reports stymied in their
plans to build coal-burning power plants,
American utilities are turning
to natural gas to meet expected growth in demand, risking a new upward
spiral in the price of that fuel. Utility executives say they
have little choice. With opposition to coal plants rising across the
country — including a statement by three investment banks Monday saying
they are wary of financing new ones — the executives see plants fired by
natural gas as the only kind that can be constructed quickly and can
supply reliable power day and night. But
North American supplies of
natural gas will be flat or declining in coming years, according
to the Energy Information Administration. The United States already has
high natural gas prices, a problem for homeowners and many industries,
like chemical and fertilizer producers. Some experts fear a boom in gas
demand for electricity generation will send prices even higher... Now,
with many coal plants being canceled and demand for electricity rising
by 2% or so a year, the prospect is that utilities will be forced to
build and use a new generation of gas-fired plants regardless of the
operating cost — and consumers will bear the burden of higher
electricity rates.
01/31/08: Forget about the
Rendell/Boscola gabfest from
today's Morning Call. Here's all you need to know about PPL:
Reports Q4 (Dec) earnings of $0.60 per share, excluding non-recurring
items, $0.05 better than the First Call consensus of $0.55; revenues
rose 5.2% year/year to $1.61 bln vs the $1.84 bln consensus. Co
reaffirms guidance for FY08,
sees EPS of $2.35-2.45. Co
reaffirms Y10 EPS of $4.00-4.60. Anyone still wonder why
they're "vehemently opposed" to any change in deregulation?
They cry bankruptcy if the train is stalled while crowing about a
DOUBLING of expected earnings...that double is coming from our pockets.
OPEC will not change oil output ceiling at Friday
meeting, according to Senior Gulf OPEC delegate -Reuters
01/28/08:
OPEC on Monday described
speculation as the "principal driving force" behind rising oil prices
and volatility, calling for something to be done about its "damaging
hold" on world oil markets. The
main message from OPEC has been that
oil markets are adequately
supplied with crude and that there is no need for an output increase.
Venezuelan Oil Minister Rafael Ramirez said over the
weekend that his country supports an OPEC-like cartel for natural gas.
Venezuela's President, Hugo Chavez, said he hopes oil prices stabilize
and do not rise above $100pbl (this is interesting because Chavez is
typically a crude bull). Once again, another OPEC member (this time
Iran) says OPEC is unlikely to boost output when the cartel meets on Feb
1.
01/25/08: Clearly the suppliers are unhappy
with lower prices:
Venezuela Oil Min: OPEC must resist pressures to up output - DJ
Why should electricity, a necessary commodity for daily
life, be deregulated? Here's an example of how a power outage in S
Africa is forcing WORLD prices higher: Gold and platinum prices
surged to new record highs today after
a shortage of electricity in
South Africa forced mining companies there to shut production.
State-owned power utility Eskom has asked platinum and gold mines to cut
electricity use for the next 2 to 4 weeks. This is having a big impact
on prices because South Africa is the world's largest gold producer and
holds the world's largest platinum group metals resource. As such,
today's news pushed gold and platinum prices up sharply, with gold
moving above $924 and platinum setting new record highs at $1680...
While the supply disruption is sending metals prices higher, the
producers affected by the production stoppage are under pressure today.
01/23/08: Rocket scientist award: US
Energy Sec Bodman says high oil prices starting to affect economic
growth - Bloomberg Ya think???
Evidence that we're closer to a bottom than a top.
First we have this
chart/opinion from today's NY Times. Then we have Steve asking
me about the "markets"...geez, we're already down 20% on the Russell
3000...why would you sell now? It's a time to buy. You don't
fight the Fed. And then there's the typical Morning Call "day late
and a dollar short" front page. Umm, guys, where were you when the
Russell dropped below 900? Markets never put in "V" bottoms...they
flounder around while the media calls for Armageddon and gold soars.
Look how quickly oil has backed off the highs...down from $100 to $85 in
weeks. I've said it before...banks will have to lead the way out
of this mess because they're the guys who started it by inflating real
estate to sell mortgages. And let's not forget that markets are
discounting mechanisms...today's slowdown was predicted in
November...remember the old saw...the stock market has predicted 10 of
the last 5 recessions!
I mention all of this because if oil breaks $80 on the
downside, it's time to think about locking NEXT WINTER'S HEATING OIL.
Dow Chemical CEO
says not experiencing recession in U.S. but 2008 will be slower;
believes oil prices have peaked,
budgeting for average around $80 on 2008 - Reuters
India's
top oil official says major U.S. recession could cause oil prices to
tumble to $70 a barrel - Reuters
01/22/08: Goldman Sachssaid if all
speculative length were liquidated on the oil markets, prices could drop
to the low $80s, but fundamentals of supply and demand would
probably prevent funds from selling out completely. Fundamentals
continue to show little sign of weakness and suggest that the recent
sell-off is overdone," Goldman Sachs wrote in a note. (Oil fell
to $86/bbl this AM; given the turmoil in the markets, this is still not
great news...the world economies are contracting and low $80s is the
best to expect???) The Mike T Rule: prices usually go
higher than expected. The Corollary to the Mike T Rule:
prices usually go lower than expected.
01/21/08: Another
caveat on
biodiesel from a generator sales & service company. I agree
with this one...I wouldn't recommend filling your tank and forgetting
about it. The stuff we're burning is real time and we don't
maintain an inventory.
01/17/08: This
story sticks in my
mind. Who really cares if we need to add $6000 to the cost of a
new car if we can start whittling down on our fuel binge? I've got
to note that Detroit hasn't done a whole lot to lead us out of the woods
on this issue.
Duquesne picks up their toys and
leaves PJM.
More evidence of how skewed power prices have become in Pennsylvania.
It pains me to think about a 40% price gouge on top of an impending
recession. Doesn't matter to the PPL shareholders, though.
They'll make a ton of dough from our budgets. But how many
businesses will follow the Duquesne lead and just leave PA? One
has to ponder the "Law of Unintended Consequences". Oh, but don't
forget, deregulation was sold as the path to LOWER prices for the
consumer.
01/16/08: Geez, crash the stock market and
look what happens: The E.I.A. reports that crude oil inventories
had a build of 4259K (Bloomberg consensus was a build of 1250K);
gasoline inventories had a build of 2193K(Bloomberg consensus was a
build of 2500K); distillate inventories had a build of 1152k Bloomberg
consensus was 1250K ). And suddenly we're back to $90/bbl.
The DUG, an ETF that is short the oil market, is flying higher,
predicting lower crude numbers.
OPEC Pres Khelil says oil prices will probably remain
between $80-90/bbl in Q1.
01/08/08: Here's a
noteworthy piece from one of
those guys "playing" the oil market.
Here's a wakeup call from one of the
biggest money managers in the world: Highlights from Bill
Gross' January investment outlook, which
likens the current financial
system to that of a pyramid scheme: "Total derivatives amount to over
$500 trillion, many of them finding their way onto the balance sheets of SIVs, CDOs and other conduits of their ilk comprising the
Frankensteinian levered body of shadow banks... While the exact amount
of reserves supporting the Bank of Shadows is undeterminable, let's go
back to the $45 trillion BIS estimate of outstanding CDS for more
insight. If total investment grade and junk bond defaults approach
historical norms of 1.25% in 2008 (Moody's and S&P forecast something
close) then $500 bln of these default contracts will be triggered
resulting in losses of $250 bln or more to the "protection selling"
party once recoveries are inserted into the equation. To put that
number in perspective, many street estimates ascribe similar losses to
subprime mortgages, a derivative category substantially distinct from
CDS insurance... Pyramid schemes and chain letters collapse because
there is no more credit to feed them.
As the system of modern day
levered shadow finance slows to a crawl, or even contracts at the edges,
its ability to systemically fertilize economic growth must be called
into question. And as the private shadow banks of the 21st century are
found wanting, so then must public finance in the form of lower interest
rates and increasing fiscal deficits fill the breach. The Fed will
likely reduce Fed funds to 3% by midyear 2008. Congress and the
Administration should, but likely won't, join hands in a tax relief
program that benefits low income homeowners."
I mention this against the backdrop of an impending
recession and what it will do for energy prices. High energy
prices stimulate research into alternatives.
01/07/08: Bloomberg.com reports the
fastest-growing bet in the oil market these days is that the price of
crude will double to $200 a barrel by the end of the year.
Options to buy oil for $200 on the New York Mercantile Exchange rose
10-fold in the past two months to 5,533 contracts, a record increase for
any similar period. The contracts, the cheapest way to speculate in
energy markets, appreciated 36% since early December as crude futures
reached a record $100.09 on Jan 3. While analysts at Merrill Lynch and
UBS say the slowing U.S. economy will lead to the biggest drop in prices
since 2001, the options show some traders expect oil to rise for a
seventh straight year.
01/04/08: Happy New Year! Not.
The USA is really between a rock and a hard place right now. We
continue to consume crude without any conservation while the stock
market sinks because the collective wisdom of millions has finally come
alive and recognized that energy MUST be factored into pricing somewhere
along the line. You can justify "ex-energy" all you like, but
prices are rising and that is known as inflation. And all of this
is happening in a macro environment where banks (the source of capital
for growth) have become risk-averse, as in no more lending. Umm,
if you don't lend, how do you make $? It never ceases to amaze me
how this subprime thing has blown up into no credit for anyone at any
cost. Banks will have to lead the way out of this mess.
Here's why
natural gas prices are stable: Working gas in storage was
2,921 Bcf as of Friday, Dec 28, 2007, according to EIA estimates. This
represents a net decline of 87 Bcf from the previous week. Stocks were
160 Bcf less than last year at this time and
222 Bcf above the 5-yr avg
of 2,699 Bcf. In the East
Region, stocks were 52 Bcf above the 5-yr avg following net
withdrawals of 53 Bcf. At 2,921 Bcf, total working gas is
within the 5-yr historical range.
It's all about inventory and historical averages...as long as we're
above those averages, prices will be stable.
01/02/08: Kudos to T Boone...we finally hit
the $100 target. I had CNBC on in the background this AM...how
people can listen to this dribble all day is beyond me. The only
clear point to me is that prices are beyond our control. Talking
heads think a recession cuts demand, but India and China still
increasing. Blah, blah, blah...it's sad that some folks think we
should tap the "strategic reserve". "Biggest point drop in DOW
since 1932!" Umm, in percentage terms, it's really not that big a
deal. Why hype it?
12/29/07: Here's an interesting news blip:
Westar Energy receives order on rate treatment for proposed
investment in wind energy. The Kansas Corporation Commission
issued its order on WR's request for the commission to
determine the rate treatment for
its proposed investment in wind energy. While finding the
utility's proposal to invest in
wind energy prudent, the order declined to approve WR's request
for an incentive rate of return allowed by Kansas law. The order also
indicated that in the future wind generation could be subject to
undefined operating standards and potential financial penalties that
have not been imposed on other forms of generation. Co will proceed with
295 MW of wind power but suspends plans for second phase. Wind
is viable, but should ratepayers be forced to pay more?
Kansas says NO.
12/19/07: PA DEP has approved Lehigh's
request to modify our Title V permit to burn up to 2.5 MG of B-tane,
or biodiesel, as an alternate to #6 fuel oil. You need to burn 13%
more of this fuel to match the heating value of #6, but it has no sulfur
nor ash. Note, it's now on the chart to the left of this
column.
Yesterday evening the House approved an energy bill,
which includes a renewable fuels standard (RFS) of which 15 bln gallons
comes from corn. A little
earlier today, President Bush signed the energy bill (called Energy
Independence and Security Act of 2007) and put it into law, which
is bullish for ethanol, farm equipment manufacturers, and fertilizer
stocks. Due to additional demand for corn, and with March corn closing
at $4.32 per bushel yesterday, the livestock sector will likely see
thinner margins as a result, and their stocks will likely suffer.
Provisions in the bill includes 9 bln gallons of renewable fuels in
2008. This will progressively increase to 36 bln gallons required by
2022, which also including a
one-billion-gallon mandate for biodiesel. Additionally, the bill
includes increases in the corporate average fuel economy standards to 35
miles per gallon by 2020. National Corn Growers Association leaders say
they are hopeful the President will sign the bill into law by Christmas.
Farmers and subsidies win again.
12/18/07: I wish gas procurement was as
simple as this blurb
from Michigan. The questions are applicable to us.
Here's a blast from the past...remember when
PPL did an annual bill
review to make sure you were on the most advantageous rate?
12/14/07: I don't want to insult the author
of this op-ed piece in the Morning
Call, but there is little to no substance in this verbiage. I
dislike authors who parrot the utility fallback of "oil and gas prices
have gone up" or "coal is up 150%". While technically true, these
numbers all flow into what is known as the cost of system generation.
In other words, the market clearing, or wholesale price of a kwhr of
electricity. If PPL can make record profits today while still
under regulated rates, what does that tell you? In the old days,
the revenue requirement = operating cost + taxes + depreciation + (a
fair rate of return) * rate base. Now that the operating cost is
in the free market, anyone and everyone in a higher priced environment
(New England, for example) is going to gladly bid the cost up because
it's lower than their own cost. The #1 question our politicians
need to ask PPL is: What is your cost of system generation?
The whole company! Not the oil or gas units because PPL is
primarily nuclear and coal. And given that coal is about
$2.19/mmBTU (and 33% efficient), how is it that your cheapest power rate
is $17.58/mmBTU while the cost to generate it is about $7?
12/13/07: This is why our Congress gets no
respect: The U.S. Senate blocked the energy bill passed last
weekend by the house. The vote was 59-40, one short of the 60 need to
overcome Republican objections and move to a final vote. The main
sticking point was a $22 bln tax package that would essentially tax big
oil companies $10 bln over 10 years and
redirect tax incentives.
The money would be earmarked for solar, wind, and nuclear. Speaker
Pelosi has come back saying that the bill would go under a second vote
today, with the tax provision removed, an obvious negative for solar,
wind, nuclear, etc. The Dems already dropped a requirement that investor
owned utilities get 15% of their power from renewable sources by 2020.
This would mark the second defeat for the Democrats and alternative
energies. The second vote is expected today and while in the past
President Bush has called the bill dead on arrival, these revisions may
make it more palatable for him to pass.
Under its current watered down
version the passing of the bill would be seen as a victory of big oil
and utilities. Conversely, the losers are consumers.
Status quo ain't helping get oil < $100/bbl.
12/11/07: How fragile is this market???
Yesterday, crude oil surged in early morning trade on word a
Houston shipping channel closed due to severe fog. The rally was
short-lived, however, following reports the fog was lifting. But this
morning, Bloomberg is reporting that the Houston shipping channel has 58
incoming and 14 outgoing ships delayed. Jan crude oil is up 1.04 to
$88.90pbl (range overnight is $87.92 to $88.97). I mean, come
on, there is fog in Houston and that is the excuse du jour to goose
prices? This is clearly not encouraging...like dancing on a
knife's edge.
12/10/07: Politics again: WSJ reports
the Senate will try to modify the big energy bill passed by the House to
draw enough Republican support by next week to overcome a filibuster
threat. The most likely candidate to be jettisoned from the bill is a
requirement that utilities generate 15% of their electricity from wind,
solar and other "renewable" energy sources. Removing the
renewable-fuels mandate for utilities may not be the end of the
political and procedural snarl... The bill the House passed Thursday
failed its first test in the Senate Friday when Majority Leader Harry
Reid of Nevada requested a vote to close debate. The 53-42 vote fell
short of the 60 needed, and the five senators who didn't vote are
Republicans. Republican senators, emphasizing President Bush's veto
threat, said the measure's $21
bln tax package will have to be modified or removed before Mr.
Reid can get past the 60-vote hurdle. The Democratic leader still hopes
to save some of the tax provisions, which include incentives for
investment in the production of renewable energy. For comparison sake,
take a look at this
graph.
Republican or Democrat, this
story rings true.
Houston, we have a problem. We dare not tax our beloved oil
companies, even though the tax could be structured to R&D alternative
energy. #6 oil has nearly doubled in one year. Thank you
sir, may I have another? And the car ads on TV continuously spew
highway MPG numbers that are essentially unattainable in real
life. Something's gotta give...
12/5/07: Oil will hit $100 a barrel
within 6 months, Boone
Pickens says-
BloombergGee, pretty safe bet now, eh?
Do analysts matter? The
E.I.A. reports that crude oil inventories had a draw of 7913K
barrels (Bloomberg consensus is a draw of 1250K barrels); gasoline
inventories had build a of 3995K (Bloomberg consensus is a
draw of 300K); distillate inventories had a build of 1428K
(Bloomberg consensus is a build of 620K). I mean, what are they
looking at? Not even close...Crude Oil jumps following data,
currently at 89.55 up $1.23...1 hour later: Crude Oil Futures fall 2%
off off morning peak.
11/28/07: Gee, what happens when high
prices start to impact the consumer? Crude now under $92pbl,
currently $91.98pbl, down $2.44. EIA stats show significant
demand reduction. Combine this with all of the anecdotal BS
stories about wood, alternative fuels, and a Saudi statement of a 500K
bpd increase in output and you have speculators on the run. The
simple truth: investors load up on oil futures based on T Boone's
$100 target...we touch, but fail to run through that number...resistance
holds...lock your profits and run away...price drops. This is how
the game is played.
11/20/07: Ugly. Crude oil move to
session highs, now +3.52 at 98.16, just below all-time high of 98.62 set
on 11/7. This in the face of an imploding stock market? This
is not a pretty macroeconomic picture.
11/15/07: More
misleading BS from the PPL
media machine. Folks, PPL is split into six different companies.
Even if regulation led to bankruptcy for PPL Electric Utilities, the
balance of the machine would continue to grow and spit out profits.
11/13/07: Crude-oil futures fell for a
second day on Tuesday, dropping more than $4 to $90.20 a barrel, the
lowest level in nearly three weeks, after the International Energy
Agency cut its estimate of global oil demand and a survey showed the
Organization of Petroleum Exporting Countries increased crude production
in October. The contrarian in me sez that the media stories about
high heating oil prices are usually the top, after the fact.
You'll note that futures are still indicating lower. Financial
manipulation can last only so long...
11/12/07: Nigeria's oil minister, Odein
Ajumogobia, said oil prices near
$100pbl are excessive and oil may return to between $80 and $85 within a
month. This comment, coupled with Saudi Arabia and Kuwait saying
over the weekend that they will talk about raising output at the next
OPEC meeting, is likely to temporarily put the brakes on crude's upward
march (Shell's President, John Hofmeister, said this morning on CNBC
that oil prices are "too high" and says the U.S. should not touch the
SPR). OPEC will hold its third Summit Nov 11th through the 19th in
Riyadh, Kingdom of Saudi Arabia and will meet on Dec 5th in Abu Dhabi,
UAE. Brazilian President Luiz Inacio Lula de Silva said this weekend
that the Tupi field discovery, which may hold reserves that could total
as much as 8 bln barrels of oil and natural gas, may lead Brazil to join
OPEC down the road. The Tupi field is the second-biggest field found in
the last 20 years.
11/8/07: US Energy Sect says adding oil to
the SPR wont significantly affect price of oil. Says current oil price
suggests more supply need from OPEC, Non-OPEC producers. Declines to say
if $100 a barrel oil is inevitable, is 'very concerned' about high
price. - Reuters No kidding? Very concerned,
eh?
11/5/07: Wow. I had to adjust my
scales on the oil prices. My take? It can't continue at this
pace. Look at heating oil...we're in contango...futures are LOWER
than current. It's hard to say what deflates this bubble...P>
$100?...stocks correct?...weather? It's even harder to believe,
but the refiners can't seem to make any money despite record prices.
Natural gas is rising in sympathy with oil, not
because storage is down/depleted/dwindling. In other words, it's
rising because it can...it's a financial gain.
Lehigh has successfully burned waste vegetable oil as a
replacement for #6 oil. Score one for the sustainability/green
column. And no, the DEP didn't give us any grief. I'm
working with the supplier to see if a refined product can replace home
heating oil.
11/1/07: Before you shed any tears for PPL
and their cry of bankruptcy if deregulation is stopped, note that Wall
Street firms are all tripping over themselves UPGRADING PPL stock this
morning...because they see nothing but profits ahead...profits coming
from your budgets.
Interesting: France releases 285,000 tons crude
from strategic stocks, according to govt - DJ.
10/30/07: OPEC President says OPEC still
has spare capacity of 3.5 mln barrels per day.
10/29/07: Wow! Take a look at those
$/MMBTU numbers on the chart. Obviously, that uptrend cannot
continue unchecked or we'll be at $4 heating oil next winter.
Something's gotta give sooner or later...as I've said, the traders see
$100/bbl...and then what? That's what I'm watching.
I've said it before and I'll say it again...oil prices
look like a hot stock chart...everyone is climbing aboard with the
expectation that the price rise is parabolic. Eventually economics
come into play...it's a game of timing.
10/22/07: Great minds think alike?Saudi Fin Min: Oil price not justified by demand - DJ
10/17/07: The OPEC basket (a blend of
different crudes) rose to $80.82pbl (this is the first time it is above
$80). T. Boone Pickens says
within a year you will see $100pbl. And then what???
It's hard to watch the oil prices rise daily when this
data is published...inventories are above 5-year averages...the only
anomaly is heating oil...it looks like refineries were late this year to
switch production...but the slope of the curve is encouraging.
Unfortunately, price is based on a vote by the Turkish parliament, not
how much is in the tanks.
10/16/07: OK, who knew that Turkey was
planning to invade northern Iraq?
10/15/07:
Swing and a miss. All technically true, but he doesn't mention
that two very high level execs at PJM were forced to retire after the
whistleblower came forward...and the issue remains LMP, or locational
marginal pricing. FERC rarely, if ever, intrudes upon States'
rights. The PA legislature got this ball rolling and they're the
only ones who can apply the brakes.
Oil...now it's news that Turkey could invade Kurdistan.
The geopolitical problems keep goosing traders who are just itching for
$100/bbl oil. And then what? What is that extra 25% hike in
the price going to accomplish? Energy conservation?
10/8/07: Sad but true local reading...first
you get the PPL "oops, sorry" story
on the rate hike...brought to you by Mr. I Only Report What I Hear.
(What have I been telling you all along???) Then PPL trots
out their Prez with the old "bankruptcy if regulated" BS. Umm, you
were around for 75 years under regulation...why would you go bankrupt if
you had to provide a fair price to the consumers of PA? Why does
EVERYTHING have to be about profit? Regulated monopolies earned a
fair profit for years and stayed in business...there is a reason for a
regulated monopoly...the term "economies of scale" comes to mine.
Note the heating oil prices in the chart on the
left...winter premium disappeared.
10/3/07: Venezuelan oil minister RafaeI
Ramirez said Tuesday he did not think OPEC needed to raise crude output
again at its next scheduled meeting in early December.
Current high prices are not due
to any shortage of oiI, the minister told reporters on the
sidelines of a conference in Lisbon, adding that he thought
crude prices were unlikely to
fall below a "floor" of $60/barreI. Asked if he thought OPEC,
which agreed last month to increase crude production by 500,000 b/d from
November 1, should raise output again in December, Ramirez said: "No, we
believe not. We have to maintain the level that was decided in
September." Prices are currently high despite "an increasing level of
production," he said, citing geopolitical tension and a lack of refining
capacity as factors supporting the market. In addition, he said, "we
think the market has changed structurally.
We will never again have oil at
$28; $60 is the floor."
10/1/07: Nothing good to report on the
coming electric rate increase. The current PJM wholesale price
average is $64.74/MWHR. Do the math. Lehigh's current
LP5 regulated cost is $60. Wholesale prices have TRIPLED since
1998 (right after deregulation became reality).
