Oil

[*T*]

Re: Oil

We're working oil into our thesis now. The trade is out of Treasuries and into oil. The question is timing and, as you say, how to buy oil. Stay tuned!

What about solar? Behaves a bit like a long-dated call on oil.

[due_indigence]

Re: Oil

The previous itulip thread mentioned by Sharky above references the Seeking Alpha discussion (and I would urge reading the comments that follow the article itself) as to USO contango distortions, a large index making/distorting the very market it seeks to track, et al. So yes, though I own a small amount myself the USO ETF is not a disinterested party or pure proxy. Dare I mention it, Direxion has a 3x crude ETF ERX. But you didn't get a recommendation from me. I'd liken it to nitroglycerin complete with helpful ticker.

Mr. Peak Oil himself Matthew Simmons is out with another PDF presentation (link below). Recent low prices sow the seeds (and frankly magnifiy) future disaster --peak oil notwithstanding. And by the way it's insane to run the market for the world's most crucial resource like the daily lotto. Hear hear. Mark Faber has been spouting a similar theme about oil services companies. We're gonna need an infrastructural investment that'll make the Marshall Plan look like a kid's birthday party.

Alt energy is such a silly sideshow, really a talking point for politicians. We know how the world works --by the seats of its pants. Imagine 2011 if peak oil really bites and trillions of dollars of infrastructural investment stares us in the face (Simmons est. $50-100 trillion to rebuild half the infrastructure) --just to tap a depleting but (for the next 50 years at least) crucial resource. The world's already $50 trillion lighter in the loafers today than from a year ago. Where's the money gonna come from for legacy investment AND alt energy? It boggles the mind. Talk about the crowding out effect. And who's going to revamp the oil supply chain? The industry's firing its brain trust right and left in 2009.

http://www.simmonsco-intl.com/files/...%20Society.pdf

Money quotes:

"If there is no real spare capacity and demand stays 'flat', a squeeze could come quicker than most believe." (p. 43)

"Is natural declines twice that of net declines?" (p. 23)

Key themes:

'natural decline versus net decline' <--does net sort of 'obscure' natural declines?

rust from inoperable/underutilized capacity, a sleeping killer.

From 2001-08 the industry invested $2.1 trillion and barely budged supply growth.

[BiscayneSunrise]

Re: Oil

We're working oil into our thesis now. The trade is out of Treasuries and into oil. The question is timing and, as you say, how to buy oil. Stay tuned!

One thing to keep in mind is that Matthew Simmons (Peak Oil Proponent)
says that fossil fuel infrastructure is in need of $100 Trillion in upgrades.

If true, check with GRG, then avoid the companies that need to replace aging infrastructure and focus on those that provide it.

Also, if energy is the focus generally and not just oil specifically, perhaps it is time to take a closer look at the nuclear supply chain. Maybe, better to invest in an industry on the rise rather than one in decline.

[Glenn Black]

Re: Oil

Nuclear fuel supply is the Achille's Heal. We are depleating world inventory faster than it can be mined & enriched.

[BadJuju]

Re: Oil

Nuclear fuel supply is the Achille's Heal. We are depleating world inventory faster than it can be mined & enriched.

Except it can be recycled, unlike oil, which means we can extend the supply far longer. Also, we can use thorium, which is far more abundant than uranium.

[jpatter666]

Re: Oil

As far as pipelines are concerned, my uncle, an ex-oil senior exec, recommended KMP.

I'm looking hard at this -- anyone already looked?

[due_indigence]

Re: Oil

[quote=BiscayneSunrise;85191]One thing to keep in mind is that Matthew Simmons (Peak Oil Proponent) says that fossil fuel infrastructure is in need of $100 Trillion in upgrades. quote]

It's a horrible conundrum. Does the world make this sort of investment for an essential --though peaked-- resource (what's the pay-back/ROI?) or turn more aggressively to alt energy sources. The trouble is the interregnum. How do you bridge a 50-year gap? Bicycles and canoes?

[due_indigence]

BiscayneSunrise said: "One thing to keep in mind is that Matthew Simmons (Peak Oil Proponent) says that fossil fuel infrastructure is in need of $100 Trillion in upgrades."

It's a horrible conundrum. Does the world make this sort of investment for an essential --though peaked-- resource (what's the pay-back/ROI?) or turn more aggressively to alt energy sources. The trouble is the interregnum. How do you bridge a 50-year gap? With bicycles and canoes?

