3:2:1 Crack Spread:
The 3:2:1 Crack Spread was up 0.37 cpg this week, closing at 14.14 cpg. We rallied up to 17.13 cpg this week before we setback by weeks end. I am negative on this spread, especially after the rally we have seen over the past few weeks. The back months well above 20+ cpg and this is too high considering the supplies and demand. The premium in the back months gives us room for a sharp break if demand does not improve. Distillate inventory and demand should prove too much to overcome. This should limit the upside, until we see a change in the facts. The impetus for the change is usually price going down and going down sharply. Gas inventory is high, compared to a year ago and demand is running below a year ago. If inventory builds, we should expect downward price pressure to begin to be the rule. The question is what will make this spread improve from here. I still can see nothing that should be a driving force to cause this spread to move up, until inventory decreases or demand improves. We will have rallies, but they will not last long and they will not carry us up much. A drop to the record low at 1.51 cpg can happen if demand drops this winter. If something does not change in the supply and demand structure price problems should come back. If the Gas Crack weakens, it is almost impossible to think the Heating Oil Crack can move this spread to higher levels. The fundamental facts caused the collapse, and they will take time to reverse and correct the imbalances. Expect more weakness and lower prices. This may end up being especially true in the back months. They are trading at a sharp premium to the front months and this may attract continued selling. Unless we see a change in the demand levels, I doubt we can hold the premiums in the far out months. Either demand for products must improve, or production must fall sharply. If this does not happen, inventory will be building, and there will little chance for a sustained rally. We will then more than likely see another price collapse. The spread traders are going to continue to sell this spread every time it rallies, especially with the premium in the back months. The lack of demand in the distillate market, with a huge inventory, and if Gas demand drops, as it normally does at this time of year, is a major problem. If that is the case, expect downside price action in the spread. If we see Distillate demand increase, we can stabilize and/or go a little higher. If there is no demand increase, we probably have to go sharply lower. We cannot recover to higher prices until the refiners slow down the production. If demand runs the market, and there is no demand, price must generate the demand and that means lower prices. The Vol Price Indicator is at the bottom of its range for the 9th week in a row, and this is bearish. The % Total Count Indicator is 27%, rising and this is bullish. The other two Indicators are at 33% and 42%, both falling and this too is bearish. The Indicators and the facts remain very negative as of now.

Tags: BlackGold, gas demand, gas inventory, logi. oil prices, PEAK OIL

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logi Energy wants as many people as possible to read this article by Nouriel Roubina.

Dr. Nouriel Roubini, professor of economics and international business at the Stern School of Business at NYU and chairman of RGE Monitor, is perhaps best known for his prescient predictions of the financial market collapse in 2005.
Dr. Roubini will be the keynote speaker at IndexUniverse’s upcoming “Inside Commodities” conference on Nov. 4 at the New York Stock Exchange. We sat down with Dr. Roubini ahead of the conference to take his temperature on global markets, the role of oil (NYSEArca:USO – News) and gold (NYSEArca:GLD – News) and the impact of regulation.

Index Universe (IU.com): You’ve said that you’re worried we’re already sowing the seeds of the next crisis. Where do you see that most directly?

Dr. Nouriel Roubini (Roubini):Well in commodities, I look at oil prices. They fell from $145 last summer, came down to $30 earlier this year and now they’re back close to $80. But if I look at the fundamentals of demand and supply, demand is down to 2005 levels, supply and inventories are at all-time highs. In my view, the movement in oil prices is not fully justified by the fundamentals.

There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on it—speculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.

Last year, when oil was at $145, the global economy was still growing. Right now it has collapsed, and is recovering. Oil pushing above $100 would have nasty, negative real trade effects and real disposable-income effects on all importing countries:U.S., Europe, Japan, China, India; all the countries that were hit by the oil shock last year. So that’s an element that is in my view totally speculative, and dangerous to the global economy.