9/24/07: It's funny how the Morning Call
uses a silly term like "flip-flop" to sell this
story. They don't use
any power over there? This is the meeting I referred to on 9/20
(see below). Once again, the reporter comes to the show late and
misses the first act. Deregulation was sold as a means to SAVE
MONEY because regulation is a monopoly and regulation is bad. Well
guess what? As the article notes, electricity isn't a commodity
like grain or rice. The LMP model is killing the consumer and
fattening PPL.
9/20/07: It's meeting time again.
First up is this
PPLICA session with PPL reps to discuss what we can and can't do
with power rates. And then there is this
AICUP/ECI user group meeting in Philly. Lehigh is working with
Enernoc and I'm attending to see how they stack up.
Looking at the oil numbers, I can't help but think we're
seeing an inverted head and shoulders top...clearly we're attacking
resistance and testing the price level. Here are the latest
charts. The heating oil inventory chart is a little bothersome
given our high crude inventories...but you have to remember that nearly
every dual fuel customer in the USA is/has switched to natural gas.
Given that driving season is winding down, OPEC is adding supply, and no
storms are imminent, and given that refineries have unused capacity,
it's odd that the numbers aren't charging toward the 5-year average.
Conspiracy theorists???
9/19/07: Here we go again...T. Boone
Pickens says on CNBC oil could go to $100 next year, trend is up,
but high prices are beginning to take a toll...API data shows Aug oil
demand -2.2%, or 459K bpd YoY, gasoline demand up 1% to 9.678 bpd, and
distillate fuel demand off 2.4%.
Wonder where all of that wind money is headed?
A
recent article in the New York Times reported that Washington
utility American Electric Power will install huge banks of high-tech
batteries as a way of connecting more wind power to its grid. The
article goes on to say that the cost of the project is very high,
$267 million for six MW
of capacity, or about $4500 per
kW, including the cost of substation improvements. Finally, the
article reports that the batteries will use a sodium sulfur chemistry,
operate at temperatures of more than 800°F, and will be the size of a
double-decker bus. NOTE...you can buy a 1KW generator for $200.
9/17/07: Goldman raises end of 2007 oil
price forecast to $85pbl from $72pbl and sees a high risk of a spike
above $90pbl); note that in Mar '05 Goldman said oil mkts have entered a
"super-spike'' period that could see 1970's-style price surges as high
as $105 a barrel. Timely. Where were you 6 months ago?
9/12/07: Scary headline:
Crude oil trades to all time
highs at $78.77, up $0.54 on the day. Yet the #6 oil failed
to confirm this high and the futures are not following. It's as if
they still think a big hurricane is coming...time will tell. All I
can say is NOT locking at all time highs seems like the prudent move.
Gas is good...It's gonna be a green winter for many of us! Sorry
Sunoco and Hess...wonder where all of that product will end up?
9/11/07: Wow! Not good...Crude Oil
for Oct. delivery officially settles at all-time closing high of 78.23
OPEC to agree to raise its oil output
by 500,000 bpd in november-delegate - Reuters; I'm thinking this is
somewhat good news, though refining constraints remain. Barring
any other unforeseen events, this should bring prices down a tad.
Update: the market actually spiked UP on the news because it was
expecting 1M bpd...tough game.
Highlights from EIA's Short-Term Energy Outlook: Oil
market fundamentals will likely remain tight reflecting continued
production restraint by members of OPEC,
rising consumption,
moderate growth in non-OPEC supply, and
falling inventories.
Barring a slowdown in oil demand growth, continued high demand and low
surplus capacity leave the market vulnerable to unexpected supply
disruptions through 2008... Announced maintenance at fields in the
United Arab Emirates has lowered EIA's projection for OPEC crude oil
production in the fourth quarter by 100,000 bbl/d from last month's
Outlook to 30.9 million bbl/d. In 2008 EIA expects that OPEC will
increase production slowly, to an average of 31.4 million bbl/d, in
order to manage inventories and maintain prices... Driven by increases
in the residential, commercial, and electric power sectors,
total natural gas consumption is
expected to rise by 4.5 percent in 2007.
Although no formal comments have
been made by the Saudis, it is believed they are looking for a 500,000 bopd increase in output from OPEC today. (Venezuela, Algeria and
Libya do not support a production raise and believe current output is
sufficient to meet demand; keep in mind it is believed OPEC members have
been producing more than current quotas and that has not deterred crude
prices from rising).
9/10/07: Lots of emails flying around.
Top stories: Lehigh just locked down natural gas through Jun
08....and Gasmark's $10.19 offer is just a Rate NT conversion in
disguise...Hess blew them away for Muhlenberg. Keep in mind that
basis (i.e. physical location of your meters) counts.
9/4/07: This week is the beginning of the
end for winter gas. We're either going to break $5 or begin the
climb. The storm du jour appears harmless to oil & gas production.
And the day closes with this: Oil jumped $1 past $75 a barrel
on Tuesday as a top U.S. hurricane forecaster called for a busy end to
the Atlantic storm season, raising concerns over potential oil and gas
disruptions. Once and again, if the forecaster is even slightly
wrong, we're headed back to lows in a heartbeat. It's really a
little pathetic because we've already had two Cat 5s and the season ends
in October.
8/27/07: Here's a
little commentary story on wind
that I could have written because it touches on many undercurrents of
the wind argument that I've discussed in the past; it's a subsidy, and
it really was birthed by Enron.
8/23/07: Working gas in storage was 2,926
Bcf as of Friday, August 17, 2007, according to EIA estimates.
This represents a net increase of 23 Bcf
from the previous week. Stocks were 77 Bcf higher
than last year at this time and 333 Bcf above
the 5-year average of 2,593 Bcf. In the East Region, stocks were
137 Bcf above the 5-year average
following net injections of 40 Bcf. Combine this with unseasonable
weather and no Gulf hurricane and we're on the road back to $5.
Dear Lisa Boscola, here's why your initiative is dead in
the water:
Compete, an advocacy group promoting competitive
electricity markets, paid Covington & Burling LLP
$200,000 to lobby the federal government in the
first half of 2007, according to a federal
disclosure form. The Washington-based firm lobbied
Congress and the Federal Energy Regulatory
Commission on electricity competition and other
energy issues, according to the form posted online
Aug. 7 by the Senate's public records office.
PPL Corp.
and DPL Inc. are among the dozens of companies that
are members of Compete. William Massey, a
former FERC commissioner, is among those registered
to lobby on behalf of the coalition. Under a federal
law enacted in 1995, lobbyists are required to
disclose activities that could influence members of
the executive and legislative branches. They must
register with Congress within 45 days of being hired
or engaging in lobbying.
8/22/07: October crude closed lower by
$0.36 to $69.20pbl and Sept nat gas ended at $5.59 mbtu, lower by 22.7
cents. Sept heating oil finished lower by 20 cents to $1.95/gal.
The wheels are in motion for me with this price rout due to the storm
missing the Gulf. I've got a number from UGI that's pretty good
and I'm working Gasmark and Hess for their quotes. I'm
entertaining a buy-limit order after I commit to a basis number from
Hess. I still think short term gas tests the $5 level. If it
does, I'm buying my winter (except Jan/Feb).
8/21/07: Wow! See what happens when
the big one misses the oil & gas production facilities? Gas
dropped nearly $1! And crude is back to $70. NYMEX oil falls
below $70 a barrel for first time since July 2- Bloomberg
8/20/07: A trader might interpret this
chart of 6 oil prices as
a "head and shoulders" top...
Ignoring the political angle, here's an
interesting story...what if we used 10% as a return on high
efficiency investment? Instead of what is usually, or currently,
maybe 33%...
8/19/07: Too little, too late. Here's
a nifty
little Sunday story from the Morning Call about our esteemed State
government starting to take notice that people will be more than a
little miffed on or about 1/1/2010. Umm, why is the DEP involved?
Politics, as usual. Personally I see this as just a reaction to
PPL's giddy Wall Street guidance. Hey, it took 11 years to get
here and they're not about to let anything derail the profit train at
this stage of the game. It would take an extraordinary step in
this State to repeal that legislation. People at PPLICA asked the
same question 14 months ago and some extremely smart lawyers who
specialize in taunting PPL saw no way out.
8/13/07: Hey! Did I call that gas
bottom on 7/31 or what? Take a look at the $/mmBTU graph.
Congrats to Lafayette...timely move.
8/2/07: Borrowing a line from Dirty Harry,
do you feel lucky? Just heard an interview with a gas trader on
CNBC...if we don't get a storm soon, gas could easily hit $5.60 before
winter issues come along. In other words, they're hoping for
SOMETHING, ANYTHING, to draw down inventory.
Crude oil continues to trade at levels not seen in a
year. Sep crude is up 54 cents to $77.37pbl (Crude hit a record
$78.40pbl on 7/14/06). Natural gas short-covering also continues as more
seasonal warm weather is finally forecast to hit much of the U.S. over
the next two weeks and we enter the heart of the hurricane season
(roughly 80% of the hurricanes that form in the Atlantic take place from
August to October; NOAA has issued Public Advisory Number 2 for Tropical
Depression THREE which is north of Bermuda and could become a Tropical
Storm today). Nat gas is also being helped by surging crude prices as
consumers look to cheaper gas rather than oil; nat gas is up 14 cents to
$6.635mbtu. Heating oil is up 1.69 cents to $2.0820/gal.
7/30/07: PPL Corp To Sell Its Small
Natural Gas Distribution and Propane Businesses; this didn't work
out as I had hoped...I thought PPL would make a play for UGI and bring
sanity to the business. Obviously, PPL found out that they
couldn't make money via tariffs and a common sense approach. UGI
survives via smoke and mirrors. Sad day for energy consumers.
7/28/07: Is anybody still reading the
paper? Did you see this story
and this story about PPL
rates? You already knew about all of this information over 1 year
ago!!!
7/26/07: I would recommend this
class to anyone interested in
learning more about the NYMEX and the futures markets. One night
in Manhattan is worth it for the experience.
7/25/07: WSJ reports from coast to coast,
plans for a new generation of coal-fired power plants are falling by the
wayside as states conclude that
conventional coal plants are too dirty to build and the cost of cleaner
plants is too high. If significant numbers of new coal plants
don't get built in the U.S. in coming years, it will put pressure on
officials to clear the path for other power sources, including
nuclear power, or
trim the nation's electricity
demand, which is expected to grow 1.8% this year. In a time of
rising energy costs, officials also worry about the long-term
consequences of their decisions, including higher prices or the
potential for shortages. For now, coal cos haven't taken steps to
ratchet back production or big projects because of coal-plant delays.
They believe that in a time of global energy concerns, U.S. coal
supplies will be seen as too important to dismiss. The U.S. has the
world's largest coal reserves and is sometimes called "the Saudi Arabia
of coal" by energy-industry observers.
7/24/07: Here's
a blast from the past. Didn't even know I was listed! It
may be 7 years old, but it's still as relevant as ever.
Crude oil continues yesterday's selling and is
off 94 cents to $73.95pbl (Iran agreed that within two weeks it will
provide details of its uranium enrichment; continued downward pressure
on crude is evident due to specifc
OPEC comments which said a fair
price for crude is between $60 and $65; traders are fearful that
OPEC may start to think they need to add supplies to lower oil prices.
Natural gas, which fell 40 cents yesterday, is off 8 cents this
morn to $5.96mbtu largely due to unseasonal cool weather.
Nat gas is now at the lowest levels since Dec
(Aug ng expires on Fri).
7/23/07: Here's a
story from yesterday's NY Times whereby high gasoline prices are now
blamed on refinery outages. So instead of storms, we have the
infamous university term of "deferred maintenance" rearing its ugly
head.
We now have a crossover on the NYMEX crude oil
charts...prompt, or current pricing is HIGHER than future pricing.
A trader might argue that high prices are expected to cut demand thereby
influencing supply and resulting in lower prices looking 12 months out.
Either way, this means DO NOT lock anything at current levels.
7/16/07: T. Boone Pickens says we will see
$80 oil before he turns 80 years old next year (says there is no way you
can be short oil); says Russian
and Saudi producers want higher oil prices.
U.S. crude price could top $90 a barrel this autumn and hit $95
by the end of the year if
OPEC keeps oil production capped at current levels,
Goldman Sachs said in a report issued on Monday.
7/9/07: I apologize for the data gap...the
death-in-the-family was my Dad and I've been traveling to Philly every
other day. I'm out of the office until 7/16.
6/29/07: Chavez calls for oil price to
remain above $60/barrel, Chavez tells Russian Duma he wants to upper
limit on oil price- Bloomberg
Sometimes you get lucky...gas prices are moving down
(diverging from oil) very nicely. I bought about 75% of what I
needed at a fixed price and as the month winds down I'm in the spot
market filling the balance. I've NOT done anything with my NDS
accounts as I'm watching the (lack of) hurricanes. Gas could
easily break down another $2 short term and $1 long. Patience
pays.
6/25/07: I haven't bothered to repost a lot
of the dribble that passes for news in the Morning Call. I would
like to note
this column regarding our latest energy effort from Congress.
Sadly, I have to agree with the hot air comment...green this and green
that...but don't mess with my truck.
6/20/07: Inventories: At
349.3 million barrels, U.S. crude oil inventories are well above
the upper end of the average range for this time of year. Total
motor gasoline inventories rose by 1.8 million barrels last week, but
remain well below the lower end of the
average range. All of the increase was due to a build in gasoline
blending components. Distillate fuel inventories inched higher by 0.1
mln b/day, and are in the upper half of the average range for this time
of year. Propane/propylene inventories rose by 2.8 million barrels last
week. Total commercial petroleum inventories increased by 9.9 million
barrels last week, and are in the middle of the average range for this
time of year. Demand: Over the last four weeks, motor gasoline demand is
up 1.5%; Jet fuel demand is down 0.4%.
6/18/07: Crude oil trades to ~9 month highs
on Nigerian concerns... July crude is currently +0.71 at 68.71
6/14/07: U.S. heating oil
futures jump 2% to above $2.00/gal on supply concerns, highest since
Sept 2006
6/7/07: Reality check: Energy
Conversion Devices, Inc. announced the installation of its UNI-SOLAR(R)
ground-mounted amorphous thin-film photovoltaic (PV) panels to power the
1.1 Megawatt solar energy
system at Paramount Farms, Inc., the world's largest vertically
integrated supplier of pistachios and almonds. The
installation, which spans 8 acres, is one of the largest
single-site, privately-owned solar energy systems in the U.S.
6/4/07: July crude closed the session higher
by $1.04 to $66.12pbl while July nat gas ended the day at $8.186mbtu,
higher by 30.8 cents. July heating oil ended higher by 4.12 cents to
$1.9640/gal. Loving it when a plan comes together!
(Uh-Oh)...US refiners shelved
500,000 bpd expansion plans over past yr due to demand uncertainty,
costs, according to EIA - Reuters OPEC needs to boost
output in second half 2007 to meet winter demand says EIA's Caruso.
Occassionally I read a little blurb
that clarifies a recent project. Here's 10 items for a fire alarm
contractor that could/should apply to any technical service agreement:
The current hourly rate, as well as any premium for
calls on nights, weekends and holidays,
The length of time these rates will be in effect,
Whether the provider imposes a minimum charge for a
service call, and, if so, how much it is,
The frequency with which labor rates increase,
The amount and date of the last price increase,
The average time to respond to an emergency,
Whether the service provider offers a discount, if
any, from the published price list for parts,
The length of the warranty period,
Whether the warranty covers both parts and labor, as
well as annual testing,
Whether system training is available to the end-user
and how much it costs.
5/30/07: Wow. How about that price
disparity between Sunoco and Hess? Today it's 8 cents. Proof
that it never hurts to entertain at least two quotes. I'm a little
surprised given the Pennsauken terminal for Hess and the proximity of
the Sunoco refinery.
5/24/07: Have you ever heard of the Law of
Unintended Consequence? Here's a
prime example as to why gasoline prices will stay high.
"Domestic refineries can process 17.5Mbpd...we consume 21Mbpd".
5/23/07: I received an email from our
administration PR folks asking what Lehigh was doing for sustainability.
It took great restraint on my part to inform newspeople that we didn't
just jump on this bandwagon.
Please read
this editorial. Energy engineers have been working on this
problem since the Carter administration. Compact flourescent bulbs
weren't invented yesterday! Every week I look at the oil import
vs. domestic production numbers and cringe.
Chairman says "... PPL is strong, growing and
well-positioned to take advantage of new opportunities in the
continually evolving electricity business." The co continues to forecast
2010 earnings of $3.50 per share.
5/22/07: First we get this headline: NOAA sees
7-10 hurricanes this season, 3-5 may be major - DJ NOAA says
75% chance hurricane season 'above normal'. This leads to a quick
check on Jun-Oct gas prices...$9 at the city gate...which leads to a
Rich Kiernan phone tag session...which starts with $0.40/mcf and ends
with $0.25/mcf...THUS I'VE JUST LOCKED DOWN GAS
FOR THE NEXT 5 MONTHS AT A PRICE ON PAR WITH OIL.
5/18/07: I sincerely hope everyone read the
Morning Call story on PPL
today and remembered what I've been saying since the beginning...please
scroll down to my 6/6/06 comment below. The marketing machine has
been out in force attempting to soften the blow while the stock price
has been soaring. This is not rocket science. PJM posts the
market price on an hourly basis. PPL still controls its own
generation and know what it costs to make a profit! Why are people
so hung up on round numbers? Like 30%? Fuel prices move
constantly and the IBEW cost will increment at least 3.5%/year forever.
30% is the MINIMUM budget increase for your planning. Let's not
forget the little distribution rate increases that are also scheduled to
hit.
Even the bit players smell the money to be made in a
deregulated market: EnerNOC (ENOC) prices its IPO at $26, well
above the expected range of $21-23. The co uses its Network Operations
Center, or NOC, to remotely manage and reduce electricity consumption
across a network of commercial and industrial customer sites to enable a
more intelligent electric power grid. In order to avoid service
disruptions, such as brownouts and blackouts, during periods of peak
electricity demand, grid operators and utilities have traditionally
increased supply by building additional power plants and transmission
lines. As an alternative, ENOC offers demand response services,
whereby it monitors electricity consumption and alerts end-use customers
to reduce their usage. This helps optimize the balance of electric
supply and demand and creates a more environmentally sound alternative
to building additional power plants. Grid operators and utilities
pay ENOC a stream of recurring revenues. With over 1,308 customer
sites and 579 mw of demand response capacity under management, the co
believes it's the largest national provider in the US. The co is
not yet profitable, but posted 2006 revenue of $26.1 mln, up 166% yr/yr.
Q1 revenue rose 95% yr/yr to $10 mln... This is the second IPO in a
month in the "intelligent electric power grid" space. The strong pricing
for ENOC looks in part due to the big move in the other IPO: Comverge,
which makes the devices that get installed at energy customer locations.
T4 note: this is similar to the scheme proposed by Utility Connect
at the AICUP meeting at Del Val College. The difference is UC was
"money for nothing". Here, the company expects you to cut demand
(in other words, turn it off).
5/8/07: Accuweather says six or seven
hurricanes likely to hit U.S. this year; says Florida and Gulf
coast regions most at risk from this year's hurricanes.- Reuters
5/7/07: Qatar Oil Minister says current oil
market is oversupplied - Reuters
5/3/07: Working gas in storage was 1,651
Bcf as of Friday, April 27, 2007, according to EIA estimates. This
represents a net increase of 87 Bcf from the previous week.
Stocks were 245 Bcf less than
last year at this time and 266 Bcf above the 5-year average of 1,385 Bcf.
In the East Region, stocks were 58 Bcf above the 5-year average
following net injections of 52 Bcf; total working gas is within the
5-year historical range.
5/2/07: Saudi Arabia may not increase oil
output capacity after 2009- Bloomberg
5/1/07: They said: PPL Corporation
announced Tuesday (5/1) that it is seeking a buyer for its PPL Telcom
subsidiary, which provides broadband connectivity for telecommunication
companies, wireless and Internet service providers and large businesses
and institutions. T4 translation: What were we
thinking? Why go into a commodity business with razor-thin margins
when we're going to hit the lottery with deregulated power? Hey,
they're only employees at-will.
4/27/07: June crude ended the session
higher by 1.37 to $66.44pbl while June nat gas closed higher by 23 cents
to $7.832mbtu. May heating oil closed higher by 2.39 cents to
$1.9130/gal and May RBOB gas closed at $2.3570/gal, up 6.67 cents (approaching
the highest levels of last summer's hurricane season).
I guess it's time to see if anyone is listening...or
reading...my call was to buy heating oil in late January...nobody
responded...in March, I said the clock was running out...and nobody
responded...at this time, heating oil is getting close to last winter's
disastrous prepay. Buying now because that's when the historical
buy occurred makes no sense unless you want a guaranteed not-to-exceed
price. Given that there are two potential suppliers, I would at
least see who offers a better cap plan.
4/23/07: T4 attended the PPLICA meeting on
Friday to discuss PPL's distribution rate increase proposals. They
are finally progressing to a cost-for-service model (thanks to
deregulation). The bottom line is a huge win for LP-5 customers
(7% rate DECREASE). Consumers are not going to be happy.
Customer charges are transitioning from a demand-based model to a flat
rate; they're created their own internal "insurance company" to
compensate themselves for storm-related expenses (fishy). There
are several proposals to change the language of Rule 4 in their tariff;
these are anti-customer in that they make it nearly impossible for you
to get a second line of service without paying the entire cost, even if
the line is on your own property. And the elephant in the room
remains 1/1/2010...all
interruptible rates and EDI/IDI credits will disappear.
Fuel Switching 101: if you look at the $/mmBTU
graph, you'll note that current nat gas is cheaper than 6 oil...finally!
Unfortunately, that pesky little company named UGI is not
included...once you add back the $0.35 DS rate (which would involve a
serious volume commitment) the number agains skews in favor of 6 oil.
4/18/07: Here's the
full story on
yesterday courtesy of the Morning Call. Blah, blah, blah...prices
are going up.
Here's an
example of why you shouldn't lock into one supplier. I had a
contract with Sunoco and it expired. I asked Hess to supply market
pricing. Even though they are coming from Pennsauken, NJ, they're
a little cheaper.
U.S Gasoline pump price could touch record, Bodman
says- Bloomberg
4/17/07: T4 attended the PPL
presentation to the Lehigh Valley Chamber of Commerce in Allentown this
morning; it was a very generic presentation that could be summed simply
with: expect at least a 20% cost increase in 2010.
PPL presents the data in a way that makes it seem as if they're here to
help. Let's ignore the facts that the stock is on a tear,
deregulation = for-profits, and PA deregulation was spearheaded by Phila
politicians jealous of the low PPL rates which were nearly 2x higher.
And Enron. Today PPL says 20% in 2010. T4 maintains 30%
because you also need to factor in these little distribution rate
increases.
4/13/07: U.S. DOE Sec: "Relatively
confident" of enough summer gasoline supply despite large drop in
fuel stocks - Reuters
4/12/07: NEW ALTEMOS CONTACT = VINCE
CATRAMBONE...267-228-0631 Let's not shoot the messenger...the
current quote on next year's heating oil is $2.24. Please
see the 1/12/07 and 3/23/07 comments. I've asked for a cap quote.
Crude oil prices are higher after
the International Energy Agency
said OPEC had cut supplies to a two-year low to reduce trim global stockpiles. The real issue here is gasoline
inventories (gasoline inventories have already fallen 9 weeks in
a row so the fact that crude supplies are at the lowest levels since Jan
2005 ahead of the summer driving season could be problematic and that
could result in higher wholesale/retail prices of gasoline especially
since refining utilization rates
are at 3-month highs). Crude oil is up 69 cents to
$62.70pbl (range is 62.91 to 61.92). Ahead of weekly inventory stats at
10:30am EST (expectations of a build of 16bcf), nat gas is up 8 cents to
$7.935 ($8.01 was yesterday's high). Heating oil is up 1.18 cents to
$1.8865/gal. (+ at least a 15 cent margin + higher costs into winter).
