Crossing the Rubicon
What does one do whilst passing the time in airports in places like Houston and Mexico City? In my case, I got caught up on my reading. One book I have been meaning to read for several weeks now is Crossing the Rubicon by Michael Ruppert (New Society Publishers, ISBN# 0-86571-540-8, www.newsociety.com).
A good portion of the book addresses the subject of Peak Oil, but it does so with a decidedly political twist. If you are not a believer in Peak Oil or if your political allegiances run deep, then it is probably best if you did not read this book. However, if you are like me and believe that we are entering the Peak Oil era and if you have no deep seated leanings toward any one political party then you will enjoy this read.
To give you a taste for what Crossing the Rubicon is all about, consider the this quote from Vice President Cheney's National Energy Policy of 2001 found in Chapter 1:
"America in the year 2001 faces the most serious energy shortage since the oil embargoes of the 1970's.
Estimates indicate that over the next 20 years, US oil consumption will increase by 33 percent, natural gas consumption by over 50 percent, and demand for electricity by 45 percent.
Yet we produce 39 percent less oil today than we did in 1970, leaving us ever more reliant on foreign suppliers. On our present course, America 20 years from now will import nearly two of every three barrels of oil - a condition of increased dependency on foreign powers that do not always have America's best interests at heart".
The political twist comes in the form of quotes such as this one from the Bulletin of Atomic Scientists, Jan-Feb 2004 also found in Chapter 1:
"China and India are building superhighways and automobile factories. Energy demand is expected to rise by about 50 percent over the next 20 years with about 40 percent of that demand to be supplied by petroleum. Oil supplies are finite and will soon be controlled by a handful of nations; the invasion of Iraq and the control of its supplies will do little to change that. One can only hope that an informed electorate and its principled representatives will realize that facts do matter and that nature - not military might - will soon dictate the ultimate availability of petroleum."
And so it goes as the author weaves and sews together his argument that Peak Oil is here and that the globe is essentially in a 3 way political race (USA, CHINA, RUSSIA) to see who will ultimately will control the planet's energy. I must admit, there were times in the book where I had to shake my head to restore some sense of normalcy to my brain. But then something very odd and I must say very timely occurred upon my return back to Canada. As I was driving home in my gas guzzling Jeep, I happened to be listening to an investigative journalist on the radio. The topic being discussed was the formation of a new body called AFRICOM. When I returned home, I did some searching on the Internet and found an interesting site at www.worlddefensereview.com that shed more light on the topic including this quote from President Bush:
I am pleased to announce my decision to create a Department of Defense Unified Combatant Command for Africa. I have directed the Secretary of Defense to stand up U.S. Africa Command by the end of fiscal year 2008. This new command will strengthen our security cooperation with Africa and create new opportunities to bolster the capabilities of our partners in Africa. Africa Command will enhance our efforts to bring peace and security to the people of Africa and promote our common goals of development, health, education, democracy, and economic growth in Africa."
The radio show host pulled no punches in her efforts to get to the bottom of AFRICOM. She was very quick to raise the subject of Peak Oil and the guest she was interviewing - journalist and UN spokesman Salim Lone - admitted that indeed the world is in a race for control over energy and with the USA obtaining 20 percent of its oil supplies from Nigeria and Angola at a time when China is also overtly forging economic relations with Nigeria and Angola, AFRICOM has everything to do with energy and very little to do with the greater good of Africa.
As this interview came to an end, my thoughts went back to Crossing the Rubicon and the authors' contention that the global powers are in a race for energy. Peak Oil is not any longer just a topic for idle discussion in academic circles. Peak Oil is no longer a theme to jazz up a newsletter. Peak Oil - dear readers - is real. With the establishment of bodies like AFRICOM, Peak Oil is clearly front and center on the political agenda in Washington power circles.
From here, I say the Peak Oil theme will take on real proportions. Countries will soon stop disguising their tactical efforts as exercises to bring democracy to the Middle East, for example. Or, as efforts to bring peace and security to the people of Africa, to re-iterate the Bush quote from above. Over the coming 10 years, I say tactical efforts will be plain for all to see. The quest for control of the planet's energy is in full swing. Your future lifestyle will hinge directly on the outcome of this quest. Brace yourself. Get set for a rough ride........
What Happened in Iran ?
Last week in a shortened version of Energy Central, I pointed out that Iranian President Ahmedinejad had come to power by essentially currying favor with the religious Mullahs who hold considerable political sway in Iran. However, once elected he began to deviate from his campaign platform and stir up controversy around the globe. As I posted last week's edition, Iran was still holding 15 British sailors and marines and British P.M. Tony Blair was pressing hard for their release with little apparent success. But, in the past 36 hours, this entire situation suddenly resolved itself with Tony Blair saying he had obtained the release of these sailors by taking a firm communications stand with Iran.
