Oil prices: Two contrasting views

On one hand, Charles Maxwell, who started as an energy securities analyst in 1968 says:

• We will see $300 a barrel -- or roughly $250 in today's dollars -- because oil supply will be so short. ...That will be in 2015, after the peak of oil [supply]. But even earlier, around 2010, more than 50% of the non-OPEC world will have peaked in its production of oil so the dependence on OPEC will become extreme.
• "Oil is unique in that when it begins to disappear, there really aren't any good substitutes, which there are for so many other commodities, It's that lack of substitutes that forces the pricing mechanism to balance supply and demand."
• [What's on the horizon over the next two years?] Supply and demand will be equal temporarily. There are three or four Saudi oil fields coming on stream, but there won't be any more low-sulfur crude fields coming on after the end of 2010. There's also the recession, which takes away some demand, but oil prices will remain high.
  

On the other hand, oil production may surge by 2015:

• The Gulf could deliver an extra 10 million barrels of crude oil per day by 2015, with investment of almost $300 billion in boosting oil production currently underway
  
• "Our analysis shows that if all current projects across the region meet their projected targets in barrels of oil a day, it would mean that by 2015 the hydrocarbon-rich countries of the GCC will be supplying more than half of that future added oil capacity of 21 million barrels...".
• Interesting that the 2015 date is similar to the one predicted by Jim Rogers.
  

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No one knows, so no point trying to predict the future. Just follow the trend, though this is easier said than done....

Oil prices

Some notes on commodity and oil prices, mostly from Jim Roger's "Hot Commodities":

On Commodity markets:

• Historically, commodity bull markets have lasted an average of 18 years. The last one started 1999.
• Commodity bull markets are bad for stock markets. The last stock market bull run started in 1982, and probably ended 2001.
  
• So we are probably halfway through the current commodity bull market. If this is true, I expect the stock market to stagnate in the next 5-8 years. e.g.: Brief 'mini-rallies' of 1-2 years, whose gains are lost in the subsequent declines.
• During a commodity bull market, retracements of 40-50% are common.
  

On Oil:

• It takes 8-9 years to bring newly discovered oil supplies to market. North Sea and Alskan oil were discovered in '69 and 68 respectively, and both shipped in '77.
  
• 1998 was a trough in oil prices ($10), by 2006 it was $70. As an estimate, the current oil bull market may end in 2015 to 2018.
• We will know when the bull market ends when:
• Higher prices causes long-term changes in consumer behavior to decrease demand. This may be starting to happen now: eg: MRT usage increasing, Americans driving less, China and M'sia cut oil subsidies, Americans debate nuclear power.
  
• New oil comes to the market. eg: Recent Brazil 5-8 billion-barrel Tupi oil field. Iraq mabye (used to produce 2.5m bpd). To judge the size of oil finds: The world used 87m bpd in 2007.
• The wildcard is Saudi Arabia. Most of their oil production is from ghawar oil field. No one knows the size of their reserves (Satellite O'er the Desert). Or even if they will still want to sell it if they have a change of government: 15 of the 19 Sept 11 terrorists were Saudis.
  

Cut loss #3

On Mon 25th, sold Boustead at $1.11 (pre-split $2.22). This trade lost me $770.

Total losses from this misadventure (excludes pfood) are $4515, including brokerage.

Back to doing nothing....

Its very important to take losses as quickly as possible. And not let it get to you. In a bear market, my number one aim is to preserve capital. I am waiting for either:

• the market to turn (which could be any time from now to 12 months later), or else
  
• for stocks to become so undervalued that they are a screaming buy (like in the Asian crisis or SARS). With the exception of pfood, I do not see great quality companies trading at bargain prices. There is no blood on the street yet. Maybe if we get a recession....

Back to doing nothing.....


Cat photo from http://www.freephotos.se

"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing,unless there is something to do. Most people always have to be playing; they always have to be doing something. They can't just sit there and wait for something new to develop. I wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, 'I just lost my money, now I have to do something to make it back.' No, you don't. You should sit there until you find something."

Jim Rogers

Cut loss #2

On 21st Aug, sold everything except pfood (long term investment) and boustead (still waiting to confirm if the split shares are debited into my acct):

• HI-P at 57c (loss $465)
  
• Sp Chem at 57.429c (loss $-640)
  
• Oceanus at 39.5c (loss -$720)
  

Total realised loss (incl. Venture, excl Boustead and pfood) is -$3745.

I was hoping for a tradeable rally like the Mar-May one, but we don't seem to be getting it. In the US, we have:

• Too many distribution days at the start of the rally (4 in one month)
  
• No clear leadership in sectors. One day financials are rallying, other days energy, other days tech.
• Failed breakouts.

In Singapore we have a continual sea of red as the STI broke through the 2800 level, and has not even made an attempted rebound.

Pfood 1Q08 results

Released on 12th Aug: quarterly profits up 160%, due to rising sales (up 20%) and lower COGS (up only 11%). A massive increase in gross margin (from 76m to 256m) has more than made up for other issues:

• higher selling costs (up from 35 to 52m)
  
• lower contributions from Pine Agritech (53m to 23m)
  
• Higher tax rate
  

Management comments: "The nationwide supply shortage of live pigs is expected to continue to ease".

Cut loss #1

Sold Venture. At 9.10 it has cut through all support levels like a knife thru butter. Lost $1920 (incl brokerage).

Expect to cut more losses in future.