Boone Pickens
said last night on CNBC that we should take out the $78pbl crude
level by the end of this year.
4/11/07: Productions: U.S. crude oil
refinery inputs averaged nearly 15.1 mln b/day during the week ending
April 6, up 231K b/day from the previous week's average. Refineries
operated at 88.4% of their operable capacity last week. However,
gasoline production declined
compared to the previous week, averaging over 8.5 mln b/day,
while distillate fuel production increased, averaging over 4.2 mln
b/day... Imports: U.S. crude oil imports averaged 9.8 mln
b/day last week, down 441K b/day from the previous week.
Over the last four weeks, crude
oil imports have averaged over 10.0 mln b/day, or 202K mln b/day more
than averaged over the same four-week period last year. Total
motor gasoline imports (including both finished gasoline and gasoline
blending components) last week averaged 953K b/day. Distillate fuel
imports averaged 259k mln b/day last week... Inventories:
At 333.4 mln barrels, U.S. crude oil inventories are
just above the upper end of the
average range for this time of year. Total motor gasoline
inventories fell by 5.5 mln barrels last week, and are just below the
lower end of the average range. Distillate fuel inventories inched
higher by 0.1 mln barrels, and are slightly above the upper end of the
average range for this time of year. Heating oil inventories
(high-sulfur) fell last week, while diesel fuel inventories (the sum of
ultra-low and low-sulfur) inventories reported a modest gain.
Propane/propylene inventories rose by 0.7 mln barrels last week...
Demand: Over the last four
weeks, motor gasoline demand is up 2.5%; Jet fuel demand is down
0.8%.
4/9/07: Last night on "60 Minutes" nuclear
energy was a big focus. The segment showed how France is leading the
world in using nuclear energy. Also during the segment, President Bush
was shown walking through a Exelon Corp (EXC) plant when the commentary
focused on the U.S. looking to boost its own use of nuclear energy.
4/5/07: PPL is starting the media parade to
sell their distribution rate increase request with a
meeting in
Allentown on 4/17; T4 will attend. Later that week, there is a
full-blown
PPLICA meeting to discuss this case. Good for
industrial/commercials and bad for residentials is the summary of the
PPL plan. The fear amongst I&C bigwigs is that the Office of
Consumer Advocate, at a minimum, will vehemently argue against the PPL
plan. In other words, the PPL plan is good for Lehigh, but bad for
the Trzesniowski family home.
Do you have science labs? Jon Zboralski, Director
of Engineering for ThermoFisher
(was Fisher Hamilton) offers the "4s" as design tips for successful fume
hood jobs: max 400 cfm/diffuser (preferably perforated), and 2' x
4' diffusers located > 4 ft from the hood. Low flow hoods/venturi
designs are really sales pitches because NFPA 45 seems to be the
governing Code on hood stats and they require a minimum of 25 cfm / sq
ft of work area.
Did you realize that every wasted cfm of conditioned lab
air that is exhausted is worth nearly $7 annually? Do the math.
4/4/07: Here's a
screenprint from a
scenario on Utility Connect's website
(the
AICUP) presentation. For our 13.5 MW load, they'll pay us $17,253
to do nothing? I'm not a firm believer in the money for nothing
business case. I'm still digging.
4/3/07: Anybody remember my "coal and
yellow cake" comment from the last meeting? Check out this story
on Florida Power
& Light's plan for the next decade. 12 years (est?) to get a
nuke up and running.
I finally took a look at the
AICUP
presentation regarding the PJM demand response program. I'm
still formulating some questions. In a nutshell, I think this is
great for PECO customers, but I'm not sure of the benefits in a
(currently) low cost territory such as ours. And lest we forget,
demand control means turn off the lights, shut something off, kill the
air conditioning...and it usually happens on the hottest days when
classes demand it most. Lehigh studied this years ago and the
professors with research (and gov't $) were not happy campers. On
the + side, it seems like a no-brainer if you're willing to participate.
3/23/07: NOTE: I'm out of the area next
week at a class in Wisconsin. I have to note that the energy
markets are now firmly in an uptrend due to the Iranian/British sailor
issue. I think I was clear at our last meeting that the timeframe
to act on next year's budget was short. The demand numbers from
last Wednesday's storage report were not good if you expect lower
prices. The USA continues to demand ever increasing volumes of
gasoline.
3/22/07: Here's a classic UGI story.
I emailed Rich Kiernan yesterday and asked for a DS offer; well,
actually, I did all the work and told him that $0.35 would work for us.
He calls back this AM and wants an answer NOW. I think we all know
that gas marketers don't exactly move at the speed of light. And
to top it off, he must know that Gasmark had a sales meeting yesterday
and nobody was in the office? This game is very tough.
Anybody catch the
Morning Call
story about the poor guy in Bucks getting run over by big bad PPL?
Let me offer some of my PPL knowledge...that line has been on the
drawing board since the 1960's! Lehigh was approached in 1995 and
granted a ROW to install a sectionalizing switch as part of that
project. 69KV is an archaic method of power transmission.
This is a tough fight. They're building Q-town like crazy and
growth is moving westward. Something's gotta give.
Are you familiar with Value Line? Here's the
VL summary on PPL.
Our impending rate increase is neatly summarized in the last paragraph.
Good for investors. Bad for ratepayers.
For anyone who has to explain a power outage, here's a
good story. Squirrels are rats with tails.
3/12/07: WSJ reports deep in the heart of
Texas, Royal Dutch Shell (RDS.A), BP (BP) and a
wind-development co owned by Goldman Sachs (GS) are racing to
lease vast expanses of ranchland. In a bet on wind power's
long-term viability, they're planning to erect what would be some of the
biggest wind farms in the world, with thousands of
wind turbines costing some $2
mln apiece. But
generating power from wind isn't profitable without govt tax breaks,
which in the past have been offered and taken away. Energy cos investing
in wind power are expecting govts to toughen rules relating to
traditional energy sources, part of long-term efforts to reduce
global-warming emissions and reliance on Middle East oil. As a result,
they're hoping renewable energy
willbecome a
profitable niche, not merely one that allows them to
burnish their green credentials. Moreover, unlike most other
green-energy options, wind power doesn't require any technological
breakthroughs. The soaring pinwheel turbines that turn wind into
electricity are manufactured by a growing cadre of mainstream cos,
including General Electric (GE) and Mitsubishi Heavy Industries,
and are getting more reliable and efficient. Exxon Mobil (XOM)
remains unconvinced. Exxon is bankrolling research on clean-energy
technologies, but says renewable energy isn't yet viable on a large
enough scale. In addition, the co says,
it doesn't want to get into a
business that depends on subsidies.
3/5/07: Published again!
I wish they would have printed it along with
this story from
Saturday...."We have some trouble heading our way unless we do what
the governor has outlined.."??? Umm, Kathleen, if we can repeal
a faulty pay grab, why can't we repeal a faulty deregulation law?
Crude oil is lower this morning (currently off $1.19 to
$60.45) on concern global
economic growth will slow, reducing fuel consumption. The fact
the Saudis are saying that military action against Iran would only make
matters in the Middle East worse has some traders thinking negotiations
rather than militant action will be how the U.N. deals with Iran for
now. Also weighing on energy prices is bearish comments from OPEC Member
Algeria that OPEC, producer of
40% of the world's oil, will probably keep its production quotas
unchanged when ministers meet March 15, because crude oil prices are
"normal." The Algerian Oil Minister also said,
prices are expected to stabilize
between $50 and $60'' a barrel.
Forbes.com reports just an hour's
drive outside the capital of Brazil, a traffic-choked metropolis where
President Bush kicks off a Latin American tour Thursday, sugar cane
fields stretch for hundreds of miles, providing the ethanol that fuels
eight out of every 10 new Brazilian cars. In only a few years, Brazil
has turned itself into the planet's undisputed renewable energy leader,
and the highlight of Bush's visit is expected to be a new ethanol
"alliance" he will forge with Brazilian President Luiz Inacio Lula da
Silva. The deal is still being negotiated, but the two leaders are
expected to sign an accord Friday to develop standards to help turn
ethanol into an internationally traded commodity, and to promote
sugar cane-based ethanol production in Central America and the Caribbean
to meet rising intl demand. Meanwhile, political and energy analysts
warn that any agreements reached between Brazil and the U.S. are
unlikely to have short-term effects. And the deal itself could end up
largely symbolic because of reluctance by Washington to address a key
point of friction: A 53
cent-per-gallon U.S. tariff on Brazilian ethanol imports.
WSJ reports just days after two of the nation's leading
environmental groups blessed an investor plan to buy TXU Corp. and take
the controversial Texas utility in a new and "greener" direction, a
battle has broken out in the environmental community over the terms of
the deal. The Natural Resources Defense Council and Environmental
Defense said they had extracted a pledge from the investors to cancel a
slew of coal-fired power plants, cut emissions and back federal
global-warming legislation. But now, opponents of the deal, in a
blizzard of emails and Internet posts, have put the two organizations on
the defensive by accusing them of settling for too little. The critics,
who encompass a broad range of smaller environmental groups and
individuals, say TXU should have been forced to give up all, not just
some, of its future plans involving coal-fired power plants. The
plants release substantial amounts of carbon dioxide, a heat-trapping
gas blamed in part for climate change. Even worse, some believe that the
environmental interests were snookered. Since the buyout was announced,
it has become apparent that some of the concessions involve projects
that TXU was already planning to shelve for a variety of reasons.
And TXU has fueled the skepticism further in recent days by
outlining new loopholes in the
pledge.No kidding? As I mentioned in the
Morning Call letter, investors don't pony up $32B for an asset that
won't produce serious gains.
3/2/07: April crude closed higher by 19
cents to 61.98, April nat gas closed higher by 2 cents to 7.320, while
April heating oil closed lower by 0.0045 to 1.7765.
Look for another letter to the editor by yours truly in
the Morning Call this weekend. It disgusts me that our State can't
look at deregulation and recognize that it's Wall Street running wild.
There once was a day when utilities existed to serve the people who
lived within their service territory.
2/27/07: Hearing that the strength in crude oil
(61.90 +0.51) is being attributed to two things: concerns that
tomorrow's gasoline data will be very bullish for prices due to so many
recent refinery issues in North America, and word that terrorism was the
cause of a Frenchman's death in Saudi Arabia.
2/26/07: Lots of news this weekend.
First, let's look at a State that just said no: WSJ reports
Virginia's legislature formally
pulled the plug on deregulation last week, eight years after it
restructured the state's electricity mkt. But the effort to undo the
deregulation plan has sparked a dustup between regulators and Dominion
Resources over a plan that critics say gives too much away to the
state's biggest utility. Had legislators not acted, Dominion would have
been able to charge mkt prices for electricity after 2010, possibly
causing rate shock. The legislation phases in modest rate increases and
ties some future charges to utilities' underlying costs. The legislation
nevertheless is controversial because it is packed with incentives not
typically offered to utilities, and Dominion has enjoyed a strong
financial performance. Harvey Morgan, a Republican member of the
Virginia House of Delegates, said Dominion was given too much say in
what went in the legislation. Unlike in other states where utilities
divested their plants, the state's two biggest utilities, Dominion and
American Electric Power (AEP), kept theirs.
Next up, let's examine this story: The Wall
Street Journal reports a total of six firms -- led by Kohlberg, Kravis,
Roberts & Co., Texas Pacific Group and Goldman Sachs Group -- have
signed a deal to buy TXU Corp. (TXU) for $32 bln plus more than
$12 bln in TXU debt, according to people familiar with the matter. TXU
directors last night voted to recommend that shareholders approve the
deal. In a creative twist, the firms have moved quickly to pre-empt
opposition from powerful environmental groups while seeking support from
various regulators and politicians. Already, the potential buyers have
promised to cancel plans to build all but three of the co's proposed 11
coal-fired plants. And they are planning to placate consumers with rate
reductions.
Folks, you don't spend $32 BILLION for an asset that
is expected to decline in value. Taking the company private means
that they are not subject to the same financial oversight as a public
company. Texas rates are already among the highest in the
nation...
Hence, we get news like this that shows the "Lazarus"
effect: Citigroup notes news reports indicate K.K.R is leading a
private equity bid for TXU Energy (TXU) with a purchase price estimated
at +/-$70/share. The firm believes KRR's bid has positive valuation
implications for merchant power companies and integrated utilities with
large deregulated generation portfolios and corroborates their
bullish view on fundamentals for
those companies, specifically ones in tightening east coast markets.
The firm says NRG Energy (NRG) and Mirant (MIR), Reliant (RRI)
and Dynegy (DYN) could all be takeover targets
2/22/07: (Uh-oh) The E.I.A.
reports that crude oil inventories had a build of 3.694 mln barrels
(Bloomberg consensus is a build of 1.05 mln barrels); gasoline
inventories had a draw of 3.041 mln barrels
(Bloomberg consensus was a draw of 50K); distillate inventories had a
draw of 5.037 mln barrels (Bloomberg
consensus was draw of 2.875 mln barrels) ---> Crude oil sees
initial spike higher following energy data... now 60.40 ---> (from
EIA) Demand: Over the last four weeks, motor gasoline demand
is up 3.8% y/y; Distillate fuel demand is
up 9.8% y/y; Jet fuel demand is
up 5.7% y/y.
We are doing a fine job of working off the oversupply
without conserving anything.
Ahead of stats at 10:30
crude oil is off 36 cents to
$59.71 after moving above $60 for the first time since Feb 9(range overnight is 59.61 to 60.19). Natural gas is off 3.2 cents
to $7.614mbtu (range is 7.58 to 7.697). Heating oil is off .25 of a cent
to $1.6791/gal. Forecasts for stats: looking for crude to build
1mln, gas to draw 50, distillate to draw 2.875mln and nat gas to draw
226bcf.
2/20/07: Just in case you don't have enough
work on campus, you should be aware that this whole
"green" and
"carbon neutral" trend is coming to a President's office near to
you. Wind is a subsidy that amounts to money for nothing.
Photovoltaic will cost you a solid $0.30/kwhr (vs. $0.08). Ethanol
chews up gas pumps and fuel system components; it's not economical for
$60/bbl oil. It's very PC to
sign on to the treaty; unfortunately, implementation is going to be a
pain for you. Note: there is a nice summary of green intiative information on the "Green Energy" link on the Clients Only
page. (Look at the top of the link list on the left!)
2/12/07: The Wall Street Journal reports
the world oil market is in "much, much better health and balance" now
and, if trends hold, there will be no need for further production cuts
or increases in supply when members of the OPEC meet next month, Saudi
Arabian Oil Minister Ali Naimi said yesterday. In an interview, Mr.
Naimi said the kingdom's production is now 8.5 mln to 8.6 mln barrels a
day, confirming its reduction by one mln barrels a day from its output
about six months ago. The world oil market is in "much, much better
health and balance" now and, if trends hold, there will be no need for
further production cuts or increases in supply when members of the
Organization of Petroleum Exporting Countries meet next month, Saudi
Arabian Oil Minister Ali Naimi said yesterday. The reduction is part of
a push by OPEC to shrink stockpiles of oil that climbed sharply last
year as demand growth stumbled. OPEC is to meet March 15 in Vienna to
assess its production policy.
2/8/07: Here are a few
tidbits of recent communications
from UGI. First off, why would anyone prevent a marketer from
access to records that would help you cut costs? Second, I asked
Rich Kiernan if the $1.70 DS offer would be a CREDIT, or enticement for
us to burn gas. They just don't seem to understand the economics
of their product. He actually asked me how I arrived at $6.67/mmBTU
for #6. Seriously. And finally, look at how they communicate
an interruption. Take the script and pencil in your name!
And for some reason, they absolutely refuse to email this notice.
2/5/07: IMPORTANT REMINDER! You should
have at least 35% glycol in any hydronic system subject to
freezing.
Here's a little fictional
green humor! Sad but true?
Nigerian Oil Minister says
OPEC will probably keep oil
output ceiling unchanged at March meet if prices hold - Reuters
2/2/07: Is Rendell rearranging the deck
chairs on the Titanic with this
plan? PPL just set
another record on earnings: $868 million. And we need to plow further
with deregulation because...??? Think of what their earnings will
look like when they use "market pricing" to pick your pockets while
sitting on low cost nuclear and coal assets. And the best we can
offer is another 3-year transition period?
Crude oil is up 46 cents to $57.76pbl (range is 57.15 to
57.81). OPEC's 500,000 bopd additional cuts went into effect yesterday
so there is speculation that this time OPEC members will comply and thus
tighten supply.
1/29/07: Lots of cross-currents from the
weekend news, especially toward ethanol. On one hand, we have the
Saudis seeking to temper the price of oil, and on the other, we have
a critical analysis of the
ethanol plan. Note the quandry: lower oil prices make
ethanol unattractive/uneconomical. T4 still believes that
conservation has to be a part of any solution. Whether it happens
in 100 years or later, it seems to me that fossil fuels have a finite
supply.
Barron's reports the U.S. ethanol complex has been a
long-term beneficiary of government assistance through tax subsidies and
tariffs on imported ethanol. The president's call for even more
production of ethanol and biodiesel won't do much to change the biofuel
industry's near-term course. Refiners are already straining available
engineering resources to add capacity as quickly as possible. Current
projects are expected to expand production capacity to six bln gallons a
year in 2007. As reflected in the price of a bushel of corn, supply
limits can take some of the fun out of the new ethanol-refining
capacity. Those other kinds of corn stocks -- the inventories
sitting in grain elevators -- have been drained to 20-year lows. That
makes weather a bigger short-term risk factor, should production get
pinched by a bad harvest. In the medium term, farmers will surely shift
acreage to corn from other crops. That, in turn, could limit supplies of
soy to biodiesel refiners. And the growing appetite of ethanol refiners
for corn will make the grain more expensive for livestock and,
indirectly, humans. To be sure, continuing improvements in corn yields
will ease some of those constraints. A boost in corn supply won't be
enough to boost the crush spread, the profit from buying corn and
turning it into ethanol, and make ethanol stocks recover. They'll need
another rise in the price of oil.
T4 rocket scientist award:
Bank of America energy analyst Robert Morris on Friday cut his 2007
annual gas price forecast 17% to $6.25/MMBtu, noting that this winter
appears to be nearly 10% warmer than normal and is nearly half over.
1/25/07: I guess Robert Plant has gone back
to Led Zeppelin. Now I understand why getting price quotes from
HOP has been like pulling teeth. Let's see where this goes.
As I understand it, LVAIC had Jim McKelvey for many years, then Altemos
became HOP and we had six months of Bob Plant. Now it's Jeff
Brunner.
1/23/07: PPL
wants "intermediate" rate increases before the big shocker.
Now if this is so necessary, why did Wall Street suddenly pump their
stock as soon as word hit? Profits run counter to the purpose of a
regulated utility. Yeah, they want to hire more linemen...give me
a break...half of their work is already farmed out to Henkels.
Stepping up tree trimming? Hello PPL, you're the guys who 606ed
Vegetation Management a decade ago in your quest for ever higher
profits. And now we have to pay more for you to do what you were
supposed to be doing all along?
Crude oil closed up ~$2.32 today to $54.90, with much of
the gain occurring immediately after headlines hit that President Bush
wants to double the Strategic Oil Reserve. Note that Bloomberg earlier
quoted an analyst from Wachovia on the significance of this: "Doubling
the size of the SPR would add significant upward pressure on oil prices.
It would remove a significant amount of supply from the market. Refiners
will have to spend more to get the available barrels." Note that China
is quietly filling their own SPR, and when combined with all of the
bellicose statements coming out of energy producers Russia, Iran, and
Venezuela, this is taking much more crude off the market than many may
think. OPEC only has roughly a million excess supply, so the mkt can't
afford even the slightlest disruption (even just pipeline problems or
any refinery maintenance problems would qualify here)... In addition to
the SPR news, some other bullish developments for oil are the statement
from the head of OPEC (mentioned this morning) that the "basket price"
for OPEC crude should be around $55pbl. This usually trades below the
spot price, so if there are calls that the basket should be near $55pbl,
than you can make a case that spot crude could be closer $58 than $50
very soon. In addition, tensions in Lebanon have been ratcheting up the
past few months -- the Prime Minister repeated today that he will stand
firm against Hizbollah protests, which have been occurring in Beirut for
the past few months -- and recall that the war in Lebanon sent crude oil
into the highs $60's last summer.
1/19/07: This kind of story drives me nuts:
The Wall Street Journal reports investors are trying to figure out
which companies will be hurt most if oil stays down amid a relatively
warm winter and ample global supply. "Some oil shares have held up
better than expected," says Jack Ablin, chief investment officer at
Harris Private Bank. "But profit expectations are getting slashed." He
says Hess (HES) is vulnerable because it historically has been
sensitive to crude-oil prices but lately its shares have held up
surprisingly well. Among larger oil companies, ConocoPhillips (COP) could
be hurt if oil prices keep tumbling, some investors say. Others say that
oil-service companies, like Tidewater (TDW) could be risky. In
previous oil downturns, drilling-co stocks have been hit because they
operate with a high degree of operating leverage, or their earnings are
most sensitive to moves in oil prices. Larger drilling companies include
Grey Wolf (GW), Rowan Cos. (RDC) and Nabors Industries (NBR).
Now we're locked in the cycle of lower prices as we work
off supply. And drillers can't make money and then we stop
drilling and then there is no conservation and then the demand starts to
outstrip supply and then....
1/18/07: U.S.
Crude Futures falls $2.34 to $49.90/BBL; first time below $50 since May
2005
Note the new chart link on the left (at bottom)
detailing the $/mmBTU moves since October.
EIA Update: Production: USA crude
oil refinery inputs averaged 15.1 Mbpd, down
502K bpd w/w; refineries operated at 87.9% of operable capacity last
week; gasoline production declined last week compared to the previous
week, while distillate fuel production decreased significantly...
Imports: USA crude oil imports averaged nearly 11.1
million barrels per day last week, up
nearly 1.6 mln bpd w/w; over the last 4 weeks, crude oil imports have
averaged 73K bpd y/y; total motor gasoline imports (including both
finished gasoline and gasoline blending components) last week averaged
over 1.0 million bpd; distillate fuel imports averaged 277K b/d... Inventories:U.S.
commercial crude oil inventories (excluding those in the SPR)
jumped by 6.8 mln barrels w/w;
USA crude oil inventories are above the upper end of the average range
for this time of year; total gasoline inventories are at the
upper end of the average range; Distillate
fuel inventories remain above the upper end
of the average range; Increases
were seen in both high-sulfur distillate fuel (heating oil) inventories
and diesel fuel inventories (a combination of ultra-low-sulfur and
low-sulfur); total commercial petroleum inventories are above the
upper end of the average range for this time of year... Demand:
Over the last four weeks, motor
gasoline demand is up 1.2% y/y;
distillate fuel demand is down 3.6% y/y;
jet fuel demand is down 1.7% y/y
1/17/07: Boone Pickens gives interview on
CNBC to discuss oil prices, saying he is not surprised at the
pullback, but the depth of the pullback is a surprise to him. Says
his equity fund is down 6% YTD, but he hesitates to reset the portfolio.
Says he thinks we'll see a turnaround, and thinks we're "at the
bottom." Says he thinks the Saudis have already made a cut, as the
data they have suggest it looks like they've cut 200K barrels per day.
Says he can't believe they would want the price down, when the market
can stand $60 oil.
1/16/07: Add 363 heating degree days thru
Mid-January. And let's not forget that January 20th is the
midpoint of winter. We are well on our way to the warmest winter
in at least 21 years.
Crude oil is
fast approaching the key psychological level of $50 per barrel.