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Tags: BlackGold, economy, logi Energy, OIL PRICES, PEAK OIL

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Dennis Mangan, Logi Energy, November 2:

Crude Oil:
This week we finally saw weakness return and closed down $3.50 at $77.00. We had a BUY SIGNAL and we have put on partial hedges at around the 25% level. Considering the current Crack Spreads, the Crude Oil is where we want to hedge. The Indicators changed direction and triggered a Buy Signal, but this week we will not hedge more as they have went to neutral. Fundamentally, I am negative on the market, but I never let my bias about market fundamentals stop me from following the mathematics of the market. Too many times, I have seen the Indicators end up being right. Thus, to ignore them over fundamental facts is not wise. The market has changed to a bullish scenario. The main, and the only reason I can see, is the continued weakness in the US $. This week we saw the $ stabilize a bit, but we will see how long that lasts. One week does not make a trend. When the US $ strengthens the market should head lower. Then a break to the $67.50-$72.50 level is probable. If dollar weakness reasserts itself, we will see higher prices until the weakness reverses. This week HO prices rose and the HO Crack rallied a bit. The 3:2:1 Crack Spread is holding above the breakeven price for refineries. This will lend support to Crude Oil as long as we hold at this level or higher. Crude Oil is susceptible to price weakness if the Crack Spreads again begin to fail. The Heat Crack Spread lost 9.82 cpg or 38%, as the Gas Crack dropped 27.02 cpg or 68% and the 3:2:1 Crack dropped 60% of its value during that break. Thus, we may be low enough for now on the Crack Spreads. That though can change in a hurry if inventory and demand do not act better going forward. The refiners are a little better than breakeven as of now and that must remain stable. We have had a number of Refiners shut down operations and if the spreads do not stay at these levels or higher more will also shut down. If we see weakness in the Crack Spreads, that should signal weakness to come in the Crude Oil. If the 3:2:1 Crack Spread weakens Crude Oil could have a severe break. Distillate Inventory is huge and we still have very small amounts of demand. A mild winter could easily trigger the Crack Spreads to go into a collapse. Crude Oil prices can go back down to $34 if demand falls apart. With a colder than normal winter, and with increasing demand, the higher margins should stop that scenario from playing out. The Vol Price Indicator is at the top of its range for the 8th week in a row, this is bullish. The % Total Count is 79%, falling and this is bearish. The other two Indicators are at 77% and 76%, both rising and this is bullish.

Heating Oil:
We fell back this week losing 7.04 cpg to close at 200.52 cpg. Last week we generated a BUY SIGNAL but because of the HO Crack spread, we are using Crude Oil for the hedge. This week the weakness turned us to a neutral signal. I expect to see weakness return to this market. The huge inventory and low demand are simply the facts. Production remains high relative to the demand, which is worse than poor considering the time of year. Inventory is 41 million barrels above a year ago, with the demand still in the lower 20% of the 10-year range. This has been going on for the last 28 weeks in a row. Production finally fell back below the 50th Percentile, which is good but it must continue. The facts, and the price action, have not been agreeing lately. As always, there is no reason to try to argue with the price action. The fundamental facts appear, and are, very negative. That said the price still has been going up. The Crack Spread must hold these levels or we will eventually see price problems. We have too much inventory. We have too much production. We have too little demand for product. Yet, as of now, the market does not care. When it does is anyone’s guess, but it more than likely will at some point down the road. If the US $ begins to recover then we will see weakness. I cannot see how weakness will not return in the weeks ahead. Over the last 63 weeks, we have seen only 4 weeks of increases on a year over year basis in usage. It would appear that the only way to decrease the inventory is by a cut in production cut. If the demand cannot increase, along with production decreasing, we cannot clear the huge inventory as we go through the winter. Then we go into the March timeframe with very high or record inventory and then we have storage problems and that spells price declines. If, that is what eventually happens, I expect to see a price collapse in both Heating Oil and the HO Crack Spread. I would a drop of 50-75 cpg in Heating Oil, and 15-20 cpg in the Crack Spread. This market has run up to 210 cpg from 115 cpg while the inventory increased from 145 mm barrels to 171 mm barrels. Thus, we can fall right back to where it began once the market turns over. If demand stays depressed, price will have a hard time maintaining these levels, and the price break could be quick and large. The Vol Price Indicator is at the top of its range for the 7th week in a row, this is bullish. The % Total Count is 75%, stable and this is bearish. The other two Indicators are at 74% and 73%, one rising and one falling and this is bearish.

