$12 a gallon of gasoline: the real scare

Written by Michael Vass

**This post can also be seen at Crude Oil Futures Blog **

Here we go, the polispeak is in full force. Senator Obama has suddenly realized that Iran affects the price of oil. In fact he has been advised, recently one would assume, of the following:

Now let’s ignore the fact that both the Democrats and Republicans share equally in the lack of alternative energy sources for America in the past 40 years. Neither side can point a finger as ultimately both sides failed the American people on this issue, multiple times.

Rather I want to focus on a scenario.

Senator Obama has made it clear time and again that he wants to speak with Iran. Let’s say he is President (which is not all bad) and he does speak with Iran. Say the meeting goes ok, or so we are lead to believe. They promise not to create any (more) nuclear weapons. And then they go out and “shut down the Straight of Hormus”.

What does President Obama do? Speak with them more? What argument or negotiation can he make that is better than the, at least, $300 a barrel price of oil in the mere first minutes of the blockade? What would be better than the probable $500 a barrel price that would come easily in the first day?

Considering that Senator Obama has repeatedly stated that a strong offense, ie military, is not the means he would use first – and/or possibly ever – what recourse does he have?

Well Democrats have said that higher oil and gasoline prices are good. Because they will force America off of oil. That we need to use alternative energy. So the thought of $12 a gallon for gasoline must be thrilling to them.

Of course if this is true then you have to wonder if President Obama would say anything to Iran. Or if he could say anything that he felt was better than having higher oil prices.

At the same time remember this. If oil suddenly went to $300, heating oil 3x overnight. Gasoline goes to $12 and people will horde it in a manner that would make the 1970 look like a vacation. Millions would not be able to heat or cool their homes. Tens of thousands of businesses would close overnight. Unemployment would rocket past the levels last seen during the President Carter Administration. The cost of every good in America, or sold overseas, would be so high that a gallon of milk would cost like buying printer ink cartridges today.

So while Senator Obama is trying to use Iran as a scare, and a source of blame only on Republicans, remember the facts.

Democrats are as much to blame as anyone. Democrats want oil prices higher. Obama wants to talk to Iran. Obama does not like to use the military (even in the case of a 9/11 type of incident).

Diplomacy while businesses shut down, cost of everything skyrockets, and people freeze. That’s a really great plan. And every American will he stateside to experience every second of it.

Oil shale: questions and opportunity

This is a repost which can be originally found at Mining Stocks Blog

Written by Michael Vass

As I write this President Bush is expected to discuss offshore oil drilling in America, and the opportunity of Oil Shale mining. In recent years I have heard a lot about oil shale and its mining, but I really didn’t know anything about it. Like most I expect the thought of oil shale made me think of a rock that is filled or comprised of oil. That is not the case.

Oil shale is a fine grain rack filled with kerogen. In heating the oil shale a gas from the kerogen is released which can be used in heating homes and creating power, or the gas can be cooled to create a synthetic petroleum-like oil. The use of that oil is similar to the uses for crude oil, but they are not the same thing.

How much oil shale is there, and is anyone using it? Those are the next questions I had. The answer may well surprise you as it surprised me. There is estimated to be 3 trillion barrels of oil equivalent of oil shale in the world. The United States is one of the major sources of deposits in the world with 1.8 trillion barrels equivalent under Colorado, Wyoming, and Utah. This is in comparison to the 267 billion barrels of oil estimated in Saudi Arabia (as of 2006). And currently first world and emerging nations including Germany, Russia, China, Israel, Brazil, and Estonia all have varying degrees of oil shale industries producing energy and fuel. Who knew.

Now consider this, mining companies - such as BHP Billiton, Anglo American, Kazakhmys, Vedanta Resources, Xstrata – and oil companies have been having a strong year as energy is on the forefront of political and investment minds. With the rise in speculation of crude oil prices, rising gasoline and home heating oil prices, and calls for alternative energy sources oil shale stands to be more actively in the public domain than ever before.