(Scroll down to 12/13/06!!!) The economic picture plays a large
role in the direction of crude oil prices (increased demand in a strong
economy / reduced demand in a sluggish economy), nonetheless, there are
also these factors: [The Bear Case for crude]:
1) Saudi Oil Minister says the crude oil mkt is oversupplied by 1 mln
barrels, which has led the mkt to expect another cut of production; if
this cut delayed, prices will fall. 2) Warm winter/higher product
build. 3) Technically, crude prices are off 33% from highs seen in
mid-July and the spot contract has failed to hold many key support
levels including $60 (psychological level), $55 (a level many analysts
thought would be the bottom) and $52.25 (the June 2005 low). In
addition, hedge fund selling continues to plague crude oil prices | [The
Bullish Case]: 1) Crude is still very much
subject to headline risk, be it from frequent disruptions of production
in Nigeria from militants; Iran's continued defiance on nuclear weapons;
nationalism by Russia, Venezuela, and Ecuador, which would take
production off the mkt; the continuing violence in Iraq; and any storm
that affects the Gulf of Mexico or any prolonged maintenance issues at
refineries or problems with waterways. 2) Any emergency meeting by OPEC
ahead of March 15 (next scheduled OPEC meeting) should cause
short-covering. If the Saudis change their tune and go for a cut, the
prices should move higher. Another cut of greater than 500K bpd may get
some shorts nervous, especially ahead of the summer gasoline season.
1/15/07: Lehman Brothers energy
analyst Tom Driscoll on Friday
cut his 2007 natural gas
price outlook 10% to $6.75/MMBtu, saying that the
large amount of
gas in storage and warm weather could depress gas prices for most of the
year. Driscoll warned gas prices
could drop even further than his $6.75/MMBtu prediction if gas
begins to trade, as it did last year, at a 10-to-1 ratio with crude oil.
"The recent warm weather and the natural gas storage overhang, along
with the drop in crude prices, have led us to become more concerned
about 2007 prices," Driscoll said. "Recent warm weather and
disappointing storage withdrawal rates mean that the market is likely to
deal with a large storage overhang for the next six to nine months. A
repeat of last year's winter-end storage levels (and we think winter-end
storage will approach last year's 1,695 Bcf) would likely depress prices
until [towards the end of] 2007," Driscoll said. "A
crude oil price in the mid-$50s[/barrel] and a comparable gas-to-oil
ratio implies that gas could average as little as $5.50[/MMBtu] over the
remainder of '07," Driscoll speculated. "We are not quite
that bearish (we are using $60 crude) but the risks are becoming more
apparent." "Our model indicates that the supply demand balance has
gotten 2-3 Bcf/d more bearish in the past several weeks vs. Q4 trends,"
Driscoll said, although he couldn't ascribe the slack supply/demand
balance to weaker demand, growing supply, or simply "noise" in his
model. "Adjusting the October storage data for the colder weather
implies that last week's storage withdrawal should have been roughly 2
Bcf/d stronger than the 7 Bcf/d that was reported," Driscoll said. "With
recent crude oil prices testing $50[/barrel] (vs. an average in the
mid-$60s/barrel in 2006), it appears that natural gas prices could be
"capped" at prices of $6.00-6.50/MMBtu until mid-summer," Driscoll
concluded.
1/12/07: Congrats to Lafayette on this
apparent win against
Met-Ed. IMHO this is a Pyrrhic victory because what we need is
someone with the backbone to propose
this concept. The Met-Ed clock expires one year after the PPL
clock and I'm sure they're aware of the public outrage that will occur
when the PPL rate hikes hit home. Met-Ed is stuck with low cost
recovery and the prospect that the golden goose of 2011 will get
stalled.
I opened some lines of communication with Sunoco, Hess,
and HOP to check on NEXT year's numbers. Sun is quoting $1.21/gal
for #6 oil and HOP is around $1.85 for heating oil. Once again,
the laddering strategy is very appealing to me for cost containment and
$1.85 heating oil certainty doesn't look too bad for at least 33% of
expected draw.
OPEC mulls Jan. 20-21 emergency meeting, according to
senior delegate - DJ
I have to note that this really feels like a
weather-driven bottom. Sunoco's cash price drops a penny, at best,
despite all of these huge moves (-15%) in crude. Htg oil on NYMEX
isn't crashing. And gas prices at the pump aren't $2. All of
these headlines are wonderful if you have the storage capacity to buy
all of your oil right now. If you're a stock investor you know
that a price can tick down for 30 days in a row and then gap and go to
make new highs. I think the "$15 terror premium" is gone and we're
retracting to a normalized supply/demand price structure. Hedge
funds need to find a new sandbox in which to play.
1/10/07: A UGI Gomer Pyle moment...suhprize,
suhprize...burn 150,000 mcf and we'll go for $0.25 DS! Can't make
that decision too quickly, though. Need to crank thru a few
scenarios. If we didn't have a high TETCO basis, I'd be on it like
a fly to poop. Every negotiation has to start somewhere and this
one isn't too bad.
1/9/07: Crude is again trading to the
downside on concerns that OPEC members will not comply fully with recent
production targets slated for Feb 1st (traders also said the recent
warm weather coupled with OPEC
not cutting production as planned will keep too much oil on the
market--something seen as bearish for the complex). OPEC may cancel
plans to expand production capacity after crude prices plunged.
Kuwaiti Oil Minister Ali Jarrah al-Sabah said today. "Falling prices
will damage our economies," he said.
Feb crude hit an overnight low
of $54.06/bbl. Crude is trading
at levels not seen since June 2005 (weighing on crude is
speculation that tomorrow's product inventory data will show very large
builds). If $54 fails to hold, the next major support level is $53.68.
Nigeria is drawing from its reserve fund to offset losses in oil output.
Crude is now under levels that OPEC members feel comfortable with---this
could lead to extraordinary meeting very soon.
1/8/07: OPEC should call extraordinary
meeting to discuss oil price drop, Venezuelan Oil Min - Reuters; OPEC,
excluding Iraq' cut 195K barrels a day in Dec- Bloomberg
Here's an interesting
story on real-time electricity metering/pricing.
1/4/07: Hope you all took a few seconds to
read the email on HDDs. Someone at the NYMEX must have seen a copy
because we had the biggest one day selloff in crude yesterday in over 20
months! It's interesting to watch the refined product respond...we
certainly don't have huge price moves there, though even the TETCO basis
is finally coming down. This is really a good time to be thinking
about NEXT year. You can easily get pricing up to 18 months in
advance. I've already asked UGI for a DS offer thru 12/07.
12/31/06: Happy New Year from T4
Engineering. I'm getting ready to check with the National Weather
Service to confirm my suspicion that this is the warmest 6-month heating
degree day stretch since 1985. Lest we forget about the high
prices of last summer, here's a tidbit to remind you why we don't "play
the market": (Worst performing hedge funds of 2006)
Amaranth, which had more than $9 billion in assets earlier this
year, lost roughly two-thirds
of that in Septemberas a lack of hurricanes and warm weather played havoc with Brian
Hunter's huge natural gas trades. Founder Nick Maounis tried to salvage
the firm, but by the end of September he decided to shut down, saying
the market had turned against him. Amaranth wasn't alone in falling prey
to the volatility of energy markets in 2006. MotherRock, an energy hedge
fund run by the former president of the New York Mercantile Exchange
J. Robert Collins, shut down after losing $230 million in June
and July in the natural gas market.
12/18/06: I'm not even going to comment on
the lunacy of Saturday's Morning Call headline except to note that
nobody is "losing money" and a record of prepay as the correct move 11
out of the past 12 years is pretty good. You don't lock to "beat
the market", you lock to prevent a price surge.
TINSFAAL (There is no such thing as a free lunch).
Note this story about folks
now burning wood.
UGI is pretty coy about the A-town gas
explosion..."rookie mistake"? Hello? I'd be willing to bet
that this kid was told either gas service was already shut off or that
it was a low pressure service. Personally, I've not seen 60 psig
(or medium pressure) gas INSIDE a building anywhere. It's always
reduced at least twice. What are the odds that a contracted gas
worker carries a shutoff key and/or is even permitted to turn the valve
in the street?
12/14/06: Despite some members stating
publicly that they did not back a cut (Kuwait), Reuters is reporting
that OPEC has agreed to cut 500,000 bpd as of Feb 1 (Qatar Oil Minister
confirmed this but no formal OPEC still has been announced). Saudi
Arabia's Oil Minister says supply and demand NOT in balance.
Nigerian President Olusegun Obasanjo said oil service cos are sapping
profits generated in OPEC nations as costs to explore and produce oil
deposits soar; also said OPEC should cooperate more in the upstream
industry to reduce the dominance of foreign companies.
12/12/06: Kuwait says most OPEC members
satisfied with $60pbl crude yet OPEC Pres Daukoru says $60 crude is
"low" and he said prices can be "better". Iran Oil Minister says oil
below $60 is not appropriate.
12/11/06: Another week, another
prognostication: Globe and Mail reports
Merrill Lynch cut its estimate
for oil prices next year, because of slower economic growth and
increasing supply, but hiked its target for the commodity in 2008 on
expectations demand will rebound. The investment bank now sees
oil at $60 a barrel, down from its previous forecast of $65 a barrel,
and crude rising to $62 a barrel in 2008, from its earlier prediction of
just $50 a barrel. Merrill also
boosted its forecast for natural gas in 2007 and 2008
12/8/06: Would we expect a different statement?
US Energy Secretary says OPEC should not cut production when it
meets next week - Reuters
12/6/06: Another prognostication! Back in
October I mentioned the fact the the US EIA has all of the facts and
figures in the world but the one thing they never get right is price!!!
US natural gas consumption is projected to grow to 26.1 Tcf by
2030, the US Energy Information Administration said Tuesday in its 2007
Annual Energy Outlook. The newest forecast is below the 29.6 Tcf the
agency predicted in its 2006 outlook for 2030 and is well below the
projections of 30 Tcf or more included in AEO references cases of
several years ago, largely because of the effect of higher projected gas
prices, EIA said. In its latest AEO,
EIA said it expects the real
wellhead price of gas to fall from current levels to just under $5/Mcf
in 2005 dollarsby 2013
as increased drilling brings on new supplies and new import
sources become available. After 2013, the AEO sees wellhead prices
increasing gradually, to about
$6/Mcf in 2030, a price equivalent to $9.63/Mcf in nominal dollars.
The agency said major contributors to anticipated growth in gas supply
include liquefied natural gas imports, the completion of an Alaskan
natural gas pipeline in 2018 and domestic unconventional production. The
outlook said LNG imports are expected to rise from 0.6 Tcf in 2005 to
4.5 Tcf in 2030, while Alaska production will reach 2.2 Tcf by 2030 and
unconventional production will grow to 10.2 Tcf by the same year.
12/5/06: According to the WSJ Online,
investors are pouring billions of dollars into "renewable" energy
sources such as ethanol, biodiesel and solar power that promise to
reduce the world's reliance on petroleum. But
exploiting these
alternatives may produce unintended environmental and economic
consequences that offset the expected benefits. Some experts are also
concerned that crops for biofuels will compete with other farmland,
possibly driving up global costs of basic food production. It's not
clear how serious these problems will become -- or whether they
eventually will be resolved through new technologies and stricter
environmental measures. Proponents of alternative energy, including some
palm oil industry executives, say the dangers are exaggerated and are
outweighed by the benefits new fuels promise. David Pimentel, Cornell
University Professor, argues that expanding corn production for biofuels
would deplete water resources and pollute soils with added fertilizer
and chemicals. It would also require huge volumes of traditional energy
for farming equipment and ethanol-conversion facilities -- a toll that
could nullify gains from the less-polluting fuel produced.
12/4/06: You should pay attention to this
chart. This price isn't taking
off because it's a dividend play...it's because the market expects big
results in the future. Smart money knows that your wallet will
fatten their coffers.
Saudi
Arabian Oil Minister Ali Al-Naimi said crude inventories are too high on
Friday. Yesterday he was making some big statements that should
be listened to. "I agree that we
have to take 100 mln barrels out of the market,'' Naimi told
reporters in Cairo yesterday, where there is a meeting of Arab oil
ministers, without specifying how that should be done.
Iran is also calling for a production cut from OPEC (between 500K
and 1mln bopd on top of the 1.2mln cut in Nov). Yesterday Iran's OPEC
Governor Hossein Kazempour Ardebili told the state-run Islamic Republic
News Agency, "A fall in world economic growth, a drop in international
oil demand against OPEC and International Energy Agency estimates as
well as an unexpected output rise by non-OPEC oil producers, which is
predicted to continue in 2007, and accumulation of oil reserves and
products all indicate that the
oil market needs a new output cut,'' Kazempour told IRNA today.
Lyba, Qatar and Kuwait's oil ministers made comments over the weekend
that also indicated oil inventories are too high (suggesting a rate cut
in Dec).
According to the NY Post, Goldman Sachs is putting its
Horizon Wind Energy subsidiary up for sale,
in a bet that the market for
renewable energy is nearing a top. According to energy news
website Sparkspread.com, which first reported the sale, Goldman
might get around $1.5 bln for the Houston, Texas based company. Goldman
is pitching the co as possibly being able to throw off $800 mln in
adjusted earnings before interest, taxes, depreciation and amortization
by 2011. A more traditional financial valuation, Ebitda, is expected to
come in at around $400 mln by then. To get that cash flow from wind
energy, Goldman is assuming that Horizon will control 14% of all wind
generation developed in the U.S. since 2000. Those figures also assume
that 2,100 megawatts of additional generation capacity is added by 2010.
12/1/06: We have an awful lot of nervous
government wonks out there this morning: Saudi Oil Min says
oil mkt "significantly" out of balance - DJ | U.S.
Energy Secretary - OPEC doesn't need to cut output at Sec meeting,
markets still need OPEC's
oil - Reuters | OPEC won't have accurate info on U.S.
stocks by Dec meet, risks 'inaccurate' decision on output cut, EIA -
Reuters
T4 opinion: we're over the $60 "balance point" and
markets usually fall farther than expected and rise higher. With
that stated, where is conservation? I think the only reason we're
stagnant is this delayed onset of winter weather. Time will tell.
We're switching from gas to oil today. I have to burn 1.2 MG
over the next 4 months and I have 180K in the ground under a buck.
11/30/06: Crude is up 19 cents to $62.65 /
bbl. Cooler weather expected to hit over the next few days coupled w/
the lowest distillate supplies since Aug has crude oil at 2-month highs.
Natural gas is off 13 cents to $8.74mmbtu.
Libya says OPEC should seek to
keep oil prices between $57 and $63 a barrel (Libya, an OPEC
member, produced 1.72 Mbpd in Oct).
Friedman Billings notes Wednesday's DOE petroleum
inventories report for the week ending Nov 24 was positive for refiners,
as the administration reported
decline in gasoline and distillate inventories vs. consensus
expectations for rises in both, driven by rising consumption and lower
supply. Product inventories have declined 8% over the past eight weeks
and are now only 1% above year-ago levels, and firm expects this
positive trend to continue in Dec.
11/29/06: Can you say soup-to-nuts? Pepco Energy Services, a subsidiary of POM and a leader in energy
savings performance contracting, will implement a comprehensive energy
performance contracting program for Salisbury University, located on the
Eastern Shore of Maryland. The
15-year contract calls for Pepco Energy Services to provide
energy conservation measures in the majority of buildings, dormitories
and facilities on the Salisbury campus. As part of the performance
contract, Pepco Energy Services will design and build a new central
chilled water plant, install high-efficiency lighting, provide
comprehensive upgrades of the plumbing fixtures and complete building
envelope work on 45 buildings throughout the campus. Final design
efforts are underway, and construction is expected to be completed by
the end of 2007.
11/28/06: WTI crude is likely to remain
above $50/barrel for the next few years as spare production
capacity remains tight and oil companies battle for access to upstream
reserves, the IEA's chief economist Fatih Birol said Tuesday. "We
do not expect prices will come down (below) $50/barrel in WTI terms,"
Birol told an industry conference in London. "We would like to see
prices lower than that," he said, but "it would be a surprising trend if
we see prices lower than $50 in the next few years."Even if all upstream
projects currently being planned "see the light of day by 2010,"
current spare capacity of 2
million b/d will only reach 3 million b/d, he said. At the
same time, non-OPEC oil
production is expected to peak "within the next ten years or so."
As a result, OPEC's share of
world oil supply will rise from around 40% today to reach about 50% in
2030, "enhancing OPEC's role in having influence on global oil
prices," he said. OPEC members Saudi Arabia, Iran and Iraq are
likely to be critical to future supply growth, he said. But he
added that the investment framework and geopolitical environment
currently "makes us uncomfortable." In terms of investment, "the
global capital is there," but the question is whether or not projects
and the capital "will meet," he said. "In terms of availability of
reserves, we have no problem," especially in the Middle East. "But we
see a major barrier," he said, saying this was "access of foreign
capital to reserves." More than 60% of upstream investment is
needed just to maintain current capacity, which is why "spare production
capacity in 2010 will not be comforting." This, Birol said, is "why
we do not expect oil prices to come down significantly in the next three
or four years." Supply growth from Saudi Arabia and Iran
together will only be enough to meet Chinese demand growth, he added.
January crude closes up +1.08% to $60.97, January nat
gas closes up +2.43% to $8.56, January heating oil closes up +1.05% to
$1.7762.
11/20/06: Big news out today if you use copper
wire. Freeport-McMoRan to acquire Phelps Dodge; Co and
Phelps Dodge announce that they have signed a definitive merger
agreement under which FCX will acquire Phelps Dodge for approx $25.9
bln in cash and stock. This seems to be the name of the
game in commodities...own as much as you can and control the price.
11/16/06: Houston, we have a disconnect from
reality here: Crude is trading off $2.22 to $56.54;
hits 2006 low of $56.43;
which is all well and good, but refined products are moving UP.
Current #6 oil price is $1.15. Hate to keep beating a dead horse,
but NOW is the time to think about NEXT HEATING SEASON.
Friedman Billings notes
Wednesday's DOE petroleum inventories report, for the week ended Nov 10,
was positive for refiners, as the administration reported a large
decline in total refined product inventories, driven by
strong consumption and reduced
supplies. Over the past four weeks, total refined product demand
has been, on avg, 4.5% above comparable year-ago levels.
Total refined product
inventories, adjusted for demand, are now only 1% above the historical
three-year avg.
11/15/06: T4 is not a registered investment
advisor, however, I'd like to pass this along for your own due
diligence:
Prudential notes that NYMEX Holdings is the holding
company for the NYMEX, a large energy derivatives exchange (84% of
volume), and COMEX, a large metals exchange (16% of volume). They note
that over four-fifths of rev is driven by volume, of which the three
largest derivatives contracts (WTI, Natural Gas, Gold) make up nearly
three-quarters. The firm thinks valuation will likely reflect above
trend growth and takeout potential. The firm says pricing of the IPO is
currently estimated at $54-$57, but they believe this could be low
given above trend growth and potential for takeover. They note that
unlike other derivatives exchanges that have monopolies in their core
derivatives contracts with little threat of substitution or competing
products, NYMEX faces competition in both energy and metals. On the
energy side, they say NYMEX faces competition primarily from the
IntercontinentalExchange (ICE), and also from a more limited
standpoint from other global exchanges. On the metals side, they
note NYMEX faces competition from the CBOT (BOT) and the London
Metals Exchange.
11/13/06: Calpers approves first investments
in commodities; Bloomberg reports the largest US
public pension will invest $500 mln in oil, metals and other commodities
for the first time. T4: What have I been mentioning all
year???
Saudi Arabia to continue
enforcing its full share of OPEC oil cut through Dec; Gulf Source
|Bodman says U.S. will need more oil to meet winter
heating demand - Reuters
WSJ reports a new Rand
Corp. study showing the falling costs of ethanol, wind power and other
forms of renewable energy predicts such sources could furnish as much as
25% of the U.S.'s conventional energy by 2025 at little or no additional
expense. A second renewable-energy report soon to be released by the
National Academy of Sciences suggests wood chips may become a plentiful
source of ethanol and electricity for industrial nations because their
forested areas are expanding, led by the U.S. and China. Because use of
renewable fuels to replace oil and cut emissions of carbon dioxide is an
area on which Congress's coming Democratic leadership and the Bush
administration agree, the studies are likely to hasten efforts to
increase production incentives next year, either in a new energy bill or
a farm bill. The Rand study concludes that because prices for gasoline,
natural gas and coal are likely to remain high, their cost advantage
over renewables will erode, furthered by the hope that ethanol from farm
wastes will be available by 2020.
11/10/06: Reuters reports
world oil markets will tighten
in Q4 as OPEC cuts supply and peak winter demand kicks in, the
International Energy Agency said on Friday. The
world's demand for oil will rise
2.4 mln barrels per day in the last three months of this year
from the third quarter, the agency said in its Oil Market Report. That
is 400,000 bpd higher than the agency
forecast last month
11/9/06: LA Times: General Motor's
new electric car, to be unveiled as a prototype early next year,
would use an onboard
internal-combustion engine as a generator to produce electricity
to extend the range of the vehicle's rechargeable batteries; finally
they're getting their act together...
Crude is trading > $60 again.
Before you get swayed by the talking heads, take a look at these
charts.
Pay particular attention to sheets 16 & 18. The OPEC cuts are
beginning to be felt by the market. Remember, we aren't conserving
anything. There was an oversupply situation and it's been
addressed.
11/8/06: E.I.A. Statistics -Update : The
E.I.A. reports that crude oil inventories had a
build of 435K barrels (Bloomberg consensus was
build of 750K barrels); gasoline
inventories had a draw of 584K mln barrels
(Bloomberg consensus was unchanged); distillate inventories had a
draw of 2.675 mln barrels (Bloomberg
consensus was draw of 800K barrels).
Mercury News reports car culture
beat out eco-consciouness as
Californians voted down an oil production tax that promised money for
alternative energy research. Despite drawing endorsements
from celebrities and a former president, Proposition 87 lost Tuesday
after becoming the subject of the costliest ballot initiative campaign
in state history. With nearly three-quarters of precincts reporting, 56%
of voters opposed the measure, which would have imposed a tax on cos
that drill for oil in California. The $4 bln raised would have gone
toward loans, grants and subsidies to promote alternative fuels and more
energy-efficient vehicles. Oil cos led by Chevron (CVX) and Aera
Energy raised nearly $100 mln in their effort to defeat the so-called
oil tax. Supporters spent more than $57 mln, most of it contributed by
Hollywood producer Stephen Bing. Their pitch:
It would help wean the state from its reliance on foreign oil while
helping to reduce greenhouse gas emissions.
All OPEC
ministers have pledged sincerely to implement their cut in full from
actual production, an OPEC delegate said Wednesday. "The
EIA is wrong," the
delegate told reporters in Abu Dhabi. The US Energy Information
Administration in its Short Term Energy Outlook released Tuesday
forecasted OPEC 10's production for November at 27.025 million b/d, down
745,000 b/d from the agency's estimate of the cartel's output in
October. That means the group will fall 455,000 b/d short of its planned
1.2 million cut, which went into effect November 1, EIA said. OPEC
decided last month in Doha, Qatar, to cut production by 1.2 million b/d
from November 1, using a baseline of 27.5 million b/d for the OPEC 10
and putting their new limit at 26.3 million b/d. While the cartel listed
how much each country was to cut, it did not disclose specific overall
production targets for its members. A Saudi delegate earlier stressed
that the kingdom had implemented its 380,000 b/d cut in full. Meanwhile,
Qatari oil minister Abdullah Al-Attiyah in response to the EIA report
said: "I cannot say now. We have to wait until we meet in Abuja."(OPEC
is due to meet in the Nigerian capital of Abuja December 14)
T4:
Once and again, why are we so arrogant as to think that OPEC has no
control over its members? Wishful thinking?
11/7/06: Oil prices are now 'reasonable';
its
too early to decide on second round of cuts according to U.A.E oil
minister- Bloomberg
11/1/06: Here's a
lengthy study (Warning!