Heating Oil Crack Spread:
We closed up this week gaining 1.29 cpg and closing at 17.19 cpg. The market rally appeared to have stalled last but this week regained its footing. We will now see if we can rise to, and above, the 17.50 cpg level. The huge inventory build caused the price break. That with the worst product demand in 10 years triggered the downside action. Thus, inventory building, with a demand collapse, drove us to record supply levels. The lack of product demand might allow us to maintain close to record levels of inventory for an extended period. How will we ultimately work this inventory down is the key question. Will we get into a literal storage problem if we cannot? The inventory and the demand should limit a huge price advance. The low is 5.10 cpg made the week of 5/29. The two major lows were the week of 5/29 and the week of 9/11 at 8.10 cpg. I think that these lows are going to be tested. If we take out the low of 5.10 cpg, expect the break to carry us down to the -2.00 to 2.00 cpg level. If we exceed the 17.50 cpg level, expect the run to carry us up to the 22.50-25.00 cpg level. Considering inventory and demand, the logical conclusion appears to be price weakness. Considering the market action of the last few weeks that would have been wrong. I think we have had a rally that was caused by the market being oversold, not a shift in the underlying facts. Distillate Inventory is at 99th Percentile. Production is at the 39th Percentile, Imports at the 20th Percentile and Product supplied is at the 17th Percentile. These facts are simply terrible. Especially the Products supplied number. If the refiners do not scale back operations, and inventory builds going into the winter, the Crack Spreads will collapse. If we do not see demand increase, with a drop in production, inventory will not drop to a lower level. If that is what happens over the next 5 months we have a huge price problem. Refining run rates need to go down to the 75% level. For now, I think inventory, production and demand levels put a cap on a large sustained price move up. The Vol Price Indicator is at the bottom of its range for the 3rd week in a row, this is bearish. The % Total Count is 49%, falling and this is bearish. The other two Indicators are 55% and 57%, one falling and one stable and this is neutral to bearish.

Tags: BlackGold, fuel, hedging, logi Energy, OIL PRICES, PEAK OIL

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logi Energy recommends this article by Nouriel Roubina.

Dr. Nouriel Roubini, professor of economics and international business at the Stern School of Business at NYU and chairman of RGE Monitor, is perhaps best known for his prescient predictions of the financial market collapse in 2005.
Dr. Roubini will be the keynote speaker at IndexUniverse’s upcoming “Inside Commodities” conference on Nov. 4 at the New York Stock Exchange. We sat down with Dr. Roubini ahead of the conference to take his temperature on global markets, the role of oil (NYSEArca:USO – News) and gold (NYSEArca:GLD – News) and the impact of regulation.

Index Universe (IU.com): You’ve said that you’re worried we’re already sowing the seeds of the next crisis. Where do you see that most directly?

Dr. Nouriel Roubini (Roubini):Well in commodities, I look at oil prices. They fell from $145 last summer, came down to $30 earlier this year and now they’re back close to $80. But if I look at the fundamentals of demand and supply, demand is down to 2005 levels, supply and inventories are at all-time highs. In my view, the movement in oil prices is not fully justified by the fundamentals.

There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on it—speculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.

Last year, when oil was at $145, the global economy was still growing. Right now it has collapsed, and is recovering. Oil pushing above $100 would have nasty, negative real trade effects and real disposable-income effects on all importing countries:U.S., Europe, Japan, China, India; all the countries that were hit by the oil shock last year. So that’s an element that is in my view totally speculative, and dangerous to the global economy.

IU.com:Is that true elsewhere?

Roubini: I could make a similar argument for other commodity prices. In my view, rising commodity prices are not justified by the fundamentals.

There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets:commodities, equities, credit. We’re creating a bigger bubble than before.

It’s going to go crashing down, in an ugly way. That’s the basics of the argument.

IU.com:Is there a regulatory solution to the speculation issue? Is the CFTC tightening and enforcing position limits a step in the right direction?

Roubini: I think it’s an idea worth considering. I’m not usually in favor of position limits, but I think the swings in the value of oil have been extremely dangerous for the global economy. Oil at $145 was the reason—more than Lehman or anything else—that the global economy tipped into the worst recession in the last 60 years. After the collapse of the global economy, oil collapsed to $30. At $30, there can be investment in new capacity. But now it’s back at $80 and soon enough it’s going to be at $100.

If position limits are going to be effective—and I don’t know that—I would not be against them. Because these swings in value of oil, on the way up and on the way down, are extremely damaging to global economic activity. They are dangerous. They are not justified. And if they can be controlled, so be it.

IU.com:You recently co-authored a report in which you and your colleagues ranked the U.S. third in world financial markets, after London and Australia. Was regulation a big component of that?

Roubini: The U.S. might have been No. 3 overall, but it was ranked No. 38 out of 55 in financial stability, because we’ve had a disastrous banking and financial crisis. That was in part due to poor regulation and supervision of financial institutions. That’s one of many factors and reasons why the U.S. was ranked so low on that particular pillar. Certainly there has been a massive failure of regulation and supervision of the financial system. But the regulatory failure was more in the direction of unwillingness by regulators to apply regulations. The Fed had all the powers to regulate toxic underwriting of mortgages, but they believed in laissez faire markets, and they created a disaster.

