Katrina, A Southern Blow Hard
A naybob of simian nature has sent me an advisory that much of the US oil production infrastructure is in the path of Category 5 Katrina and that oil prices could skyrocket. His advice is to go short on the market and long on energy.
In previous postings we hold pretty much the same position, but due to the rapid escalation of oil prices, there may be a few changes to our position.
Part of my repIy was posted on 05/20/05 in Market Soapbox: "...we could be close to a tradable market bottom. Time to start sniffing around for value. The next 3 weeks would be a good time to follow George Soros queue, dump trendy tech & old guard stocks, then slowly build a base with energy stocks..."
"oil futures selloff continues but the energy sector has diverged. Even though oil prices may go as low as $42, (it made it to $46) the oil companies have a license to print money all the way down to $30"
"oil stocks do not reflect the earnings potential, the energy sector is underpriced. Oil sands, coal, canroys (Canadian Royalty Trusts) and oil transports will all be steadfast as long as the sisters rule the roost."
The rest of my reply now follows...
I am well aware of the Texas - Lousisana areas oil infrastructure and Strategic Petroleum Reserve, if not the Suez Canal, this is where I have predicted terrorists will strike someday.
Hurricanes have a season, this implies they come every year, and have done so. The only thing to change is that last year and this year, the media has used this fact to spook the herd.
Katrina is another in a series of boogeymen to spook the oil herd...of recent, volume of oil pumped is up and consumption is down, while the price has gone from $9 to $68 a barrel, so much for supply & demand.
In other postings, through logical discussion of the facts, we have summarily dismissed the canard called peak oil, as it does not exist. To figure out the game, all one need do is follow the money, the hedges, speculators, Saudi's and oil companies themselves are all parked LONG in oil options & futures. Nuff said.
Only 4 things can derail oil prices, 1st a very strong dollar; 2nd a global economic slowdown. 3rd a global pandemic would also have the same effect due to the resulting economic slowdown, travel restrictions and people becoming afraid to travel.
The 4th thing is a new energy source and we know that that Genie is not coming out of the bottle in our lifetime. Diesel is $3.15 a gallon in California, a diesel can run on almost anything, including used frying oil used to fry french fries, McDonalds and other fast food operations could supply the nations diesel, case closed on "peak oil".
2 things could increase oil drastically on a temporary basis, bombing Iran or a major terrorist attack on oil infrastructure somewhere in the world.
As far as going long on energy, just because the oil price goes up, doesn't mean profit goes up. In fact, profit margins for the major integrateds may start to shrink as the inputs cost more, refining limitations are hit and consumption starts to drop.
Pumping & pipeline infrastructure is a safe play. With shipping rates dropping due to a whole new fleet coming on line, tankers have a limited window of 18 - 24 months at this point. Refinery equipment or refining process is good for at least 3 years due to the ramp up on newer oil company refining projects.
Bottom line: SELECT canroys, utilities, energy, oil and natural gas equities will continue to perform well.
Housing and energy costs have never been higher on a non inflation adjusted basis. This is a two headed monster which will choke off the economy slowly on a worldwide basis.
One or both of the heads will have to be chopped off at some point, which one do you think will get the axe? I think energy will get squeezed before housing.
Housing comprises too much of the economic growth in the existing economies worldwide. That squeeze is going to be slow, long and painful.
In previous postings we hold pretty much the same position, but due to the rapid escalation of oil prices, there may be a few changes to our position.
Part of my repIy was posted on 05/20/05 in Market Soapbox: "...we could be close to a tradable market bottom. Time to start sniffing around for value. The next 3 weeks would be a good time to follow George Soros queue, dump trendy tech & old guard stocks, then slowly build a base with energy stocks..."
"oil futures selloff continues but the energy sector has diverged. Even though oil prices may go as low as $42, (it made it to $46) the oil companies have a license to print money all the way down to $30"
"oil stocks do not reflect the earnings potential, the energy sector is underpriced. Oil sands, coal, canroys (Canadian Royalty Trusts) and oil transports will all be steadfast as long as the sisters rule the roost."
The rest of my reply now follows...
I am well aware of the Texas - Lousisana areas oil infrastructure and Strategic Petroleum Reserve, if not the Suez Canal, this is where I have predicted terrorists will strike someday.
Hurricanes have a season, this implies they come every year, and have done so. The only thing to change is that last year and this year, the media has used this fact to spook the herd.
Katrina is another in a series of boogeymen to spook the oil herd...of recent, volume of oil pumped is up and consumption is down, while the price has gone from $9 to $68 a barrel, so much for supply & demand.
In other postings, through logical discussion of the facts, we have summarily dismissed the canard called peak oil, as it does not exist. To figure out the game, all one need do is follow the money, the hedges, speculators, Saudi's and oil companies themselves are all parked LONG in oil options & futures. Nuff said.
Only 4 things can derail oil prices, 1st a very strong dollar; 2nd a global economic slowdown. 3rd a global pandemic would also have the same effect due to the resulting economic slowdown, travel restrictions and people becoming afraid to travel.
The 4th thing is a new energy source and we know that that Genie is not coming out of the bottle in our lifetime. Diesel is $3.15 a gallon in California, a diesel can run on almost anything, including used frying oil used to fry french fries, McDonalds and other fast food operations could supply the nations diesel, case closed on "peak oil".
2 things could increase oil drastically on a temporary basis, bombing Iran or a major terrorist attack on oil infrastructure somewhere in the world.
As far as going long on energy, just because the oil price goes up, doesn't mean profit goes up. In fact, profit margins for the major integrateds may start to shrink as the inputs cost more, refining limitations are hit and consumption starts to drop.
Pumping & pipeline infrastructure is a safe play. With shipping rates dropping due to a whole new fleet coming on line, tankers have a limited window of 18 - 24 months at this point. Refinery equipment or refining process is good for at least 3 years due to the ramp up on newer oil company refining projects.
Bottom line: SELECT canroys, utilities, energy, oil and natural gas equities will continue to perform well.
Housing and energy costs have never been higher on a non inflation adjusted basis. This is a two headed monster which will choke off the economy slowly on a worldwide basis.
One or both of the heads will have to be chopped off at some point, which one do you think will get the axe? I think energy will get squeezed before housing.
Housing comprises too much of the economic growth in the existing economies worldwide. That squeeze is going to be slow, long and painful.
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