1.5MB download) on why electric prices
are increasing.
The EIA reports that crude oil
inventories had a build of 1.91 Mbbls
(Bloomberg consensus: build of 2.6
Mbbls); gasoline inventories had a draw of
2.80 Mbbls (Bloomberg: draw of 925 Kbbls);
distillate inventories had a draw of 2.72
Mbbls (Bloomberg: draw of 1.175 Mbbls).
Is this too simplistic a
thought?....If PPL can EARN $226 Million in 3 months in a regulated
environment, then why do we need deregulation? "
The Edison Electric Institute is a lobbying group for
utilities...their solution to higher prices?
Conserve. Nowhere does it
say anything about re-regulation or combining assets to give consumers a
better price. Nope. Conserve and/or face higher prices.
Thanks guys!
10/31/06: This was get the paperwork done
day for Cedar Crest. Great deal. 12 month gas @ $9.10 city
gate. UGI came in with a $2.30 delivery offer. Gasmark was $0.50
higher, but offered decent savings for the NT rate, so it's a win-win.
10/30/06: The Observer reports
multinational oil cos are having a tough time. Crude prices are falling,
maintaining production is a struggle, yet taxes set by the world's
resource-rich nations are rising - as are costs. Topping it all is a
rising trend of energy nationalism stretching round the globe. The
problems raise several linked questions in the minds of experts: is this
a taste of the future for the majors such as Exxon,Shell,and BP?
More provocatively, is there a future for these cos as we know them? Or
will they have to change what they do dramatically - even merge, as
Shell and BP are rumored to be considering, to create super-giant cos?
10/27/06: Reuters reports that coalition
naval forces in the Gulf have been deployed to counter a
possible seaborne threat
to Saudi Arabia Ras Tanura's terminal, which is the
world's biggest offshore oil
facility, the UK's Royal Navy said on Friday. The navy issued a
warning in a statement to merchant shipping as precautionary measure
after receiving intelligence of a possible threat.
Off-topic: NY Times reports E85, a blend of
85% corn-based ethanol and 15% gasoline, could be eating away at metal
and plastic parts in pumps being used to dispense the fuel at gasoline
stations, Underwriters Laboratories, the private product-safety
testing group, said this month. BP said on Thursday that it would delay
the expansion of E85 at its American gasoline outlets until the
laboratories certified an E85 dispensing system. Underwriters
Laboratories and the Department of Energy are holding two days of
hearings next week at the testing group's headquarters outside Chicago,
inviting oil cos, automakers and researchers to help develop standards
for E85 equipment. Underwriters Laboratories has temporarily withdrawn
authorization for the U.L.-approved label on parts used in E85
dispensers. Those dispensers, it turns out, were modified from regular
gasoline dispensers and were certified only for a maximum of 15% ethanol
concentration; U.L. said it had never certified any E85-specific pumps.
Natural Gas Inventory rose 19 bcf to 3461 bcf, analysts
were expecting inventories a build of 29 bcf, ranging from a build of
20-50 bcf. Crude oil trading at the upper end of this morning's
range of 61.20-61.65... now 61.60 +0.20. OPEC should cut 300k
barrels more in Dec, Ramirez says - Bloomberg
T4 opinion: the window of opportunity is now
closed. Gas bottomed the week of 10/2, as previously opined.
Anything you do now is trend-following. I'm going to update the
chart at left on Monday mornings. Next stop is $65 crude.
Support should be $60. We'll see...
10/25/06: Crude closed up $2.02 or 3.4% or
$61.37pbl; JanNG rose 37 cents to $8.70mbtu; heating oil rose 4.38 cents
to $1.7390/gal. Sub-$2 heating oil for 2007 just disappeared.
Please take a look at the expanded
table by clicking on the link under the table to the left.
The E.I.A. reports that crude oil inventories had a draw
of 3.21 Mbbls (Bloomberg consensus was a build
of 3.0 Mbbls); gasoline inventories had a draw
of 2.76 Mbbls (Bloomberg consensus was a draw
of 550Kbbls); distillate inventories had a draw
of 1.42 Mbbls (Bloomberg consensus was a draw
of 1.5 Mbbls). Crude oil
trades to new session highs following inventory data, now 60.30 +0.95.
T4 opinion: congrats USA...we're sucking the fuel straw
hard again. Low prices = zero conservation.
10/24/06: Take a look at the table on the
left side...I heard your comments at the LVAIC meeting and hope this is
a first step. You want to know when to push the oil button vs.
gas? It depends. The gas cost in the table EXCLUDES UGI.
You need to understand what their delivery cost will be to make an
informed decision. mkt = current market prices, i.e. cash,
spot, rack, whatever; delivery is included on oil. 07 =
calendar 2007 cost if you locked today; also includes delivery, except
for natural gas, which is city gate, which excludes UGI. Right
now, this table says you should think about gas in 2007. There are
lots of little iterations that can change the balance...gas is more
expensive Nov-Mar and cheaper Apr-Oct...as is basis...let's see if this
stimulates any discussion.
10/23/06: Crude is weaker this morning b/c
there is much speculation OPEC will cut less than they said last week
(London-based Centre for Global Energy Studies, founded by a former
Saudi oil minister, said OPEC's oil production cuts will be
"significantly less" than the agree size of the reduction. OPEC is
trying to defend oil prices from falling below $55pbl). Saudi Arabia did
say it will trim its oil exports to Japan, its largest customer, by 8%
(1st cut in more than 2 yrs). Crude is off 69 cents to $58.64pbl
(range is 58.26 to 59.47), and natural gas is up 4 cents to
$7.28mbtu (range is 7.102 to 7.40). Cooler temps throughout the week in
the Midwest are expected and the speculation is boosting natty's appeal.
T4 opinion: prices usually end up higher than expected AND lower than
expected... gas dipped into the $5.36 area briefly and 21 days later and
we're at $7.28! Clearly, we need to work off the oversupply, but
betting against OPEC without either a tax to spark conservation or some
alternative energy play seems foolish.
Schlumberger (equipment supplier) comments: 'High
levels of natural gas storage in N.America with consequent volatility in
the price of natural gas have recently begun to impact activity,
particularly in the areas of higher cost methane and shallow gas
production in Canada. This is not yet materially impacted our activity.
However, if the coming winter fails to stimulate strong natural gas
demand, there is a growing likelihood of excess equipment capacity and
the pressure pumping business at some point in 2007. Activity growth
elsewhere for both oil and gas will remain strong as our customers
continue to fight the decline curves and bring in new fields'... co is
not seeing any effect on pricing so far due to slowdowns in N.
America...'Asked for view on recent OPEC cuts and pricing
discussions:View is
that the whole position of the oil price and the pessimism that
surrounds it has been completely overplayed; true that U.S. crude and
product inventories are high but if you look across the world, they are
not very high; if you look at demand, there is no significant sign of
weakness in demand; think OPEC is defending the price but I don't think
there is a huge danger of a price collapse and as we've always said we
don't need $65 oil for our customer's spending plans to be maintained.
They will maintain them at a much lower price because the basic issue of
renewing supply has not really changed very much'.
10/19/06: Why are we so ambivalent toward
UGI? Because I cut a gas deal that requires Cedar Crest to install
telemetry. And of course UGI won't even initiate the work order
until they have the stupid $976 check in their hands, thereby delaying
installation beyond another billing cycle. This would never fly at
PPL. At least they have Esther! The closest thing to instant
turnaround.
OPEC may need to cut again by 2Q '07, according to OPEC
research director ; Mkt now
oversupplied by 1.5 mln B/D; 2Q '07 global oil surplus seen 2.5
mln B/D. DowJones | Friedman Billings says Wednesday's DOE
petroleum inventories report for the week ended October 13 was positive
for refiners, with the administration reporting much
larger-than-expected decline in
gasoline and distillate inventories due to favorable year-over-year
demand growth and materially lower supply (production and imports).
Let's not forget an old Wall Street axiom: the market is always
looking 6 months ahead...futures are barely moving on this news.
I'm hoping for a tweak, as in tuning a loop...cut too far and throw in a
geopolitical event and we're back to $75.
Production: US refinery inputs
averaged 14.8Mbpd, down 483Kbpd w/w; refineries at
86.3% of their operable capacity;
(remember T Boone's comments???) gasoline production rose
slightly last week compared to the previous week, while distillate fuel
production declined... Imports:U.S. crude oil imports averaged
over 10.4Mbpd, up 66,000
w/w; Over the last four weeks, crude oil imports have averaged
10.6Mbpd; total gasoline imports last week averaged 676Kbpd, the lowest
weekly average since the week ending November 25, 2005; distillate fuel
imports averaged 271Kbpd... Inventories: U.S. commercial
crude oil inventories rose by 5.1 Mbbls compared to the previous week;
U.S. Crude oil inventories
remain well above the upper end of the average range for this time of
year; total motor gasoline inventories remain above the upper end
of the average range; distillate inventories remain well above the upper
end of the average range; regular and ultra-low-sulfur diesel fuel
inventories fell by a combined 4Mbbls, while high-sulfur distillate fuel
(heating oil) inventories fell by 0.5Mbbls; total commercial petroleum
inventories remain well above the upper end of the average range for
this time of year... Demand: Over the last four weeks,
motor gasoline
demand is up 3.1%
y/y; Distillate fuel
demand is up 5.0%
y/y; Jet fuel
demand is up 3.7%
y/y. Hopefully, we can all do the math...refineries are
running 14.8Mbpd while we import 10.4Mbpd; 70%. I'm not sure why
the media paints OPEC as ineffective. The USA produces only
30% of what we consume. If you spent 70% more than you took home,
you'd be in trouble! We have good news on a short term basis
due to excess supply. Period.
10/17/06: Morgan Keegan notes that
according to yesterday's Wall Street Journal, the North American
Electric Reliability Council reports that electricity demand is
increasing faster than resources are being added. They say the article
suggest that this trend could lead to federally mandated electrical
infrastructure investment under the 2005 Energy Policy Act.
Crude oil is up 17 cents to $60.11pbl; there is a
lot of speculation in the market that OPEC's 1 mln barrel cut will come
from actual production not formal quotas. Natural gas up $0.46 to
$6.90mbtu.
One full week after requesting a DS offer for Cedar
Crest, I finally get a call back from UGI. The good news is that Rich
Kiernan is our single point of contact for schools...the bad news is he
can't approve anything. It's important to have the right delivered
price of the alternate fuel ready when he calls. Aim high and you
hurt yourself. Aim low and let them challenge the number.
This is just so typical: Chicago Tribune
reports as President Bush promotes ethanol as a green alternative to
gasoline, his administration is quietly relaxing environmental rules for
dozens of new corn-to-fuel refineries sprouting up across the nation.
The U.S. Environmental Protection Agency is planning to change the
way ethanol plants are treated under the Clean Air Act, a move
critics say could make it easier for the burgeoning industry to evade
controls that dramatically reduce toxic air pollution. The shift in
policy would give a break to agricultural conglomerates and newcomers
seeking to cash in quickly on the nation's growing thirst for renewable
fuel. More than 40 new ethanol plants are expected to be built during
the next year, boosting U.S. production by 30%. Environmental groups
think one of the motives behind the new rule is to make it easier to
change the type of fuel used to produce ethanol. Most of the industry
now relies on natural gas, but several in the planning stages would burn
coal, which is less expensive but produces far more pollution.
Gee, think they'll have to get an analysis of each fuel load???
10/12/06: I
fought the gas company and the gas company won.They're
only serving a measly 215K customers, but they asked for and won a rate
increase. The PUC is not issuing very many rate DECREASE notices
on the tariff side.
10/11/06: Here's another weapon in my
arsenal...today, I started the process to get my
180,000 gallons of empty
storage in the ground filled.
At $0.99. That's
nearly enough for Apr-Jun 07. I would fill my tanks to the gills
with whatever backup fuel you need because the price is right. I
know many of you have little to no storage and this hurts. The
cost to put my big tanks in the ground is nearly meaningless given their
50-year life and the ability to play the dual fuel card. 180,000
gallons is two full weeks of consumption at single digit outside air
temps.
T. Boone Pickens appears on CNBC,
says sees oil going to $70 before it goes to $50. See 4/25/06
comment. Why does he have to hem and haw all the time? I
like the $60 number for stability. Supply and demand are in
balance. Why not $50? Because there are no alternatives and
many conservation initiatives are stalled. US imports aren't
dropping.
10/10/06: I'm want to open a line of
communication on call options, which are price insurance policies.
"I'll buy forward my next (month/quarter/year) of (heating oil, #4 oil,
#6 oil, gas) requirements for $x.xx, unless the price declines."
This is what a call option gets you. There are a lot of other
derivatives, but this statement seems to cover nearly all LVAIC schools.
I'm working on a presentation to decide if it's right for everyone.
For example, LVAIC heating oil vols need to exceed 42,000 gallons in a
given month, which equates to Dec-Mar.
The current delivered price for
heating oil for all of 2007 could
be locked today for $2.05. This is why we need to
discuss risk management. If you're budgeted for $2.50, what do you
do? You know my position...I'd lock either 50% of the whole year
or 80-90% of the winter. There is NO hard & fast rule. It
all depends on your level of risk. If nobody had locked this year,
you might be enjoying some savings right now on market price...with 100%
risk. A lock is a hedge against price risk. You have 0 risk
of prices above budget. I think the proper approach is to buy
calls for Dec-Mar, which set a cap on the price. More to follow...
If you're wondering about the technicals behind the
bottom call, here's some details
from the high-powered seminar at the NYMEX that I attended last week.
10/9/06: Still sorting thru tons of
information. Here are some interesting facts from producers:
in East Texas, the cost to pull 1 mcf out of the ground is $4.50; and
the average cost of gas in storage is $6.65.
Natural gas
continues its march toward $7; now at session highs of $6.68mbtu, up 25
cents.
10/5/06: I apologize if this is late, but
I
firmly believe the bottom is in place (from Tuesday's session) on
natural gas. Contrary to the story in the Morning Call, this is
NOT a bubble. I met face-to-face with top traders in natural gas
at the NY Mercantile Exchange. This is not a hedge fund story.
Watch the prices rise over the next month. The cross currents that
lead to price discovery are vast and hundreds of extremely bright
analysts are constantly feeding market-makers, who assume the burden of
actually making the market in gas. My charts say we bottomed on
Tuesday. Let's watch how well I do because I was told that
consultants NEVER back check their recommendations!
Crude oil rallied off 7-month lows because OPEC
will cut production by a million barrels a day. You knew it was
coming. If you're a trader, you would be long.
10/3/06: Thanks to Larry Stallica of BOC
for this graphic
presentation of the status of electric restructuring across the USA.
Anyone see the irony? Thanks Enron. In retrospect, the sales
pitch was quite simple...deregulation will lower your cost. I sure
wish PA had the guts to admit the mistake and join the "suspended" or
"repealed" clubs!
Your humble consultant will be out of the area on 10/4
and 10/5 to attend a training session on collars, caps, and futures at
the New York Mercantile Exchange. Yes, at the NYMEX, on the floor!
This will be covered in depth at our quarterly update meeting.
9/29/06: OPEC spokesman says Nigerian oil
supply cut appears unilateral, no OPEC agreement to curb output; says
other OPEC supplier cuts would be voluntary and remain to be seen -
Reuters Crude oil is off 37 cents to $62.39pbl;
OPEC may have drawn a line in
the sand that it does not want oil under $60 (group talking about
"voluntary" production cuts by members); Nigeria will lower
exports by 5% starting 10/1 (speculation is growing that other OPEC
members may make similar moves next week); Statoil, Norway's largest oil
co, cut its oil and gas production targets for 2006 and 2007 by 3%;
OPEC to issue a statement on oil markets later on Friday, according to
spokesman.
T4 opinion:the "terror premium"
is gone. Now we're getting back to supply vs. demand.
Record imports aren't going to help this situation.
9/28/06: Note that crude oil traded as high
as $64 (+1.04) this morning before pulling back to its current level of
63.09 +0.13. The volatility in crude has taken place amid various news
headlines discussing potential output cuts. The early strength
was seen as headlines claimed OPEC had informally agreed to an oil
output cut to stem falling prices. The headlines said "Saudi Arabia,
Kuwait and Nigeria have agreed to trim oil supply from October 1."
However, other headlines throughout the day have disputed claims of a
cut, with DJ reporting that "two senior OPEC officials dismissed
speculation Thursday that several members of OPEC had reached an
informal agreement to cut crude outputs." There were also earlier DJ
headlines saying a Kuwait oil source dismisses talk of informal OPEC
cut, and one saying the Algeria Oil Minister sees no need for output
cut. Most recently DJ has reported that the OPEC President is unaware
of any deal to cut OPEC output.
T4 opinion: they're going to cut production.
See yesterday's comment. With imports at record levels, they can
afford to throttle back and let $60 be the floor. There's no room
to produce any more and inventories are high. Enjoy it while it
lasts. Lafayette...bulls make money, bears make money, pigs get
slaughtered! I'd lock 50% now. If we're lucky, we'll get
some price stability over the next year. $60/42 = $1.43/gal.
May 05 resistance has become support.
9/27/06: Chesapeake Energy announces
that it has elected to shut-in a portion of its unhedged near-term
natural gas production in light of currently low wellhead natural gas
prices. Effective October 1, 2006, the co plans to temporarily shut-in
approx 100 mln cubic feet per day of net natural gas production (approx
125-150 mmcf per day gross) in various areas of operations in the
southwestern U.S. until natural gas prices recover from recently
depressed levels. Their current oil and natural gas production is
over 1,600 mmcf of natural gas equivalent per day (91% natural gas) and
these shut-ins represent approx 6% of the co's net oil and natural gas
production.
The E.I.A. reports that
gasoline inventories had a build of 6.34
mln barrels (Bloomberg consensus was a build
of 700K barrels); crude oil inventories had a draw
of 109K barrels (Bloomberg consensus was a draw
of 1.7 mln barrels); distillate inventories had a
build of 2.62 mln barrels (Bloomberg consensus was a
build of 2.6 mln barrels). Before we
pop the champagne, think about this: U.S. crude oil
imports hit 11.1 mln bpd, third
highest weekly average on record says the EIA. The term "livin'
on the edge" comes to mind. There's no conservation...suppliers
are just pumping everything they can; capacity utilization is
approx 92.7%, compared to 86.7% from year ago.
Crude is up 34 cents to $61.35pbl ahead of 10:30est
stats (range is 61.10 to 61.76);
speculation is running rampant that OPEC may do something to lift prices
(yesterday OPEC Pres Daukoru said something needs to be done to steady
the price). Merrill and Credit Suisse calling for oil to avg
$65 in 2007; crude oil stats are expected to draw 1.7 mln barrels.
Natural gas is off 9 cents to $4.434mbtu (range is 4.35 to 4.491).
Heating oil is up 2.22 cents to $1.68/gal (range is 1.6550 to 1.68).
9/26/06: I could spend all day detailing
discussions at today's PPLICA meeting. Let me lead with this
chart. Does this look
like competition? Remember, deregulation = customer choice = lower
prices = market efficiency. That's what we were sold.
Current electric work revolves around PPL's competitive bridge plan.
Lafayette, you're OK to 1/1/11. PPL will beat Met-Ed by one year.
Anybody care to venture a guess as to the cost of POLR (provider of last
resort) residential power in Texas? Hint: think BIG.
POLR power cost is exactly like heating oil lock costs; once you're
locked, you're locked for one year. It's a contract. And get
this: PPL expects you to
sign up for POLR service WITHOUT knowing the cost of the power in
advance!.
PPL clearly concerned about their
loss to PPLICA in Commonwealth Court regarding cost-of-service
recovery. Recall, PPL is overbilling industrial/commercial users
to subsidize residentials. Welcome to deregulation and the free
market. If you want everything deregulated, then the small user
has to pay his fair share of the bill, which means huge increases down
the road. PPL's concern is that this could drag on for years and
if they ultimately lose in the Supreme Court, they would have to credit
HUGE amounts to I&C consumers (GS3 and higher) while simultaneously
killing the consumer with market power + make-up recovery for their
overbilling. As I've said, the residential rate could easily go up
60%. See
for yourself what's happening in Texas.
PPL also spewing some unkind verbage behind the scenes,
including a comment in their brief to the court that if
they can't recover Hurricane Isabel costs, this will discourage utility
restoration.Is that a threat? Welcome to
deregulation.
9/22/06: Amaranth Energy Portfolio sale
prevented total fund loss; lost $560 mln in Natural Gas trades on Sep.
14. Smart guys, eh?
I expect a quarterly update meeting with everybody will
be scheduled by Bill Marushak at Moravian on 10/9 or 10/10, i.e. Pacing
Break.
9/21/06: I've not seen anything like
this in all of my years of monitoring the market. I had to
adjust the scale!
The psychological pain from heating oil consumers at the
Hess meeting was overwhelming. People feel like they've been
hoodwinked. WRONG. A fixed price deal means no risk.
If oil were $100/bbl today, you'd be walking around with a big old grin.
As it stands right now, the
strip for FY07
is at $2.05. The lowball numbers you're seeing in the paper
are for current (i.e.prompt) delivery. The flip side of this fact
is that you would be assuming risk. The strip for next winter
stands at $2.15 delivered. I just came back from a budget meeting
and they were happy to hear that next FY might merit a 0% increase.
Note, we're not giving anything back. With electricity increases
of 30%+ coming, that would be foolish. I've investigated some
out-of-state plans. I've found that some of the
"capped" price plans need the market price to be 50 cents lower
before you get market price. And the cap would have cost you an
up-front payment. Unfortunately, the 500,000 gallons of combined
usage are not enough to get attention from the big suppliers who offer
derivative options. They want to talk about 6000 gallon drop loads
and 42000 gallon contracts.
Attended the 4th annual Hess
energy marketing meeting this AM. One thing I'd like to point out
is on the left-center of this page. See that Nymex link? All
of the king's horses and all of the king's men can't tell you where
prices are headed...but they all agree that Nymex is still the best
forward prognosticator. And they repeated a theme often heard
here: high prices are a cure for high prices.
Natural gas inventory rose 93 bcf to
3177 bcf; analysts were
expecting inventories a build of 90 bcf, ranging from a build of 80-99
bcf. Your humble consultant had one of those "forest from the
trees" moments this AM. I watch the gas build/draw numbers every
week, however, all of my draw/build, under the microscope analysis
missed one very interesting point - the
maximum storage level in the
ground in the USA is 3500 bcf. You're never too old to
learn! Prices are dropping because there is no place to go with
the gas we are pulling out of the ground. DOH!
9/20/06: The E.I.A. reports that gasoline
inventories had a build of 560K bbl
(Bloomberg consensus was a build of 650K
bbl); crude oil inventories had a draw 2.85
mln bbl (Bloomberg consensus was a draw of
2.0 mln bbl); distillate inventories had a build of 4.08 mln bbl
(Bloomberg consensus is a build of 820K
bbl). EIA says U.S.
distillate supplies hit highest since January 1999 - Reuters
Here's a
reprint of a decent editorial from Buildings.com. Fooled by
fuel? Electricity is a bigger problem and it's not going away.
Just look at these babies: Public Service may separate generation,
utility businesses; failed takeover by Exelon prompts review, according
to Ferland- Bloomberg We can't get what we want so we're going
to force you to pay more? Deregulation has failed but these
businesses refuse to yield. Why can't we admit a mistake and work
toward a solution that is equitable for the consumer?
9/19/06:
Administrative changes to website...see the Gas link under
"Clients Only"...you can see all historical Gasmark/Hess/Colonial Energy
reports. You can even sort by date modified to see chronological
history. You now have the history for any day you choose.
You can back check an old purchase. If you check the Oil link,
you'll see folder for #4 oil prices.
Once and again, our energy prices are influenced heavily
by financial markets.
And if they fail? Who picks up the tab?