IU.com:How does this get fixed?

Roubini: I don’t believe in market discipline. It doesn’t work. That was the ideology of the last 10 years; self-regulation means no regulation. Market discipline doesn’t exist with irrational exuberance and reliance on internal risk management models that don’t work. Nobody listens to risk managers, because it’s risk takers that make the profits. The reliance on ratings agencies that have their own conflicts of interest, the reliance on soft-touch regulation, the focus on principles instead of rules—that particular regulatory philosophy has been a disaster, and we’ve learned it the hard way. We have to go to simpler rules, tougher rules and more binding rules. That’s the right approach.

IU.com:You’ve been clear that you think most assets are currently overvalued. Do you think there are opportunities for investors in certain asset classes or certain geographies?

Roubini: Well, there is a wall of liquidity chasing assets. That liquidity can chase those assets higher for the time being until the huge carry trade—the asset bubble and the wall of liquidity—comes crashing down. You can still have all the risky assets going higher. Of course, the higher they go, the more they diverge from fundamentals, and the riskier the situation becomes. But eventually, if the recovery of the economy is going to be anemic, sub-par, below-trend and U-shaped, there is going to be a correction. And therefore my view is to stay away from risky assets. Stay in liquid assets. I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes.

IU.com:When you say “stay away from risky assets,” many people hear that and think, “Aha, gold!”

Roubini: I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.

Tags: BlackGold, economy, logi Energy, OIL PRICES, PEAK OIL

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October 28, Morning

After hitting the (so far) all time record monthly high of $134 in June, 2008, the monthly low spot US crude price was $39 in February, 2009.  In eight months,the price of oil has doubled.

October 28, Afternoon

One other point about oil prices around $78.  As noted, it is twice the  recent monthly low that we saw in February, but it is also higher than all average annual prices prior to 2008.

Note below, the production decline rates for the six examples of declining net oil exporting countries were all in the single digit range, and all but one were less than 5%/year.

October 29

(1)  Increasing production, and generally increasing net oil exports, e.g., Angola currently

(2)  Production peak and a near term net export decline rate (less than 5%/year), e.g., Saudi Arabia currently (2.7%/year).

(3)  Intermediate net export decline rate (5% to 10%/year), e.g., Argentina currently (8.6%/year).

Tags: BlackGold, LOGI, OIL PRICES, peak oil hedge fund, peal oil

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Dennis Mangan, logi Energy, October 23

Crude Oil:

This week we again saw a rally of $1.97, closing at $80.50. We now have a BUY SIGNAL and should commence hedging. Considering the Crack Spreads, the best place to Hedge is in the Crude Oil. The Indicators changed direction and triggered a Buy Signal. Fundamentally, I am still negative view on the market but I never let my bias about market fundamentals stop me from following the mathematics of the market.

Too many times, I have seen the Indicators be right, and to ignore them is foolish. The market has changed to a bullish scenario after it could not break. The only reason I can clearly see is the weakness in the US $. As long as that continues the market probably cannot break dramatically. When, or if, the US $ strengthens the market should go back down and sharply. A break into the low $70’s, or high $60’s, is probable if we see the $ begin to rally. On the other hand, if dollar weakness continues to be the story we will see higher prices until the weakness finally reverses.

This week product prices rose causing the Gas Crack and 3:2:1 Crack to move higher. The 3:2:1 Crack Spread is above the breakeven price for refineries and this will support the Crude Oil as long as we hold here or higher. Crude Oil will be susceptible to price weakness if the Crack Spreads fail. The Heat Crack Spread dropped 9.82 cpg or 38% over the last 10 weeks as the Gas Crack dropped 27.02 cpg or 68% over the last 12 weeks. The 3:2:1 Crack lost 60% of its value in 10 weeks.

We may be low enough for now on the Crack Spreads but this will be determined by watching inventory and demand. The refiners are about at margins that are breakeven after 5 weeks of losing margins. A number of Refiners have shut down some operations but unless the spreads stay here or higher more will also have to go down. The break started the first week of August and they were making a profit of $7-$8 a barrel, now they are at breakeven and with a huge build up in inventory. Weakness from here in the Crack Spread should signal weakness in Crude Oil. If the 3:2:1 Crack Spread weakens Crude Oil could break severely. We have a lot of Distillate in Inventory and we have too little demand as of now. If we have a mild winter and the Crack Spreads collapse, Crude prices can go back down to $34. A cold winter with increasing demand and better margins will prevent that.