Well, Mr. Blair, I am sorry - but that just does not cut it. Something big went down in these negotiations. It is very out of character for a flamboyant figure like Ahmedinejad to quietly back away and offer up the release of 15 prisoners as an Easter gift to the people of Britain.
A threat of invasion perhaps? A threat of a strike against nuclear facilities? Nothing can remain a secret forever and I will make it my job to find out what happened across that negotiating table. The suspense continues. Stay tuned....
Crude Oil - Short Term
Sailors Released....Oil Eases Off
Last week I noted that Oil was technically overbought and pushing up against the ever important 200 day moving average. With this week's release of the 15 British sailors, Oil has eased off almost $2 a barrel. But, the prevailing trend does remain up, maintained so by inventory data concerns and concerns that all is not over and finished in Iran.
According to analysts in the Houston office of brokerage firm Raymond James... "...despite the release of the British soldiers, multiple international newspapers claim that the US has plans under way to attack Iranian nuclear facilities by the end of the month. Recall that nearly one quarter of the world's oil flows through the Strait of Hormuz near Iran, and the country is the second-largest producer of OPEC. Any confirmation of these potential attacks could send oil soaring to the levels experienced last summer." Scary stuff. Or is it, in light of what I have talked about in this week's opening comments.
Inventory data released this week showed Distillate stocks at 118 million barrels, unchanged from last week. Crude Oil in inventory rose by 4.3 million barrels but again Gasoline stocks suffered another drawdown of 5 million barrels. Part of this number of a correction to previous week's data but the conclusion remains inescapable. The big refiners simply cannot make enough gasoline as the nation heads into the summer driving season and the season of peak demand for gasoline.
Distillate inventory was also basically unchanged this week. We have drawn down into the 5 year range and are holding sideways.
How is this for a chart in a free-fall downwards? Refiners cannot keep up. The average retail price at the pumps is now $2.70. Do I hear $3.00?
Inventories remain above the 5 year trading range. With the dealings in Iran possibly not over and an attack on their nuclear facilities a possibility, oil traders are ignoring this data or so it would appear.
Natural Gas - Short Term
...and the Trend remains to the Upside...
As Oil corrected this week with the release of the British sailors, so too did Natural Gas prices. But, price action quickly found support at the 50 day moving average. This chart intrigues me and the upper line drawn in Pink shows why. On four occasions now, we have taken a run at the 200 day moving average. And on all occasions, we have failed to get above and stay above this very important moving average. Meanwhile, Nat Gas has been making higher bottoms for several months. The result is a very orderly wedge pattern - the type I so cherish as a trader. A moment of reckoning is approaching. This wedge will resolve itself one way or the other. Scientists are now claiming the Summer of 2007 will be all about La Nina weather patterns which will encourage Hurricane formation. If right, this will see this wedge resolve itself to the upside. If wrong, we could again see Nat Gas trade back in the $6 range. Watch closely. This is going to get very interesting.
Gas storage data released this week showed Gas in storage at 1569 Bcf, a an increase of 58 Bcf from last week. We are now something like 127 Bcf less in storage than where we were last year at this time.
Norway's Norsk Hydro ASA and US based Anadarko Petroleum will invest $2.5 billion over the next 3 years to develop the Peregrino heavy oil field off Brazil thought to contain up to 600 million barrels. This week I take a look at their respective charts.
With refiners seemingly struggling to keep up, I take a look at the charts of Valero Corp, Total SA and Frontier.
This week I also take a look at the charts of two very interesting Limited Partnerships offering attractive dividends.
Lastly I take a look at the charts of Goodrich Petroleum and Pioneer Natural Resources.
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Meridian is a covert figure who prefers to keep a rather anonymous low profile. But despite his low profile, Meridian has big picture insight and solid connections to some of the most influential personalities in the Canadian energy industry.
An Engineer by profession, Meridian spent many years in industry. After completing his MBA in 1999 from a recognized business school in Europe, Meridian bade farewell to industry and followed his passion to master the financial markets. He became an Investment Advisor with one of Canada's leading independent brokerage firms with a decided focus on energy and resource equities and commodities. The learning curve was steep and at times seemingly almost vertical. But Meridian was determined to succeed. And succeed he has. No more mind-numbing newspaper columnists and no more talking heads on television. After several years of pouring over piles of financial statements and studying charts and technical indicators until nearly dizzy, Meridian has refined an approach to trading and investing that involves a unique blend of both the fundamental and the technical. It is this approach and insight that Meridian now seeks to share with those who subscribe to Energy Central.
Meridian recently left the brokerage industry and now consults to the resource sector and writes full time for www.themarkettraders.com.