9/18/06: Should we feel bad for this
group? Ever hear of the term "collar"? Why isn't a
billion $ fund hedged? Bloomberg.com reports Amaranth Advisors, a
hedge-fund manager with $9.5 bln
in assets, said last week's plunge in natural-gas prices left its two
main funds with year-to-date losses that may exceed 35%. "We are
in discussions with our prime brokers and other counterparties and are
working to protect our investors while meeting the obligations of our
creditors,'' Nick Maounis, founder of the firm, said in a letter to
investors obtained by Bloomberg.
The decline came after the Amaranth funds had gained almost 30% through
August. Gas prices fell 12.2% last week as the U.S. Energy
Department reported its first triple-digit inventory increase in more
than a year. Demand for the power-plant fuel usually declines after
summer air conditioner use slows and before heating needs pick up.
Amaranth was "near the end of our disposition of natural-gas exposure,''
the letter said, adding that Amaranth had met every margin call.
Reuters.com reports Warren
Buffett's investment co
Berkshire Hathaway is interested in acquiring further utility cos
in coming years, the U.S. billionaire said on Monday during a visit to
Israel. In March, Berkshire's MidAmerican Energy Holdings unit bought
the western U.S. utility PacificCorp from Scottish Power for $5.1 bln in
cash. Buffett told reporters: "We are interested in
acquiring additional utilities. My guess is in the next 10 years we will
buy one or two or three good-sized ones. You never can tell when they
will come along." He added that his co was familiar with all the
utilities in the U.S. and some outside the U.S. "We look at anyone that
indicates an interest."
9/17/06: Make up my mind! First we
have the $100/bbl stories. Now we get that
lone voice in the wilderness that we're headed back to $1.15 a gallon
for gasoline. Who's right? Who cares? I don't
think you can sum up worldwide geopolitical activity and market actions
in one paragraph. If, if, if, if,... If I could pick
the right Powerball numbers, I could be living on a beach. You need to
budget appropriately and hedge your obligations. Hedge?
"Locking" winter oil, or natural gas for that matter, is a hedge against
price instability. It should be fairly clear from reading this
newsletter that I believed the recent highs were inflated. There
is no magic date for purchases and no magic number to lock. The
number one goal right now is data collection and aggregation because if
you can't measure it, you can't purchase what you need. Are we
going to break down and get back to $48/bbl oil? I'm really
ambivalent because while high prices are a cure for high prices, low
prices kill conservation and alternative development. The good
news for LVAIC (in my humble opinion) is that FY07-08 energy
expenditures SHOULD be less than FY06-07. But that doesn't imply
returning money to your respective budget offices. I would argue
strongly that any energy surplus should be held in escrow to temper
future shocks. Once again, it's September, there's no Gulf
hurricane, no heating demand, no cooling demand, and anecdotal evidence
(Ford,
Mcall school bus story, etc) that high prices are beginning to
impact spending. This might just be the calm before the storm.
9/15/06: Little 'ole T4 isn't an agent for
social change, but this
story has me thinking. Refer to the 8/29 comment in the
newsletter. Maybe ethanol conversion for the stinky diesel bus
fleets that we all have throughout our campuses is an interim step in
the green direction? Let's face it, solar is a crappy option.
We're not going to erect windmills. And I doubt any of you want to
entertain new fluid bed boilers to burn corn husks. I know my own
staff's corporate average fuel economy is 8 mpg. Even a journey of
1000 miles begins with the first step...???
9/14/06: Natural gas inventory rose 108 bcf
to 3084 bcf; analysts were expecting a build of 91 bcf, ranging from a
build of 68-98 bcf. Wow! Short-end falling apart, but
that pesky strip isn't exactly in a free fall. Too bad we can't
all buy and store natural gas. This drop is helping hedge funds
who are short, but not many others.
Crude oil is up 33 cents to
$64.30/bbl (range is 64.17 to 64.65); the International Monetary Fund
raised its oil price forecast and global economic growth ests (rose
its 2007 oil forecast 20% to $75.50pbl); the US is pressing the
UN to punish Iran for not complying in halting to enrich uranium;
Nigerian oil workers are into their 2nd day of a 3-day strike over
security; natural gas is off 8 cents to $5.367mbtu (range is 5.35
to 5.43); inventory report due out at 10:30est (Bloomberg ests looking
for a build of 91bcf vs a build of 71bcf
seen last week). Heating oil is up .02 of a cent to $1.7430/gal (range
is 1.7405 to 1.7650).
9/13/06: The E.I.A. reports that gasoline
inventories had a build of 114K barrels
(Bloomberg consensus was a build of 200K
barrels); crude oil inventories had a draw
of 2.9 mln barrels (Bloomberg consensus was a draw
of 2.48 mln barrels); distillate inventories had a build
of 4.64 mln barrels (Bloomberg consensus was a
build of 2.0 mln barrels). Hmmm...
Where's T Boone when you need him? It seems like
just yesterday when the $100 hype was in full swing. Today we get
this story of how oil's price
rout is deepest in 16 years!
This
chart speaks for itself.
Could we get back to 4/1/05 levels? Please note, this is
EXACTLY what happens when prices
have been propped up by speculators. You can't ignore the
supply/demand signals forever. If we break $60, I'm going
after the Apr/May/Jun chunk of the budget. I'm also sniffing
around the 07-08 numbers.
OPEC said
earlier this week that they didn't want crude to fall below $60/bbl,
so if oil continues to drop, we could see OPEC adopt a production cut
ahead of the Dec meeting in Nigeria, Africa's biggest oil producer,
where production may be slowed during a 3-day "warning" strike over
better security for workers. Crude oil inventories expected to be
released at 10:30est. Bloomberg expected a
draw of 2 mln bbls; crude oil now up 30
cents to $64.06pbl. Natural gas is off 3.4 cents to $5.54mbtu (range is
5.41 to 5.635). Bloomberg looking for distillate
build of 2 mln bbls (thus softening any
huge draw expected for crude oil).
9/12/06: Crude oil dropped $1.86 to
$63.75/bbl due to speculation BP's Prudhoe Bay may come online a lot
faster than thought, coupled w/ the IEA lowering their demand for oil in
2006. A $15 retracement
of the war premium of the recent
highs of $78.40 would be
$63.40 (could be big support there); 200-day moving avg in crude
was taken out yesterday ($67.53) and today's fall under $65 is a
psychological bear pt. Natty fell a dime to $5.57mbtu; heating oil
is off 4.14 cents to $1.7640/gal; gasoline fell 4.26 cents to
$1.5520/gal; put another way, I've missed the absolute bottom
by at least 4.4 cents.
Chicago Mercantile announces NYMEX
Energy Futures Contracts Set Daily Volume Records on CME Globex...great
minds think alike? Everyone locking down this dip at the same
time?
BP says to ask govt this week to
restart part of East Prudhoe Bay pipeline if inspections positive.
Crude oil is off 50 cents to $65.11pbl (range is 65.18 to 66.44).
Iran says it will push OPEC to
cut production if crude falls below $60; Saudi Arabia said it
will invest $70bln(wow) in oil and gas infrastructure over the next 5 yrs;
the IEA said worldwide demand for oil will be 84.7 mln barrels a day in
2006 (100,000 bpd less than forecast last month). Natural gas is off 2
cents to $5.652 (prices may recover as weather reports indicate behind
Florence is a new storm brewing:
Gordon). Heating oil is off a half a penny to $1.7995/gal
(range is 1.7995 to 1.8370).
LVAIC FUEL FOR THOUGHT:
if HO could be locked TODAY for $1.95 for FY07-08 heating season, would
you do it? The futures market supports this concept, though it's
unclear if the current supplier would entertain it. Think about
it.
9/11/06: 11:30AM...done deal...1.2 MG of #6
@ $1.27 delivered. $210,600 under budget. Also burning NG to
12/1 @ burnertip of $7.85; Apr/May/Jun 07 still not locked; since I'm
not Enron, I'm not taking credit for savings that have not yet been
realized!
Lots of news items today. (11:30) Bloomberg
has been running some headlines from today's OPEC meeting: OPEC says
clear imbalance between supply and demand;
will take needed steps to ensure
supply/demand balanced. Says crude inventories comfortably above
5-year avg.
Crude
oil is down six days in a row (the longest losing streak since Oct 2003)
to $65.35/bbl, off 90 cents (range is 65.20 to 66.11). Progress to solve
a dispute over Iran's nuclear research was believed to be made this
weekend according to the European Union foreign policy chief, Javier
Solana. There is speculation that OPEC may move to cut oil production at
its Dec meeting, especially with much non-OPEC oil coming into
production next year (OPEC is meeting today in Vienna). A full
$15 war premium
retracement in crude oil off the highs would bring crude to $53.40bbl
(Venezuela says demand in the US and China is still strong).
Iran's Oil Minister says he does not favor oil prices below $60; Sinopec
and Iran have agreed to terms to develop the Yadavaran field (it is
believed Royal Dutch Shell could benefit from this deal since it
has been an advisor to Sinopec). Cooler weather and the lack of a real
hurricane threat has caused the price of natural gas to fade to
their lowest levels in nearly 2 years; natty off 26 cents to $5.421mbtu
(range is 5.31 to 5.60). Heating oil off 2.82 cents to
$1.8150/gal (range is 1.8128 to 1.8432). Where's T Boone???
Here's a snippet from
Floyd Norris' blog on oil prices. I agree. Just as nat
gas is down RIGHT NOW, it's not down on the strip. Oil is down
RIGHT NOW, but not via futures. My finger is on the trigger and
I will lock my winter oil if I
can get the cost < $1.27. Look at this
chart. In
technical terms, we've broken support. I don't think it's going to
$1.00; but I'm budgeted for $1.45 and every dime under $1.45 nets us
$200K. Why $1.27? If
the terror premium is MIA, then $53.40/42 = $1.27. I'm not
greedy. If my supply is guaranteed over the next 7 months for less
than I've budgeted, then what more can I hope to achieve if I'm not a
commodities trader?
9/7/06: BP says no sign of corrosion on
downstream segment of eastern transit line, tests ongoing - Reuters
Says some eastern Prudhoe output can be restored if east line partially
restarted. Says replacing
Prudhoe Bay oil transit lines to cost over $150 mln. (Umm, how
much PROFIT did you book last year?) And later: BP says
Prudhoe Bay could hit full capacity above 400,000 BPD by end of Oct.
Well,well,well...The E.I.A. reports that Gasoline
Inventories had a build of 718K
BBLs
(Bloomberg consensus was a draw of 2.8 mln
BBLs); crude oil inventories had a draw
2.21 mln BBLs (Bloomberg consensus was a draw
of 2.48 mln BBLs); distillate inventories had a
build of 3.1 mln BBLs (Bloomberg consensus was a
build of 1.25 mln BBLs).
Natural Gas Inventory rose 71 bcf to 2976 bcf; analysts
were expecting a build of 69 bcf, ranging from 55-81 bcf.
Finance ministers in the Middle East were concerned,
hence: Al Jazeera TV airs audio from Iraq's Al Qaeda leader.
9/6/06: Before we pop the champagne corks
over today's oil headline story,
let's do a little research on the
latest petroleum storage charts. Note that we are currently
importing 9M BPD vs. a refinery run of 15M BPD. That's 60%.
Chevron found some oil at nearly 10,000 feet. That's a two-mile
deep hole! (Note, this was the initial hit, per Oil & Gas
Daily; they had to go 5 miles for theheavy flow). It's not going to change much in the
near term. Now if we imported < 30%, then maybe we've got
something to crow about. As it stands, this story simply counters
last Saturday's story about how we're out of oil.
Crude oil is lower this morning after the UN took no
action against Iran despite missing the 8/31 deadline to stop enriching
uranium ($10-$15 premium given to oil for Hezbollah/Israel conflict and
Iran); it appears like the UN will
continue to delay potential sanctions against Iran b/c they fear the
repercussions of Iran using oil as a weapon coupled w/ Iran ready to
strike back, which would further cause unrest in the Mid East and an oil
price hike shock that will be felt globally. Crude is also lower on word
that Tropical Storm Florence, which may be upgraded to a hurricane later
this week, will likely miss the Gulf of Mexico, where 25% of the US's
oil output takes place. Crude oil is off 60 cents to $68pbl (range is
67.77 to 68.82). Natural gas]is off 11 cents to $5.931 (range is 5.88
to 5.99). Heating oil is off 1.63 cents to $1.92/gal (range is 1.92 to
1.9430); gasoline is off .80 of a cent to $1.6385/gal (lowest level
since March 9th; market not banking on any hurricane affecting
production in the Gulf, which could be a mistake since it only takes one
storm to be a major concern).
Here's the real read from the Street about expectations:
Prudential downgrades Energy Group to Underweight, based on expensive
valuations. Are we finally ready to entertain a return to
the mean?
Here's a T4 reprint of an
editorial for anyone who has
children. This movement is like a cancer...it's already spread
to Lehigh Valley Hospital Center. If Dupont can do it, why not me?
Heck, even Radio Shack thinks it's OK to fire by email.
9/5/06: Look at what we're exporting
now: The Wall Street Journal reports that Russia
is facing a worsening energy crunch as its economy outgrows aging
infrastructure; they are going ahead with a sweeping liberalization of
its electric-power industry aimed at drawing $87 bln in investment to
the sector by 2010. The overhaul will phase in
market-driven pricing for power, which now is sold mostly at low,
regulated rates. Private
investors, including foreigners, will be given the chance to own
generating companies, selling the electricity they produce at
free-market prices.
9/2/06: Lots of news from the Morning Call
yesterday! First we get this
story about
Texon and the Allentown School District. Then we get a
story about PPL trying to make nice with the residential consumer at
the expense of I&C users. And finally, it's nice to see that
wholesale natural gas prices are
dropping by a whopping 2%! Saturday it's all doom&gloom with
$200 oil and such.
I couldn't help but
respond to the author of the Morning Call story on the ASD.
That 339% byline is just so inflammatory. Unfortunately, I still
firmly believe that a supplier/end user alliance against the LDC is
doomed right from the start. You can't beat UGI. That's not
what we're trying to accomplish. We need to work within the
boundaries of the regulated v. for-profit mindset that exists over there
and structure win-win deals where you get uninterrupted gas supplies at
a fair price without paperwork nonsense. As I've mentioned before,
this is a chess match. You need to be steps ahead with decision
trees and alternate endings. Stop and think about this for a
second...let's say ASD/Texon somehow manage to get a sympathetic
commissioner to rule that delivery rates are unfair. That would
involve a huge cost-of-service study and a year's worth of time.
Do you really think that individual users can expect to negotiate their
own rates with UGI? The components of this game are
meter aggregation, purchase timing, alternate fuel capability, auditing,
load matching, and conservation. Ted Fritz is blowing smoke in
their eyes and trying to lock them up via sole-source contracts whereby
he can make a lot more than his typical $0.05/dth. I've known Ted
for 11 years and his marketing shtick has always been to paint UGI as
the villain; it started when poor Curt Clifford was separated from
Gasmark and never let up. Promark, NEBC, ConEdSolutions, Black Hills Energy, PPL Gas, Texon LP...Ted's been looking out for Ted
over the last decade and the act hasn't matured one bit. I'll
never doubt his ability to meet or beat Gasmark on price, but you should
be aware of the caveats such as balancing, nominations, force majeure,
and such that come with the territory. Ignore the BS and compare
apples to apples. You'll feel better about your choices when you
understand what you're buying, why, where, when, how, and how much.
One little tidbit that I omitted from the Morning Call
email is how I confidentially solicited both ASD and BASD to try and
broker a fair settlement with UGI. Neither of the business
managers responded...in fact, Ted called me and offered to hire me for
them. When I pointed out the obvious and blatant conflict of
interest, he blurted out that he called the shots for them and his phone
call would make or break me! Guess I messed up his marketing plan.
I'm somewhat disturbed that Mssrs. Crawford and Majewski have fully
aligned themselves with their supplier and won't discuss options with a
neutral party. I'm especially disturbed because I'm a taxpayer!
Yeah, UGI is going to treat these guys real nice over the next few
years. I can call UGI's O&M people day or night and get
meters moved, piping rearranged, new services installed, lines marked.
And I still pay them $0.35 for delivery! We need to work
together, not antagonize them with silly headlines. I admit that I wish PP&L had
taken them over, but PP&L already took a shot at the gas business and
quickly decided it wasn't their cup of tea. Too bad. Their
rates and customer service would be much better. Anyway, now we
deal with the hand we're dealt. We're going to determine just how
much revenue UGI needs to book from each of you and then work on
commodity savings, which don't affect (and actually hurt) their bottom
line.
9/1/06: From Marketwatch:
8/31/06: From the Gasmark newsletter:
According to today’s Gas Daily Publication, a
Washington D.C. watchdog group, the National Legal & Policy Center (NLPC),
has completed a study of natural gas prices over the last six years,
concluding that there has been
major manipulation of prices. NLPC noted that: “since 2000, an
anomaly has appeared; demand, domestic production and net imports all
have remained largely unchanged from the 1990’s, yet wellhead prices
have risen sharply… 300%. The report does not name any one group
responsible for the manipulation, just that it happened. NLPC has sent
letters to the Federal Energy Regulatory Commission, and the Commodity
Futures Trading Commission, demanding an investigation. Ya
think?
Natural Gas Inventory rose 48 bcf,
analysts were expecting inventories a build of 52 bcf, ranging from a
build of 42-62 bcf.
Chicago Tribune reports BP
officials are growing increasingly optimistic that Prudhoe Bay oil
production may be returned to normal levels earlier than expected,
believing a portion of the
pipeline idled by corrosion concerns may be useable at least temporarily
and that other sections can be bypassed. "The idea that there was
widespread corrosion simply was not correct," David Peattie, BP's
vice president for exploration and production told The Associated Press
on Wednesday. He said the corrosion was isolated and that ultrasound
tests now being conducted -- foot-by-foot in some sections of pipe --
are to determine how much of the shut down pipeline might be returned to
service temporarily. BP officials emphasized that any resumption of oil
flow in the closed eastern section will depend upon whether the co can
convince the federal Transportation Department that such a move can be
made without risk of another spill.
8/30/06: The E.I.A. reports that
Gasoline Inventories had a build of 367K
barrels (Bloomberg consensus was a draw of
600K barrels); crude oil inventories had a build
of 2.4 mln barrels (Bloomberg consensus was a
draw of 1.5 mln barrels); distillate
inventories had a build of 1.3 mln barrels
(Bloomberg consensus was a build of 1.3 mln
barrels).
Ahead of weekly inventory stats
due out at 10:30est (Bloomberg ests looking for a
draw of 1.5 mln barrels), crude oil
is up 10 cents to $69.81pbl (range is 69.72 to 70.25); the move back
over $70 is due to
speculation Iran will ignore tomorrow'sUN deadline to cease enrichment
of uranium. And if they don't? Oct natural
gas, now the spot contract, is off 13 cents to $6.63mbtu (range is
6.58 to 6.77). Heating oil is up 1.43 cents to $1.9575/gal (range
is 1.9470 to 1.9625). Gasoline is up .58 of a cent to $1.7950/gal
(range is 1.7869 to 1.8025); RBOB gas is unch at $1.8250 (hearing the
recent slide in gasoline has been helped by Goldman Sachs preparing to
move its index from motor gasoline to RBOB).
8/29/06: Politics and $:
Sen Lugar says US farm lobby blocks Brazil ethanol imports; says farmers
fear competition from sugar-based ethanol - Bloomberg
WSJ reports on India's northwest
coast near Pakistan, Mukesh Ambani, the chairman of India's largest
private-sector co, Reliance Industries, is building the world's largest
refinery complex. When it's finished, he plans to load 40% of the fuel
it turns out onto huge tankers for a
9,000-mile trip to America.
The potential for oil refineries
abroad that can serve the U.S. is so strong that Chevron (CVX),
though based in the car-happy state of California, is investing in Mr.
Ambani's project rather than try to build a new refinery at home. While
in the past, thinner profit margins required that refineries be close to
consumers to save on shipping, today's margins are wide enough that
it pays to haul gasoline and
other refined products long distances. Locating refineries in a
region such as Asia is an easy decision, given its less-onerous
construction costs, environmental limits and red tape, plus its own
rapidly growing fuel demand. Saudi Arabia's national oil co, Saudi
Aramco, currently envisions two giant new 400,000-barrel-a-day
refineries. ConocoPhillips (COP) is in talks to build one, and
France's Total (TOT) the other. In addition, Saudi Aramco and
Exxon Mobil (XOM) are talking about being partners in a refinery
expansion and petrochemical complex in China's Fujian province, near
Taiwan.
8/28/06: Those stupid hurricanes just
won't cooperate!The entire complex was weak due to
Ernesto being downgraded and word the storm was
tracking away from Gulf of
Mexico, where many rigs and platforms are located. Crude closed
off $1.91 to $70.60pbl; natty fell 66 cents to $6.50; heating oil fell
6.58 cents to $1.9640/gal; heating oil fell 6.28 cents to $1.9670/gal;
gasoline fell 12.41 cents
to $1.7710/gal (lowest close
since late March).
8/24/06: Traders are still waiting for
the elusive Gulf hurricane...Calyon says the consensus mean
for today's EIA natural gas storage injection is 60 Bcf for the week
ending August 18th. Firm says based on population-weighted cooling
degree days (CDDs), the week ending August 18th was seasonally cool.
Firm says there were 68 cooling degree days for the 7-day period, which
was 13% colder than last year, 3% colder than the five-year average, and
19% colder than the prior week. Meanwhile, firm says Tropical Storm
Debby has formed in the eastern Atlantic with sustained winds near 45
mph. Based on its projected storm track, Debby is likely to spin
harmlessly into the North Atlantic, passing at least 500 miles east of
Bermuda, thereby avoiding natural gas production facilities in the Gulf
of Mexico. Firm says the NOAA believes that the season's fifth tropical
cyclone may form about 200 miles north of Trinidad within the next 24
hours.
8/23/06: Time for CNBC to trot out T
Boone soon?The E.I.A. reports that Gasoline
Inventories had a build of 402K barrels
(Bloomberg consensus was a draw of 2.05 mln
barrels); crude oil inventories had a draw
of 643K barrels (Bloomberg consensus is a draw
of 1.35 mln barrels); distillate inventories had a
build of 2.31 mln barrels (Bloomberg consensus is a
build of 700K barrels). High
prices might be a cure for high prices?
The Financial Times reports as US
federal and state investigators probe BP's (BP) Alaska
operations, the co's insistence that it had no knowledge of the degree
of corrosion in its Alaskan oil transit lines is coming under scrutiny.
A veteran worker at Prudhoe Bay told the FT he and others had taken to
US criminal investigators at the EPA accusations that BP misrepresented
corrosion data over the years to indicate its pipelines were in better
shape than they were, even as it
cut back on monitoring andprevention. The FT also
spoke with a contract worker who has been in contact with the
investigators. Daren Beaudo, BP spokesman, said: "We are aware of all of
these claims and have a process in place to look into every concern that
comes our way, given enough specificity to direct us to a place to look
for answers." The EPA is investigating the complaints, along with
documents the workers submitted to back their claims. T4's
co-op job in 1980: monitoring corrosion in refinery pipes.
BP is BS.
8/19/06: Here's a paragraph lifted from an
op-ed piece in the NYT:
K Street’s bright young men fill
the top posts at federal agencies; K Street’s money keeps wages low and
prescription drug costs high; K Street’s “superlawyers” fight to make
our retirement insecure; K
Street’s deregulation gurus turn our electric utilities into the
plaything of Wall Street. What K Street wants from government is
often the opposite of what the public wants. And yet what K Street
wants, far too frequently it gets — if not by the good offices of Bob
Ney, then by the timely disappearance of the now useless Bob Ney.
Politics and power. They go hand-in-hand.