The Vol Price Indicator is at the top of its range for the 7^th week in a row, this is bullish. The % Total Count is 80%, rising and this is bullish. The other two Indicators are at 77% and 76%, both rising and this is bullish.

Heating Oil:

We jumped again this week closing at 207.56 cpg up 4.59 cpg. Heating Oil has showed strength over last 4 weeks. This week we generated a BUY SIGNAL but because of the HO Crack spread, we will use Crude Oil for the hedge. Fundamentally, I expect weakness to return, but as of now, the market looks strong. Currently the inventory is huge and demand is small. The Production levels remain too high versus the current demand. Frankly, the demand is simply pathetic. We have inventory 46 million barrels higher than a year ago. Demand remains in the lower 20% of the 10-year range for the last 27 weeks in a row, with production above the 50^th Percentile for 24 of the last 27 weeks. Eventually we will see a price problem and a large one if it does not change. Again this may not happen if the US $ remains weak. The facts and the price action continue not to agree, and there is no reason to argue with the price. The fundamental facts appear to be overwhelming negative, yet the price has been going up. The Crack Spread weakened this week but not by much. It must hold these levels, or go higher, or price problems will eventually develop. It all boils down to too much inventory, too much production and too little demand for finished product. This holds true if the US $ recovers more weakness will negate the facts for a while but probably not forever. I cannot see how weakness will not return in the weeks ahead but for now, we will not bet on it. Over the last 62 weeks, we have had only 4 weeks of year over year increases in usage. If Econ 101 is still valid, moving product will ultimately mean a price decrease. That is fine unless this is all the demand that there is. The only way to drop inventory may be a production cut, and a combination of the two will probably be the answer. At some point, it will become clear that if demand does not increase, with production dropping, we will simply not clear this huge inventory. If that plays out, we should expect a price collapse in the Heating Oil and in the HO Crack Spread. If that should happen, expect a decline of 50-75 cpg in Heating Oil and 15-20 cpg in the HO Crack Spread. Remember that this market ran up from 115 to 207 cpg and at the same time inventory built from 145 mm barrels to the all time record highs over 171 mm barrels. Thus, based on those facts, and terrible demand as of now, we can fall right back to where it began. We now have 25+ million barrels in inventory and we are up 92 cpg. If the demand function remains depressed, price will ultimately have a hard time maintaining these levels. When price does turn over the break could be very quick and very large. The Vol Price Indicator is at the top of its range for the 6^th week in a row, this is bullish. The % Total Count is 75%, rising and this is bullish. The other two Indicators are at 73% and 74%, one stable and one falling and this is neutral to bullish.

Tags: BlackGold, COMMODITY, ENERGY, GAS, LOGI, OIL, OIL PRICES, PEAK OIL

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September 23, 2009

Crude Oil:  This week we closed up $2.75 at $72.04. We have a Sell Signal as of now. The market has not been able to take out $75. Until it can take out $75, we should maintain a negative view on the market. It should have advanced to new highs in the upper $70’s, or low the $80’s, but it failed to do that. Upside momentum ran 26 weeks but has now turned negative and this bull market look to be over. As this market in Crude Oil stalled and broke the product prices have fallen more and that has caused the Crack Spreads to decrease dramatically. Crack Spreads ultimately determine the price for Crude Oil. With the Cracks now down at low levels the price picture for Crude Oil is poor. The Heat Crack, over 4 weeks, fell 68% from 25.81 to a low of 8.10 cpg and remains 3.17 cpg from the low. This is a very bad sign as we begin Heating Oil season. The Gas Crack has fallen 72% from its high of 36.22 cpg from 4 weeks ago. With the Crack Spreads weakening to this degree, and to these levels, we should expect the bid for Crude to weaken also. When the Crack Spreads break this much, and this quickly, what normally happens is that Crude Oil is very susceptible to price weakness. This is a bad scenario for the bulls to have to look at. Heating Oil must gain strength right now, with Gas season over, or the price for Crude can break sharply on any problems. If the HO Crack does not gain strength, the Crude Oil market will weaken and it can weaken very sharply on any more losses in the Crack Spreads. If this is a bear market, we will break under $67.50 and that will set up a test of the $59.52 swing low. If prices then fall below $59.52, we should head down to the $45 area or lower. There is a reasonable possibility, under certain circumstances, that we will test the lows at the $34 level. If this happens, the probable caused will be a mild winter. This will cause distillate demand to be unable to increase, by any significant amount, as Gas demand also drops. If this happens, product prices will probably decline more than Crude prices. Then the Crack Spreads will then collapse down to very low levels, probably down to the 0-5 cpg range or lower. That could cause the 3:2:1 Crack Spread to head down to 1.50 cpg, the all time low. That then will put Crude Oil at great risk of going into a total collapse mode. The refiners will drop the Crude Oil bids sharply and quickly to try to offset the price decreases in the products. It takes right around $5.00 a barrel, (12.50 cpg) to run a refinery at breakeven. The current margin on the 3:2:1 Crack is now 11.72 cpg, just about breakeven. Thus, Crude Oil is very vulnerable to any declines in the products. If the products start to break then the refiners must drop their bids quickly to maintain a breakeven at current rates. This can then cause us to enter a price scenario that is a race to the bottom. If products weaken sharply so will Crude Oil. Major weakness in price will pop up if demand does not improve for the products. Crude Oil inventory is 41,047,000 million barrels above last year. If we continue to process at the current high rate, we will have more than ample supplies. Currently we are exchanging Crude inventory for product inventory and creating a super glut. We have a huge shortage of demand, especially in Distillate. The Crack Spreads have collapsed, but production has not. We need the refining run rate down to 75%, this week it was 86.94%.