Now since there is no oil shale market (yet) and given that mining shale is a very different process from drilling for oil, I would imagine that several oil companies will be looking for acquisitions and joint-venture deals with mining companies that have the ability and experience in this field. Schlumberger, Shell, EnCana, Chattanooga Corp, Fushun Mining Group, Tosco Corporation, Petrobras, Viru Keemia Gripp are just a few involved in some aspect or projects with oil shale. I doubt that the number of companies will decrease in the coming years.

Opportunity abounds for the investor and individual that seeks it. How you take advantage of this potential is up to you. But I would expect that oil shale will become a greater factor in at least American energy future plans than ever before.

America & oil: 70’s embargo or 2010 bounty

Written by Michael Vass

How bad is the energy situation in America? We all are aware of the increases in the price of oil in the past couple of years. In fact there has been a massive amount of attention to every rise and fall of the price per barrel. That attention has of course translated into greater speculation fueling great price fluctuations, happier members of OPEC, richer brokers, and tighter margins for virtually every type of business in America.

But how bad is it? Does this compare to say the 1970’s and that oil disaster? Actually very well. In fact there is virtually no comparison. From 1970 to 1980 the price of oil went up 1566%. Again that was an increase of 15x in 10 years or 1.5x every year for that decade. In the past 10 years oil has increased a mere 300% or 3x counting today’s high.

So what other factors have been involved in the run up between then and now? Considering the fact that oil consumption in America has increased 21% since 1980 alone (I couldn’t find data since 1970). Of course that is 28 years or .75% a year. So that does not explain the price increase, especially when you consider that the price of oil only increased 33% from 1980 to 1990. So there must be another reason.

Perhaps it’s the fact that there is a limited supply of oil in the world. Knowing this, and the fact that the Middle East has no other major exportable good, it makes sense that as demand continues to be steady or increase the price will rise. But that still does not explain the recent dramatic (moreso due to media influence) increase.

Until you look at speculation. In the 1970’s perhaps 15%, maybe 20%, of the nation was involved actively with the stock market. In the 1980’s there was a huge increase in trading of everything, backed up with a healthy helping of movies from Hollywood fueling interest (recall Trading Places, Wall Street, Other People’s Money). As a result the investing populace doubled. Then with the tech bubble we saw the numbers swell to around 60-70%.

As these numbers swelled, more and more people became aware of alternative investment vehicles. Commodity trading along with spot trading became the new penny stocks. With an upfront cap of only 5% of the total investment oil was primed to run as the housing market had its bubble burst. And here we are today.

The only other major factor has been the fact that since the 1970’s neither Republicans or Democrats have done anything about America’s energy needs beyond polispeak. Every administration has talked about alternative energy sources, and funded no research. Each decade has passed without increases in domestic drilling while OPEC made more money. As the years passed the number of oil refineries has dropped to roughly half as many in operation today as in 1970. And speculators made money.

Why is America in an oil shock, and complaining about gasoline prices (which have had a fractional increase in price as compared to oil) – not to mention soon to be reeling from home heating oil prices? Because we have politicians that have been more concerned with fueling special interest groups (eco fanatics and oil companies alike) rather than the average American.

So what is our answer? What are we the people going to do? We can either sit back and accept yet more polispeak about creating advances while ethanol kills the Gulf of Mexico and sits unused in the 5 states that actually have it available to the public or we can get real change. We can either leave domestic oil sources untapped and penalize our economy or use oil and fund research for other sources. We can either do something or suffer the consequences of inaction and polispeak promises.

That is the choice in front of us. Every other option is just a stopgap answer that will placate anyone with a short memory and nothing else. Because the energy situation in America is hardly bad…yet. But soon it will be a real crisis, and one that will give this generation and the next an understanding of the 1970’s that will make them pray for alternative day fuel lines.

Will Oil Prices Create a Tech Wreck?

It seems like oil prices go up each day and yet, we haven’t seen the tech wreck of 2008. However, Sandisk’s CEO told a group of analysts that consumer electronics sales were soft in April. CEO Eli Harari caused a real stir on Wall Street when he mentioned energy prices in the same sentence as consumers.