8/18/06: Edited responses from some emails between T4
and MWN:
We are in the process of drafting an initial response by PPLICA to
the PPL filing on mitigation. We can share that with you when
finalized and approved by the group. Our next meeting is September
26 and we hope you join us. The PUC has not yet scheduled anything
on the remand from the Commonwealth Court case and we hear rumblings
that PPL, the Commission, and the OCA may pursue and appeal to the
Pa. Supreme Court.
The
other significant current PPL proceeding that we will discuss on
September 26th relates to how they will establish POLR
generation rates for 2010. We
are working on a summary of the "Competitive Bridge Plan" filing
that PPL submitted on this topic earlier this month. I'll make
sure that you are on the distribution list for that
correspondence.
8/17/06: Natural Gas Inventory rose 37bcf
(analysts were expecting inventories to rise 30bcf) - crude oil little
changed after nat gas data, currently 70.65 -1.24... morning range
70.60-70.90.
Definition of "under a microscope":
BP hit by another accident in Alaska -MSN Money reports the co said
on Wednesday it had suffered another accident at its troubled Alaskan
oilfield, when a pressure surge jolted an above-ground pipeline off its
steel mount and on to the delicate tundra. The accident came as BP had
been attempting to ramp up production that had been drastically reduced
after the discovery of severe corrosion forced the co to shut half of
Prudhoe Bay, North America's largest oilfield, just over a week ago. Yet
in bringing up a section of the field that had been cleared to operate
after being downed for routine maintenance, a power surge jolted the
flow line so violently that it fell to the ground. The aluminium casing
and insulation appear to have burst open, but BP said there was no
visible damage to the pipeline, which is back up on mounts and now
being tested for "stress damage". BP had hoped to add 20,000 more
barrels per day to its current 150,000 barrels of daily production
in order to get up to capacity the half of the field that has been
cleared for operation. But this latest accident has forced it to
abort thateffort.
8/16/06: Off-topic, but take a look at this
one: Verizon considers selling landlines in three states - WSJ
reports the co is in talks to sell its landlines in New Hampshire, Maine
and Vermont. Verizon spokesman Erle Pierce said the co is entertaining
offers from more than one company to purchase the landlines. The sale of
1.6 mln telephone lines and poles in the three states could net Verizon
between $2 bln and $3 bln. The possible sales are part of the New
York-based phone giant's strategy to delve deeper into the wireless and
broadband arenas, while getting out of the traditional phone business in
U.S. areas that aren't slated for fiber upgrades -- which allow the co
to sell more Internet-based services -- and therefore are less valuable
to the co in the long run. But so far Verizon's past efforts to sell
systems have had limited results. The telephone company selling
off telephones?
The E.I.A. reports that Gasoline Inventories had a draw
of 2.27mln barrels (Bloomberg consensus was a draw of 1.8 mln barrels);
crude oil inventories had a draw of 1.61 mln barrels (Bloomberg
consensus was a draw of 1.3 mln barrels); distillate inventories had a
build of 748K barrels (Bloomberg consensus was a build of 1.3 mln
barrels). And yet, crude oil fell $1.15 to $71.90 bbl; nat
gas fell a dime to $6.76mbtu; heating oil dropped .85 of a cent to
$2.0150/gal; gasoline fell 1.76 cents to $1.9775/gal. Could
traders be concerned about the missing Gulf hurricane?
8/15/06: WSJ reports BP officials are
considering alternative pipeline routes from the closed portion of the
giant oil field here, a move that might allow production to resume by
October. BP, which operates the field on behalf of a consortium that
includes Exxon Mobil (XOM) and ConocoPhillips (COP), could boost output
from the eastern half of the hobbled field by tying some of the eastern
Prudhoe production into the nearby Endicott pipeline, which it operates.
Though built for 110,000 barrels a day, Endicott is currently flowing at
just about 20,000 barrels because of field decline, said Craig Wiggs, a
field manager for BP Alaska. Routing into Endicott would require some
modest modifications to infrastructure, as well as approval from state
and federal regulators, Mr. Wiggs said. But if that works out,
Endicott could lift Prudhoe's production to more than 300,000 barrels a
day. "You're going to be well into October before I could see the
construction completed" to allow the Endicott alternative, he said.
8/14/06: Back in the saddle. Here's
the repost of the 8/5 PPL story
with comments. They're trying to make nice with the consumer on
the backs of the industrial consumer, whose cost to serve is quite low.
Another of those nasty facts of deregulated life...can't have it both
ways...business has ALWAYS subsidized the consumer. From Day 1.
Welcome to the failed reality of deregulation. It's not helping
the consumer. What I find astonishing is their whining about the
NEED for the rate increase and then the RECORD $181M quarterly PROFIT.
Here's an
interesting story from the Sunday NY Times that affirms a position
I've repeated many times in public and at our one-on-one meeting.
IMHO, there is a serious disconnect between the original purpose of the
New York Mercantile Exchange and what is occurring today.
Anecdotal evidence, at best, but what I've heard about #6 getting barged
offshore and with the reports of oil storage at record levels, how can
we sustain this "terror premium"? Note the
$69/bbl projection for next year.
Runs contrary to T Boone, eh?
8/10/06: In July, monthly average crude oil
and gasoline prices reached new high levels in nominal terms, but
remained below the peak inflation-adjusted levels reached in the early
1980s... Consensus forecast for the August 2006 West Texas Intermediate
(WTI) crude oil price is $76.50 per barrel, an increase of $3.00 per
barrel from forecast last month... result of the additional
pressures in July and a projected reduction in Alaskan oil production
following the August 6 announcement by BP oil company that it was
temporarily shutting down Alaska's Prudhoe Bay oil field (though
traders who bought long were spooked by the announcement tha the west
side of the pipeline is stilloperating!)
Petroleum product prices are also expected to be higher in August,
particularly on the West Coast... Significant relief from the high crude
oil and gasoline prices is not likely to occur soon as the current tight
market must also cope with strong gasoline demand, which typically
reaches its seasonal peak in August, and the traditionally more active
months of the hurricane season. In 2006 and 2007, the WTI crude oil spot
price is projected to average around $70 per barrel (West Texas
Intermediate Crude Oil Price)...
Adjusting for inflation, crude oil prices have not been this high since
late 1982. Natural gas prices are projected to be lower
through the rest of this year relative to the corresponding period in
2005.
8/9/06: You have not been abandoned!
T4 is on vacation...at home...working on an extensive To Do list...back
on Monday with comments on PPL's misfire on the I&C rate vs. consumers
public relations problem and BP's Alaska corrosion issue.
8/3/06: Unbelievable. Checking the
most emailed stories on the mcall.com site and the
PPL we're
going to help you with a 30% rate increase didn't make the top 5!
These headlines are out there: Allentown energy company
PPL Corp. said today its
second-quarter profits rose strongly from the same time period
last year. PPL, one of the region's two Fortune 500 companies, said
net income reached $181 million or 47 cents per share for the
three months ended June 30, up from $128 million or 33 cents per share
last year. Chief Executive Officer William Hecht, who is retiring later
this year, said PPL is "firmly on track" to reach year-end earnings
expectations of $2.18 to $2.28 per share. Last year, PPL posted earnings
of $1.77 per share. FirstEnergy Corp., owner of electric
utilities in Ohio, Pennsylvania and New Jersey, said
second-quarter net income
rose 70 percent as it sold more electricity to its retail
customers. Net income rose to $304 million, or 91 cents per share,
from $178 million, or 54 cents in 2005's second quarter, Akron,
Ohio-based FirstEnergy said in a statement Tuesday. Sales fell 1.8
percent to $2.79 billion after
the sale of a majority stake in MYR Group, a utility contractor.
(T4: more divestiture of the ill-fated mech/elec
contractor buying spree).
Can anybody spot the elephant in the room? On one
side we have utilities with 30-60% rate increases in the forecast and on
the other side they're making record profits TODAY. Right now.
As I type.
Deregulation as
a concept to benefit the CONSUMER has FAILED. Deregulation
to benefit stockholders, Wall Street, and public companies is a
screaming success story. Your money is going to help every single
utility customer in the Northeast who was served by a high-cost
supplier. Meanwhile, all of that PPL company average 3
cents per kilowatthour power that PPL produces is going to be sold at
the utility market to folks who used to pay 11-14 cents per kilowatthour
and now salivate at the thought of 7 cent juice. Unfortunately,
our wallets will make up the difference. The "electricity pool" is
lot like the concept of corporate average fuel economy...some cars get
40 mpg and some cars get 5 mpg. The average mpg is 20.
What's happening with electricity is not only are you forced to drive
the 20 mpg car (in place of a 40), but you're also forced to drive 1 mpg
cars whenever the demand exceeds supply.
PPL is making boatloads of money at 3 cents per
kilowatthour and using the "market" as its excuse to overcharge
everyone.
And now they want to make nice and only jack the
residential and small consumers by 30% in 2010. All of that
proposal involves a 1 year supply agreement and excludes industrial and
commercial customers.
Do the math. A power plant is 33% efficient.
If 1MMBTU of coal is currently $2.08, then the fuel cost of a coal plant
is 2 cents per kilowatthour! A nuke is 0.5 cents! Deregulation
was supposed to open up interstate competition to sell excess power.
The system is broken.
7/31/06:
Front page of Allentown
Morning Call on Sunday. Nothing you don't already know.
Note the group buying hint. And also how she ignored the
fact that Duquesne was just bought by a foreign utility (see 7/05/06
comment below). And she never notes that the concept of
deregulation was intended to help consumers, not harm them.
The CEO of Chevron said over the weekend that oil demand
is unabated due to high prices (also said the era of cheap oil is over
b/c demand is pushing producers to crank out petro at full capacity).
Venezuela's Chavez promised oil contracts to Iran (combined the two OPEC
nations producer of 6mln bopd). Russia's main oil pipeline sprung a leak
near the Belarus border (with so much tensions in the Middle East, this
disruption in Russia is being viewed as a big problem and a potential
ecological catastrophe); Lithuania, which has the only refinery in the
Baltic states, stopped getting Russia crude over the weekend due to the
pipeline problem in Belarus (while the Russia pipeline situation is a
problem for supplies, it should be noted that any upward pricing
pressures should affect European oil prices more than domestic --
however, any global disruption has already nervous energy traders even
more skittish). Crude oil is up 62 cents to $73.86pbl (range is
72.77 to 73.92); natural gas is up 70 cents to $7.89mbtu (range
is 7.22 to 7.95). Sweltering hot temps covered the US the weekend and
the temps are going to persist this week (something that should boost
natty prices further as traders speculate this week's inventory report
will show a high draw). Heating oil is up 1.65 cents to
$1.9577/gal (range is 1.9350 to 1.9577).
7/27/06: Janney downgrades UGI Corp.
(UGI 25.66) to Neutral from Buy based on valuation, saying Warm
weather, high energy prices and customer conservation
continued to
dampen UGI's earnings throughout most of fiscal 2006. T4:
Anyone who has ever worked in industry knows what this means inside the
company...
Exxon Mobil Corp. (NYSE:XOM),
the world's largest public oil company, on Thursday reported
quarterly
profit surged 35 percent to top $10 billion, driven by
yet another
quarter of sharply higher oil prices.
7/26/06: WSJ reports House
lawmakers, sensing that fuel prices will be a top voter concern in the
fall elections, are rushing out two energy bills that would fund
projects to develop alternative fuels or ease reliance on imported oil.
With only about 25 legislative days remaining before Congress adjourns,
the chances of either bill passing Congress are slim. House Republicans
said they will try to pass theirs in September. Democrats say that their
bill will be used to rally voters for elections, and that if they win
control of the House, they will relaunch the measure early next year.
House Republicans are renewing a push to open part of the Arctic
National Wildlife Refuge in Alaska to oil and gas exploration.
Meanwhile, Rep. Steny Hoyer, the second-ranking Democrat in the House,
unveiled a bill to spend billions of dollars in the next 10 years to
develop cellulosic ethanol and a national ethanol distribution system;
expand municipal rapid-transit systems; and give U.S. auto makers grants
to make more fuel-efficient vehicles.
7/25/06: Boone Pickens said today that
crude oil would hit $100 within the next year (he said higher oil
will be needed to bring gasoline demand in line w/ supply). Israeli
Prime Minister said Israel will keep fighting Hezbollah, which is
raising concerns that oil shipments in the Mideast could be disrupted.
Natural gas is adding to large gains seen yesterday on calls for
warmer weather above seasonal temps, a tropical storm heading toward
Corpus Christie, Texas that could gain hurricane status (a lot of
oil/gas rigs/platforms in that area), and California in a near state of
emergency w/ power outages (natty is up 19 cents o $6.799mbtu).
T4: Finally, the long awaited Gulf storm! Prices ratchet
like clockwork! And is Boone talking up his position?
Met-Ed customers...this
article is NOT about market-based rates...this is the first step to
the big whammy that is coming in 2010. FYI...PPL ended up with
about an 8% rate increase last year. This is the intermediate, or
distribution rate increase.
7/18/06: U.S. manufacturers can lower their
energy costs – if they can overcome certain identifiable internal
barriers to making energy improvements within their own organizations –
says Executive Reactions to Energy Efficiency, a new report by
the Alliance to Save Energy.
Click to read. Too much focus on energy prices and not enough
on efficiency...
Hess is beating the bushes again to be a one stop shop
for fuel supply. There is a 26 question survey floating around
that would give them tremendous insight into your facility if you
actually filled it out and sent it back to them. How lazy can our
marketers get? Geez, they need to do something to earn your energy
$!
Reuters reports that power outages shut parts of
LaGuardia Airport and the NY subway today. Terminals of American
Airlines, Delta and the Marine Terminal were without full power. Also,
the subway trains were stopped for part of the rush-hour commute because
signals were off without power. Yesterday, a power failure stalled a
subway train in Queens, leaving dozens of passengers stranded in the
summer heat on an elevated track for nearly two hours.
7/17/06: IEA chief says
world does not need more oil
supplies, it needs more investment in output capacity. Also
says oil at $80/bbl harms world economy and inflation impact hurts poor
countries. IEA would only consider emergency release of oil stocks if
supplies were disrupted. OPEC can't help bring down oil prices
without political improvements in Middle East. - Reuters
7/15/06: No use expanding on the oil price
situation. Patience. I'd like to point out that the "Clients
Only" page lists information in current order of importance. In
other words, if I had little time, I'd check this page first, then go
back and hit "Gas" and "Oil" and work down the list.
Winter heating oil lock?
Check this out.
Couldn't have said it any better myself!
7/13/06: Did you catch this piece of the state
system tuition increase news release?: ...System officials
expect their costs to increase in the 2006-07 academic year by about $57
million, largely to pay employee salaries and benefits. On average, the
system's costs for union employee salaries will increase 5.9 percent,
and costs for benefits are expected to increase by nearly 9 percent.
Additionally, utility costs are
expected to rise by 40 percent....
Corn v. soybeans! NY Times
reports biodiesel produced from soybeans produces more usable energy and
reduces greenhouse gases more than corn-based ethanol, making it more
deserving of subsidies, according to a study being published this month
in The Proceedings of the National Academy of Sciences. The study points
to the environmental benefits of the biodiesel over ethanol made from
corn, stating that ethanol provides 25% more energy a gallon than is
required for its production, while soybean biodiesel generates 93% more
energy. The study's authors also found that ethanol, in its production
and consumption, reduces greenhouse gas emissions by 12%, compared with
fossil fuels. Biodiesel, they said, reduces such emissions 41%, compared
with fossil fuels. The study concludes that the future of replacing oil
and gas lies with cellulosic ethanol produced from low-cost materials
like switch grass or wheat straw, if it is grown on agriculturally
marginal land or from waste plant material. Indeed, the study found that
neither ethanol nor biodiesel can replace much petroleum without having
an impact on food supply. If all
American corn and soybean production were dedicated to biofuels, that
fuel would replace only 12% of gas demand and 6% of diesel demand,
the study notes.
7/12/06: The E.I.A. reports that gasoline inventories fell 426K of barrels (expected draw of 250K);
crude oil inventories fell 5.99 mln of barrels (expected draw
of 1.3 mln barrels); distillate inventories had a build of 2.58 mln
barrels (expected a build of 1.6 mln barrels). In a very
fast-paced energy complex, traders digested a
crude draw that was 4X the
expected estimates and a gasoline draw that shocked many traders looking
for a build. In recent trade, headlines that Iran may be referred to the
UN very soon have caused a late-day spike. $75 crude continues to be
short-term resistance (oil is currently 74.70 +0.54). An expected heat
wave across the US next week is helping nat gas move off recent lows
(now up 15 cents to $5.78).
If you're interested in some
important commentary on electric
competition (or lack thereof) in PJM,
please read this
synopsis.
$100 Oil soon?
Just had a conversation with Bruce Ferretti at Lafayette and came home
to find this story.
Timely. Nearly exact match to my stated opinion...the financial
industry smells profit and they're going to do whatever it takes to
extract it. This is NOT why the NYMEX was established.
7/10/06: WSJ reports heavy oils, which can
be the consistency of molasses, or even denser, are costlier to bring to
the surface than light oils. They also typically contain more
contaminants like metals and sulfur. Because refineries need special
equipment to remove these impurities, heavy oil is priced lower than
light oil. But a growing number of refineries around the world can
handle heavy oil, turning it into such products as gasoline, diesel, jet
fuel and heating oil, and Saudi Arabia recently announced plans to build
more of them. Earlier this year, in a critical trial of Saudi Arabia's
heavy-oil potential, Chevron Corp. (CVX) began a field trial of a
technique designed to pump out heavy oil that was previously considered
unrecoverable. In the pilot project, which it plans to expand to
additional wells, Chevron is injecting steam to loosen up sludge-like
heavy-oil reserves in Wafra, a field in the so-called neutral zone
between Saudi Arabia and Kuwait. Chevron and the Saudis say initial
results are promising and that the technique could greatly enhance
recovery at some huge fields. In Oman, Occidental Petroleum (OXY)
is preparing to spend $2 bln on a large-scale steam-injection project in
the Mukhaizna field, which holds about a bln barrels of oil. After four
years of negotiations, Occidental persuaded the Omanis to let it run the
field, in part by promising them a ten-fold increase in production to
150,000 barrels a day.
7/7/06: NYMEX Energy Closing Prices
Crude oil sold off and ended down $1.06 to $74.08pbl; natty dropped 13.4
cents to $5.53mbtu (lowest
levels since Sep 2004); heating oil fell 4.36 cents to
$2.0180/gal; gasoline fell 2.4 cents to $2.2350/gal.
Crazy Canadians! Check out
www.energyshop.com I like
it. Too bad it won't fly around here in the land of the marketing
mavens.
7/6/06: Boone swing and a miss: The
E.I.A. reports that gasoline inventories rose 727K of barrels (Analysts
expected a draw of 650K); crude oil inventories had a fall of 2.42 mln
of barrels (Analysts expected a draw of 2.0 mln barrels); distillate
inventories has a build of 1.04 mln barrels (Analysts expected a build
of 1.45 mln barrels) Energy stocks find immediate selling pressure after
Weekly Inventory data -Update- -Technical-
WE ARE
GETTING CLOSE TO A BUY POINT FOR WINTER GAS...
7/5/06: Why would an Australian-Spanish group
pay a 21% premium to acquire a small PA utility??? DQE and a
consortium led by Macquarie Infrastructure Partners and Diversified
Utility and Energy Trusts, announced that they have entered into a
definitive merger agreement. Under the terms of the agreement, the
Macquarie Consortium will acquire all of the outstanding shares of
Duquesne Light Holdings for $20.00 per share in cash, representing a
21.7% premium based upon Duquesne Light Holdings' closing share price on
July 3, 2006. Duquesne Light Holdings' headquarters will remain in
Pittsburgh and the companies will maintain Duquesne Light's longstanding
commitment to service, reliability and community involvement. The
transaction has been approved by the Board of Directors of Duquesne
Light Holdings and the members of the Macquarie Consortium. $$$
T Boone Pickens
appears on CNBC discussing his oil outlook, says we'll see $80 before
the 1st of the year. Says OPEC is producing 750K barrels
per day less than a year ago -- says you know you have a tight supply
situation. Notes Nigeria has 460K barrels off production -- a problem
too. Says with refineries operating at 94% of capacity, he doesn't know
how much equipment can hold up operating at 94% of capacity. Says in
equities they are biased long, and he says they're always long Suncor
(SU) and Canadian oil sands. He won't say what they're short. Says he
likes the coals -- says he just likes energy. (Scroll to the
4/25/06 note below)
7/4/06: Oil prices fell below $73 a barrel
on Tuesday in thin trade, but nagging
fears about
supply disruption and
expectations of strong
U.S. demand for gasoline were expected to prevent a deeper sell-off.
The peak was struck in September last year after massive hurricane
damage and forecasters
have predicted another
active U.S. hurricane season. "The bull run is back and the
hurricane season lies ahead," said Deborah White of SG CIB in a research
note. The investment bank
has predicted this season
could see hurricane-related losses of 33 million barrels of oil, as well
as 25 million barrels of oil equivalent of natural gas and 20 million
barrels in light products, such as gasoline. "The 'triple whammy'
would certainly send crude
heading through the $80 a barrel mark," SG CIB said. U.S.
crude has already rallied by around 20 percent from the end of last
year, pushed higher by anxiety about oil producer Iran's dispute with
the West over its nuclear program, as well as disruption of oil output
by militant unrest in Nigeria.-Reuters Note these
terms: expectations, predicted...fear sells and a quick 10%
gain is possible for fast money. What if it isn't another active
hurricane season? What if all of these "investors" are caught long
and the demand dries up?
7/3/06: Here, in a nutshell, is the crux of the
electric utility problem facing deregulated States: Banc of
America says that while they continue to believe that an abrupt movement
in the Treasury will hurt utilities over the very short periods, they
continue to expect that
investors will focus on utilities strong fundamentals, driven by
improving realized commodity
prices and substantial ratebase growth. Assuming the 10-year
Treasury settles in south of 5.3%-5.4%, they believe that utilities
should perform relatively well in 2H06. That being said, they would
focus more on the stocks which could unlock better value or gain a
higher relative multiple. With DUK's recent announcement to spin off its
natural gas business, Dominion Resources (D) would be the logical next
candidate to unlock further shareholder value. While they remain
upbeat for the electric utility sector,
they note that a number of
regulatory decisions this year are critical to their thesis.
However, they continue to believe that Maryland will end up being
constructive enough to allow Constellation Energy (CEG) to outperform
over the 2H. Key terms: profit, regulation,
investors, Wall Street.
6/30/06: T4 had a phone conversation with
John Shaddock of Shared Services, the LVAIC Harrisburg link...still
working on educating our legislators about the variability of the DSO
charge and how tough it is to budget when the toll varies by whim.
He has set-up a teleconference with Terrance Fitzpatrick, a
PA PUC
commissioner and staff to discuss details.
Wall Street Journal:House voted to lift bans that
have prevented oil and gas drilling on most of the federal undersea tracts off the Atlantic
and Pacific coasts and in parts of the Gulf of Mexico. The bill
also allows states that currently have oil production on federal land
off their coasts or those that allow oil and gas drilling there in the
future to share royalty payments that would otherwise go entirely to the
federal government. The measure still needs to be approved by Senate.
The 232-187 vote came despite a statement by the Bush Administration
that says, by sharing royalty payment with coastal states, the measure
could cost the federal treasury 'several hundred billion dollars' over
the next 60 years. Rep Pombo (R-CA), chairman of the House
Resource Committee, countered that the CBO found
it would result in a net increase in federal funds over the next decade
as new oil and gas reserves are found.
The commodity markets closed early today, at 1P...
Crude oil rose 38 cents to $73.90pbl; NG fell 3.5 cents to $6.10mbtu;
heating oil fell 4.26 cents to $1.9450/gal; gasoline fell 12.48 cents to
$2.17/gal.