[Moe_Gamble]

Re: Oil

I'm 30% in oil ETFs already - OIL, USO, and just this week, UCO...I know that there was some discussion here recently of problems with USO.

DBO (an oil ETF) has a better system of rolling over contracts than USO, so you don't get as murdered by contango. (They don't necessarily roll over into the next month, but into a month anywhere up to a year out, if I remember correctly. They have a formula that decides which month.) DBE, its sister ETF, buys a mix of energy contracts--WTI, Brent, gasoline, heating oil and natural gas--with the same intelligent system for rolling over contracts.

If you buy DBO or DBE, be aware that volume is much lower than with USO, which isn't really a problem for buying or selling average-sized orders, but which means you want to take a little care in how you place your order so you don't get exploited on the opening spread.

Or, if you have the dough and the stomach for it, you can buy oil contracts directly. Optionsxpress is easy to deal with, has good charting capability, deposit and withdrawal by ACH, reliable software, and allows you to trade futures, futures options and stocks from one account. The initial margin requirement right now on WTI (CL) is $9214, with a maintenance margin of $6825.

[BiscayneSunrise]

Re: Oil

Nuclear fuel supply is the Achille's Heal. We are depleating world inventory faster than it can be mined & enriched.

Which is why the uranium miners may be in the drivers seat now. Increasing demand, limited supply, very high costs of entry for competitors.

[bpr]

Re: Oil

I can't wait either. I'm 30% in oil ETFs already - OIL, USO, and just this week, UCO. However I confess that I don't really know if these are the best vehicles. I know that there was some discussion here recently of problems with USO.

USL averages out the 12 next futures contracts, reducing contango risk and volatility, though all of these are volatile beasts.

[ASH]

Re: Oil

LOVE LOVE LOVE pipelines. High dividends, lots of good ones. Though you have to be sure to buy the ones that act more like tollways than combined tollways and producers.

As far as pipelines are concerned, my uncle, an ex-oil senior exec, recommended KMP.

I'm looking hard at this -- anyone already looked?

Pipelines structured as master-limited partnerships have been my main idea for what to buy "when it's time to buy", too. I intended to screen based upon debt levels in addition to dividend yield, because my understanding is that many pipelines are still paying down the debt that paid for their construction or expansion, and I worried that the confluence of a credit crunch with low energy prices might be dangerous. With energy prices rising, that may be somewhat less of a concern. I also have vague aspirations to identify Canadian entities of this variety, based upon some of the recent conversations about possible price controls in the US down the road.

I can't make up my mind about the whole "when it's time to buy" thing. My original idea was to wait for the inflation-adjusted DJIA to get down to its pre-credit-bubble trend line, figuring that a stock market crash would take down pipeline stocks along with everything else, and that the market wasn't done crashing. To some extent this has been borne out, but the plunge in oil price coincided with the stock market crash, and it could very well be that the price of energy is more important than general share prices. At least, a lot of the pipeline stocks are trading far off their 52-week lows, and the overall stock market hasn't recovered proportionally. In that case, I'm wondering if the right time to buy was a few months ago...

[BiscayneSunrise]

Re: Oil

BiscayneSunrise said: "One thing to keep in mind is that Matthew Simmons (Peak Oil Proponent) says that fossil fuel infrastructure is in need of $100 Trillion in upgrades."

It's a horrible conundrum. Does the world make this sort of investment for an essential --though peaked-- resource (what's the pay-back/ROI?) or turn more aggressively to alt energy sources. The trouble is the interregnum. How do you bridge a 50-year gap? With bicycles and canoes?

Of course, from strictly an investors standpoint, any restrictions to production and delivery make for very high prices for the underlying commodity. An aging infrastructure has to be good for USO.

[ax]

Re: Oil

Thanks, DI, ERX benchmark is Russell 1K energy, not crude directly:
http://www.direxionshares.com/etf/ebu_3x_shares.html

UCO and DXO are double leveraged products that just track price of crude on daily basis.

[c1ue]

Re: Oil

I'm still watching the various ETFs vs. the underlying to get a sense of relative performance.

Frankly none of them are very impressive so far (i.e. consistent with theme vs. underlying).

The other concern I have is that a significant reversal of the contango could actually drive the price of oil much lower for a time.

As has been mentioned elsewhere, a reversal of contango could mean a dump of significant stored oil supplies on the market all at once.

Having oil at $20 is not going to be fun if you've put a lot of money there.