Tags: BlackGold, GAS, OIL, OIL PRICES, oil trading, peak

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Welcome to Black Gold the HedgeCo blog site about Energy and investing operated by logi Energy.  logi Energy is an investment management team that invests in the oil and gas sector in equities, options, futures, as well as on and off shore oil and gas fields and wells.  In this premier post, I’d like to tell you who we are and what we believe.  In other posts, other team members from logi Energy will provide detail and clarity to my mere words.  The basis of our investment approach is that peak oil has occurred in the world.  The world will never produce as much oil as it did in 2008 – ever again -.  Exploration has been conducted for over 130 years and every jungle, every desert, every mountain range, every rolling plain and every ocean site with potential to produce has been reviewed to identify where oil is.  As we look back at what the world has found over the decades, we now know that we’ve never found as much oil as we did in the 1960s.  Every decade since, we have discovered less and less oil. We are on track this decade to discover approximately 20% of what was discovered in the 1960s.  Today we use technology so sophisticated, it takes a PhD to refine the mathematics of the software processing the imagery. Complex engineering and deep mathematics are a hallmark of the oil industry.  Long gone are the days when geologists would lick the rocks taken from wells to identify pay zones for oil and gas.  We have technologies for finding, drilling, producing and improving oil production that allow us to very quickly identify opportunities and exploit them at a rate faster than we’ve ever been able to do.  Field after field, major region after major region, we have been applying these technologies to stretch out production well beyond original predictions.  These days our predictions are getting better and we are finding that even with the best of technology and nearly unlimited funding, we can’t stop major regions from peaking.  The latest unconstrained use of technology and money was the North Sea.  With no limitations in drilling or technology, it peaked in 1999 and today produces 70% of what it produced just 10 years ago.  The world is using oil at prolific rates.  Today we use six times the oil we used in 1950.  It is the most magical fluid in the world. One gallon of gasoline has the energy content of a man week of hard labor. Don’t believe me?  Assuming you get 32 miles per gallon on the highway like I do, how long would it take you to push your car 32 miles? A week? Longer?  Even more difficult, where could you get a week of hard labor for $2.85?  You can’t get that anywhere in the world.  The Egyptians used slaves to build their pyramids; the modern world uses liquid hydrocarbons. Some of us use our oil in more efficient ways than others. For the last 5 years, the third world citizen driving their moped has been impervious to price changes that have caused the economies of the OECD to cave in.  The summer of 2008 was the first of many price oscillations we will experience in the post Peak Oil world.  Prices will ascend until people can no longer afford the commodity, the demand dries up and prices drop letting the market rush back to the lower prices.  If it behaves like most other limited commodities, we can expect these oscillations to continue until the world transitions to other forms of energy for transportation.  Now knowing why and when the oscillations occur is our full time effort.  Check out our website at www.logipeakoil.com or contact us for details on how we do this.

BLACK GOLD posting  future

Tags: Bernanke, BlackGold, commercial real estate, COMMODITY, ENERGY, GAS, gold, Harvard Real Estate, hedge fund, LOGI, obama, OIL, OIL PRICES, PEAK OIL, President Barack Obama, Putting Money to Work, Real estate, Thomas J. Powell

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