3 Month Stock Market Sector Winners/Losers:
Winners: Agricultural Products +23.1%, Broadcast/Cable +17.5%,
Oil & Gas +13.2%, Construction Svcs +10.5%, Autos +10.2%, Steel
+8.9%.... Losers: Homerbuilders -24.9%, Consumer Electronics
-23.2%, Tires/Rubber -23.1%, Entertainment Software -20.8%, EMS -17.8%,
Forest/Paper -15.0%. Past results are no guarantee of future
success? The market appears to think that ethanol is a major
solution to our oil addiction.
Read, then scroll down to 6/27! Taco,
Inc. has announced price increases across all product lines, effective
July 1, 2006. Price increases on water circulation products, including
the "00" Circulator Product Line up through the largest horizontal split
case pump product lines, range from 5% to 8.5%. Price increases on
hydronic accessories, including zone and flow control valves, range up
to 12%. Price increases on air elimination and control products,
including air separators and expansion tanks, will range from 4% to 8%.
Price increases on shell & tube heat exchangers, including all single-
and double-wall heat exchangers, will be 15%. Price increases on
electronic controls, including switching relays and zone controls, will
be 2%. This is the second price
increase that Taco has announced this year and is driven by
steep cost increases for
commodities like copper, bronze and steel worldwide.
6/29/06: WallStreet Journal reports
traders at BP PLC secretly and
illegally cornered part of the U.S. propane market in early 2004,
driving up heating and cooking costs for millions of mostly rural
Americans, federal investigators charged. In a civil complaint filed in
federal court in Chicago, the Commodity Futures Trading Commission
outlined what it said was a
scheme to manipulate the price of propane, and it alleged that
executives at a BP trading unit
approved the effort. The Justice Department filed a simultaneous
criminal plea in Washington in which a former BP trader admitted to
participating in the alleged conspiracy and agreed to cooperate in a
continuing criminal investigation of others at BP. The case is
based partly on audiotapes of BP traders, who were caught openly
discussing the propane price-manipulation scheme, the federal complaint
said. "In terms of whether we should do this or not," the complaint
quoted one trader as saying, "what
we stand to gain is not just that we'd make money out of it, but we
would know from thereafter that we can control the market at will."
Here's a gallery of work that accompanies an
LP-5 electric rate.
NatGas storage: The current inventory
level is 2.476 tcf compared to the prior year level of 2.025 tcf and the
5-year average of 1.833 tcf. Already we're
22% more in storage
than last year. Bearish for prices.
6/28/06: U.S. "concerned" about falling
Venezuelan oil output, according to Sr U.S. Govt Official, also says
reduced Venezuelan output a
factor behind high oil prices.- Reuters.
NYMEX
Closing Prices:
Crude oil rose 23 cents to $72.15pbl; July natty expired off 20 cents to
$5.91mbtu; heating oil dipped 1.87 cents to $1.94/gal; gasoline rose
1.15 cents to $2.21/gal (highs of the day);
Another one from the
no-brainer column: Marc Kasowitz w/ the Alliance for Investment
Transparency testifies before Senate Judiciary Commitee that "major Wall
Street firms" have published research that has been "bought and paid
for" by short sellers/ hedge funds; says the
hedge funds know when the
report will appear, so they can time their shorts. Says there is little
transparency, and the opportunities for gross fraud and abuse is
"stunning".
6/27/06: Attention #6 oil users...check out
this chart. $1.20 is a 4x
bottom for support. If we break thru, it's time to think about
quoting winter numbers. Keep in mind that NG is still competitive
at $8.24 equivalent.
From a top White House economic advisor..."U.S.
inflation has not risen excessively and prices
excluding food and
energy have been
contained. Prices haven't gone up very much.
Core prices have been contained,"
Council of Economic Advisers Chair Edward Lazear said in response to
lawmaker questions at a hearing before the Joint Economic Committee.
"We have full confidence in the Fed (Federal Reserve) ... I think
they'll do the appropriate and responsible thing," he said.
Hello Edward? Have you seen copper prices lately? Energy
feeds EVERYTHING. So if we just exclude the elephant in the room
(energy), there is no inflation, right? I guess Ed hasn't shopped
for 12/2 Romex at the Home Depot lately.
6/26/06: Anyone miss these
stories from Saturday's local
paper? Md residents are upset over their 70% electric bill
increase...and voters are angry. And ex-PA PUC commissioner Hanger
still plays the Don Quixote role.
Examples of T4's high
voltage engineering capabilities.
And who or what is
PPLICA? T4 has worked
with this group for many years and they offer a unique insight into the
workings of the PA PUC as well as PPL industrial/commercial marketing.
6/23/06: Wow! Anadarko Petroleum to
acquire
Kerr-McGee & Western Gas Resources, Inc. in separate transactions
totaling $23.3 Billion..."All three companies have certain assets that we will likely deem to be
non-core once combined...Even with divestitures that we believe could
generate substantial after-tax proceeds, we expect the proposed
acquisitions to be accretive to both earnings and cash flow on a pro
forma basis... Given our outlook for energy markets, these
transactions make a lot of sense for Anadarko shareholders. We expect to
hedge up to 75 percent of the acquired production through late 2008
using a series of three-way collars, with floors designed to ensure a
return on our investment and ceilings that allow considerable upside".
Oil companies buying gas companies. One stop shopping. And a
46% premium to boot. This is an important insight on where the $
is going. One doesn't pay up 46% for assets that will not
produce...good news for their
shareholders and bad news for consumers. Take a look at
these charts: WGRKMG APC
Wealth is moving from consumers to their shareholders.
Heating Oil Update: here's the
spreadsheet sent to Bill Marushak.
Yesterday, we were discussing a $0.10 margin and today it's $0.145,
thereby pushing beyond my original $2.30 thought. This is still
better than the "typical" oil dealer margin of $0.30. I've said it
time and time again, it's not who, but when. You can lock futures
at any time and clearly the best lock would have been on the ascent from
the triple bottom support at $1.60. But that's driving via the
rear view mirror. Once I get a better handle on volume draw and
number of drops, I'm going to work at beating this baseline number.
For now, it's better to accept that high prices are a reality and set
budgets appropriately. If oil drops, move the $ to the electricity
column. Anybody feel they can do better? If so,
email me.
Spin City: Take a look at this
clipping. Oh no, your
rates won't go up 20-30% sez Doug Krall. Correct. Plan on
20-60%! I think his attempt at levity was misquoted and/or
misjudged. Let's not forget that electricity is commodity +
transmission + distribution. Big consumers like Lehigh (69KV) have
no distribution cost. Residential consumers have to pay for
substations, transformers, poles, wires, and losses. Real-time,
demand-shifting, and off-peak aren't great ideas for schools.
Customers in PECO (Excelon) territory are finally breathing a sigh of
relief because their already exorbitant rates are only planned to rise
11%!
6/22/06: You have to love this
PPL
quote:
"Continued
early planning will be essential so that the state and utilities can
educate customers about the transition to market-based prices well in
advance of changes taking place."
Absolutely nowhere in this
press release is the anticipated price spike. Typical
utility-speak. They're too focused on the details to explain to
consumers that their bills are going to skyrocket! "...customers
who do not select an alternate supplier..." Like the 1% in PPL
territory? Refreshing would be a statement to the effect that
deregulation was flawed and that the LMP model for PJM electricity sales
in no way benefits the customer. Like THAT will ever happen!
6/21/06: US crude inventories now at
highest level since May 29 1998, according to the EIA - Reuters |
Meeting tomorrow with a Sunoco rep...preliminary indication for a winter
#6 oil lock is $1.45 | Got a call from UGI...they want to
offer a "dual rate" DSO for interruptible gas...lower number ($0.35) for
3rd party transportation. I'm checking with marketer because I
don't think this works. Thanks for #2 oil numbers. You know
who you are!
6/20/06: T4 as Paul Revereon the coming electric rate increases.
One point I'd like to make is if consumers revolted against a
30% pay raise for legislators, how will they react to a 70% electric bill increase? I've heard rumblings that it can't happen.
Read this headline! Bill
Marushak again asking about #2 oil. I told him that
I'd lock 75% at current price
and ride the market. Worst case might be that your budgets
get adjusted for this current shock and then prices trickle down.
I can't offer more insight until after we've had our one-on-ones.
And if that's not enough for today, look at this headline:
World oil prices could triple if
US takes military action against Iran, says the Saudi Ambassador to the
US - Reuters. Please refer to the
Politics link for selected insightful looks at this issue.
Saudi Ambassador to US, says current oil prices too high, but mkt is
well supplied with oil, also reiterates plan to hold 1.5 mln-2 mln BPD
surplus capacity available in long term - Reuters
Final thought: see this
current heating oil chart. Did all of the dealers make their buys in
May? We're getting closer to my $2.30 buy target.
6/19/06: The Morning Call just
added their $0.02 to the oil prepay issue. T4 refers you to
this chart from the folks who
bring you the CPI. There is no secret supplier hiding in the
background. Lehigh uses < 4000 gals of #2 oil in a year for only
four properties. Pipeline Petroleum is the historical best price
compared to Fritch and Deiter Bros, but we also want service and choose
Fritch for convenience. This is a tough call.
Email your thoughts.
I'm leaning toward a 50-75% annual volume lock, but I'm ambivalent
because of the recent stock market activity (which is forecasting a
business slowdown).
Oil & Gas industry consolidation expected
to accelerate over next 12 months, domestic natural gas producers to be
primary tgts - Oppenheimer
6/17/06: I like to revisit
prescient calls.
Did we hit a short term bottom in natural gas? Beware of a
V-move. A
recent publication by Hess is posted in the Gas section. I've
had questions about the players in the local gas market; top three are
Gasmark, Hess, and Texon. Hope this
graph helps to understand heating oil
price today. We're essentially 50 cents higher than last year's
price; remember, you need to add at least 35 cents to the market price
of spot for storage/delivery. Your supplier can buy at spot but
he's not going to deliver to you for no profit. T4 has an action
item to consider an LVAIC oil service/delivery operation; would need at
least two employees. If we bought wholesale and did all the
service, we might save a significant sum. This item will be
discussed during our one-on-one meetings.
6/16/06: We talked about oil vs. service at
the last LVAIC meeting. Here's an
example. I also added
a few historical information scans to the Electricity page. BANANA
= Build Absolutely Nothing Anywhere Near Anybody, which trumps the NIMBY
= Not In My BackYard. Here's an old
chart that shows why
#6 oil and coal are kings. I've also corrected some bad links on
the gas page. Sorry.
6/15/06: Kuwait Oil Min: Considers
$45-$55/bbl a stable price; "terror premium" on oil $8-$12/bbl
, expects
winter demand less than last year - DJ
6/14/06: Remember the comment about new
plants at yesterday's LVAIC meeting?
Check this out. The
stock market is acting as if another recession or business slowdown is
in the works. Bad is good for energy prices. As Sgt
Esterhaus said on Hill Street Blues, "Let's be careful out there."
Did anyone see the ad for
propane from Pipeline Petroleum in Sunday's Morning Call?
$1.41 delivered is a great
price. Here's a real world scenario: T4 gets home
tank filled...bill is $3.95/gal...T4 calls Suburban Energy Svcs...oh,
that's a mistake...how about $2.50?...sounds OK, except I know that
Trexler-Haines charges $1.80 to LU; when asked, they acknowledged that
would also be the consumer cost for >300gal/yr...so now we're in the
reduce your charge or take your tanks back ($120 charge) mode. T4
knows that NYMEX cost right now is $1.02 or so. Pipeline can get
it to you for $1.41 and T-H for $1.80. These fees are comparable
due to tank rental charge. $3.95 is criminal.
6/13/06: WSJ reports surge in Internet use,
energy costs has big tech companies seeking power. The search
is being led by cos including Microsoft, Yahoo and IAC/InterActiveCorp.
Big Internet cos have been adding thousands of computer servers to data
centers to handle heavy customer use of their services, including
ambitious new offerings such as online video.
Some Internet executives say
electricity has become a closely watched expense and can even be
a factor when they consider rolling out new services. While always a
concern, the cost of power has
become more important amid a recent run-up in energy prices and
increased use at data centers. To satisfy their power needs, Internet
cos are exploring options ranging from building facilities in former
defense bunkers -- which already have rugged grid connections -- to
plunking themselves down near hydroelectric plants to get a slice of the
inexpensive power. Anticipating demand a decade from now, some
executives even are mulling whether proximity to nuclear-power plants
could be a plus. The scramble serves as a reminder of the strategic
physical issues facing cos whose most visible presence is on the
Internet. For all the popularity of on-screen features of YHOO's or
Google's Web sites, their long-term prospects could increasingly depend
as well on how they manage such physical considerations as power.
6/12/06: Still pondering the implications
of the rate cap expiration. Deja vu. Check out these
old WSJ articles from Y2K.
Also found a neat little site that monitors
local gasoline prices. Crude oil fell $1.23 to $70.40pbl; nat
gas rose 6 cents to $6.23mbtu; heating oil fell 5.39 cents to
$1.9920/gal; gasoline fell 3.28 cents to $2.12/gal; RBOB gas fell 5.03
cents to $2.2550/gal. US Energy Secretary says current crude oil
prices too high, spare global capacity is tight - Reuters(T4 opinion: this is an oxymoronic statement) T4 has
written an editorial letter to the Morning Call to see if the electric
rate warning fire can get lit. All of this and Hurricane Alberto
is lurking!
6/6/06: Bad news for electricity consumers in
Pennsylvania...your electric
bill will be at least 60% higher after the rate caps expire on 12/31/09.
Happy 2010. This is not a speculative projection. It is a
fact based on the (current and projected future) market price of power
in the PJM. T4 attended a PPLICA meeting today and met with a
group of power consumers that make LVAIC look like a tiny dot on the
usage radar. Deregulation is a fact and both Federal and State
laws support the power companies and the situation we are facing.
Note from Bill Marushak regarding
#2 fuel oil procurement...T4
opinion: if you can beat
$2.30 delivered, you can beat the market.
6/5/06: Crude oil is up strongly after Iran's top
leader, Ayatollah Ali Khamenei, warned Sunday that energy supplies from
the Gulf region would be disrupted if his country was attacked by the
US; Iran is the 2nd largest oil producer in OPEC at 3.85mln bpd. Crude
oil is up $1.16 to $73.49pbl (range is 72.47 to 73.84). The WSJ reports
that Saudi Arabia's oil minister confirmed that his country's massive
crude-oil output has declined in recent months, but he attributed the
trend to a drop in demand and denied the kingdom is aiming to limit
supply. Natural gas is up 8 cents to $6.705mbtu (range is 6.64 to
6.82). Strong words out of Iran regarding their right to produce nuclear
energy is boosting products . Heating oil is up 4.36 cents to
$2.0581/gal (range is 2.0260 to 2.0635); gasoline is up 3.2 cents
to $2.2295/gal (range is 2.1950 to 2.2350).
6/2/06: Global oil demand growth forecast
to rise 1.42 mln bpd in 2007, according to Reuters survey - Reuters
6/1/06: T4 one step ahead of the WSJ! WSJ reports the proposed buyout of pipeline company Kinder Morgan (KMI)
highlights a new way Wall Street is seeking to profit from price moves
in oil and natural gas: to physically move the commodities. In recent
weeks, two of the financial
world's biggest commodities players, Goldman Sachs Group (GS)
and Morgan Stanley (MS),
have sought to take stakes in fuel-distribution cos that operate
in the commercial side of the commodities boom. Their interest in these
transport cos, which function like tollbooth operators and deliverymen
for raw materials, suggests that as natural resources become more sought
after, the infrastructure that gets the materials to market is viewed as
a hot commodity, too. GS -- along with a group of other investors,
including American International Group (AIG) and Carlyle Group's
Riverstone Holdings affiliate -- proposes to put up $4.5 bln as part of
a mgmt-led buyout of KMI. MS, meanwhile, has been locked in a protracted
bidding war to purchase petroleum-products distribution co
TransMontaigne (TMG). Both efforts show how investing and trading
in commodities is evolving as more players rush in and seek a fresh
competitive edge. Both the trading desks and the private-equity arms of
Wall Street firms, as well as hedge funds, are now investing in the
storage and distribution of valuable commodities. | Libya
says would not be surprised to see oil reach $80 a barrel- Reuters |
Venezuelan oil Minister says oil should not be allowed to fall below $50
per barrel - Reuters | 12:54Venezuelan oil
Minister says OPEC should cut production - Reuters
5/30/06: Food for thought: why would
Kinder Morgan go private? If
you own the turnpike, you can set the tolls.
5/25/06: Lehigh U will attend this
PPLICA meeting. 15:50
House votes to allow oil, gas drilling in Alaska arctic refuge-
Bloomberg
5/24/06: There is a
PUC meeting soon to discuss deregulation issues. T4 attendance
is undecided. Also, UGI
publishes a quarterly magazine entitled Gas Technology.
Contact Edward Berger at 610-796-3557 to get on the mailing list.
5/23/06: Gas is bouncing off an uptrend
line. I believe gas prices will continue to drift down until the
first hurricane threatens the Gulf. July crude oil (now the
spot contract) is up 82 cents to $70.78pbl (range is 69.85 to 70.96);
crude is higher after yesterday's hurricane forecast (possible 10
hurricanes this season) and word that Valero Energy (VLO), the largest
U.S. oil refiner, said diesel and gasoline production was cut at its
Norco, Louisiana, refinery following a 5/20 explosion and fire (the
accident also damaged some electrical and data transmission lines,
requiring the shutdown of a crude distillation unit, a coker and three
other refinery units). Kuwait's Shuaiba refinery caught fire but is
believed to be operating normally (the refinery has the capacity for
200,000 bpd), Higher gasoline prices ahead of the Memorial Day holiday
are also lifting crude. Natural gas is continuing yesterday's
uptrend and is up 12 cents to $6.40mbtu (range is 6.277 to 6.40).
Heating oil is up 3.36 cents to $1.9962/gal (range is 1.9325 to
1.9725). Gasoline is up 3.48 cents to $2.0922/gal (range is
2.0560 to 2.0950); June gold is up $3.70 to $660.20 (range
is 652 to 663.80) largely due to higher energy prices, which have made
the inflation hedge more attractive this morn (also a weaker dollar is
fostering more of a currency hedge). Copper is up 13.35
cents to $3.595 a pound on the COMEX (copper rose $255 to $7,835 a
metric ton on the LME on speculation demand will exceed production).
Aluminum rose $55 to $2,815 a ton on the LME.
5/2/06: Iran, the world's second largest oil producer, on Tuesday predicted that
crude oil prices might touch $100 a barrel by the winter of 2006. Iranian Deputy Oil Minister Hadi Nejad Hosseinian, who had last year predicted that crude prices will touch $70, on Tuesday said: "It is possible", when asked if crude prices could touch $100 a barrel.
4/28/06: (NYMEX ENERGY CLOSE) Crude oil rose 83 cents to $71.80pbl; nat gas fell 26 cents to $6.55mbtu; heating oil rose 2.93 cents to $2.0150/gal; unleaded gasoline rose 4.81 cents to $2.12/gal while RBOB gasoline jumped 7.31 cents to $2.24/gal
4/28/06:
Samuel Bodman, Energy Sec, appears on CNBC to discuss energy situation, and what steps the gov is taking to correct it. He believes that
ANWAR makes sense, wants to push Congress to move on this. He says that the gov won't start adding oil back to reserve until fall, and although this is not a major amount of oil being added into the mkt right now, it is something. He says that it is possible to lower tariffs on ethanol, but he doesn't believe that is the biggest issue. Right now he believes that the biggest issue is getting the ethanol is distributed. He doesn't believe tariffs are protecting American co's interests at expense of keeping gas prices low. Says the country will see an increase of ethanol usage of about 40% increase (5.6 or so bln gallons will be used this year) . They are working on increasing supply and technology to help with the energy demand. He doesn't know if price gouging is actually happening, but the opportunity exist to register complaints about possible gouging. No suspicion that he is aware of, notes we have seen some instances of this (following hurricanes saw $7 and $8/gallon), but has no reports of anything this high. Believes that we are "going to get out of this box" that we are currently in. Says its a deadly serious matter, something that the President is very serious about it, something that everyone in Administration is focused on.
4/25/06:
Boone Pickens says that energy will be front and center for a long time, and would not be in a rush to sell. Says President's administration getting pressure from Sen Specter about price gouging (Pickens says there is no such thing happening in terms of gouging). Says we are in contango (when back months are worth more in storage than out of the ground); says no one in rush to sell inventory with so much going on in the world (i.e. Nigeria, Iran, Venezuela).
Says we will see $80 oil before $60. Says there is plenty of nat gas around, and
nat gas will go down further. Says only reason nat gas holding above $7 is due to high oil; says
hurricane season or cold winter can bring us back to $15 nat gas. Based on supply/demand,
he thinks oil could be $60 or $65 based on his gut feeling.
4/21/06:
Crude oil hit a fresh record high of $74.15 as concerns continue to escalate that supplies may shrink due to geopolitical issues in Iran and Nigeria. Concerns that MBTE being removed from gasoline may cause temporary gas hikes would be incrementally positive for crude prices, since gas is derived from crude oil.
(earlier today) June crude oil is off 71 cents to $72.98pbl (range is 72.73 to 73.50); the sell-off is associated w/ Royal Dutch Shell's Mars restarting the Mars platform earlier than anticipated; will resume pre-hurricane levels by the end June (full capacity at the platform is ~220,000bpd). Efe newswire reported that
Venezuela's Chavez would be content with oil at $50pbl. Natural gas is off 25 cents to $7.824mbtu (range is 7.801 to 8.02). Heating oil is off 2.52 cents to $2.0284/gal (range is 2.0250 to 2.0491). Gasoline is off 3.34 cents to $2.1814/gal (range is 2.1760 to 2.2075) many people believe any pullback in prices will be short-lived b/c of the changeover from MTBE to RBOB (RBOB is a wholesale non-oxygentated blendstock traded in the New York Harbor barge market that is ready for the addition of 10% ethanol at the truck rack). May RBOB gasoline closed yesterday at $2.3220/gal.
4/20/06: LONDON, April 20 (Reuters) - Oil jumped to a fresh record high above $74 a barrel on Thursday after a steep drop in U.S. gasoline inventories fueled fears of tight summer supplies at a time of growing anxiety over Iran's exports. The United States on Wednesday reported a larger-than-expected drop in gasoline inventories of over 5 million barrels, adding to concern created by the shutdown of almost a quarter of Nigeria's oil output and the row over Iran's nuclear programme. "We've gone from comfortable U.S. gasoline stocks to average and seem to be heading very clearly toward the low of the range," said Deborah White of SG SIB Commodities in Paris. "The market is worried about that." London's Brent crude climbed as high as $74.22 a barrel, its eighth consecutive session to mark a new peak. It was trading down 3 cents at $73.70 a barrel by 1132 GMT. U.S. May crude oil futures were down 3 cents to $72.14, hitting an all-time high of $72.49 earlier. Gasoline stocks in the U.S. fell as demand averaged over 9.1 million barrels per day (bpd), 0.8 percent more than a year earlier, the U.S. Energy Information Administration (EIA) said. "It's all about gasoline and it has been since January," said U.S. consultant PFC Energy in a report, adding that stocks are at the bottom of a five-year range in terms of days of supply
4/18/06: Crude opened at $72+, an all-time high. June crude oil continues to hit new session highs, now 72.90 +0.92
4/17/06:
Gold prices are rallying into 25-year highs and crude oil prices (May contract) are trading at $69.70pbl ---near levels seen post Hurricane Katrina ($70.85 high on Aug 30th) as growing tensions in Iran cause a spike in energy prices that has many investors thinking could foster global inflation (gold historically has been considered a great inflation hedge).
US Gasoline Futures at highest level since September 30, 2005 - CNBC
