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Old 08-28-2013, 11:25 AM   #1
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OIL

It started yesterday, with a guest on a news program saying with considerable conviction, that Crude Oil prices could go to as high as $150 to $200 per barrel.

It had to do with the Middle East, and the problems in Syria, Egypt and Libya... the Suez canal, and the pipelines (Sumed) (East Mediterannean) that cross these countries. (Suez Crisis 1956)

Overkill for sure, and so far, not really shaking up US concerns about the effect on the econmy... Just enough to get me to overthinking the effect on my retirement... Not war or anything like that, but initially, just the cost of Gasoline.
Maybe to $5 or even $7 per gallon. As I dug in a little further, like how many gallons of Gas in a Barrel of Crude?, that led to the other costs that would be affected by oil disruption.

First off, what comes out of a 42gallon barrel of Crude. Interesting stuff that I, for one, didn't know. Answer here:
http://lubinlib.typepad.com/index/files/petrochems.pdf

As of today, the price of West Texas Crude looks to be about $110, vs. $87 a year ago.

Next, the cost of energy in general... and what else could affect our out of pocket costs in the future. http://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3

So, yeah, oil doesn't account for much in the production of electricity, but the overlap of energy costs will be directly affected.

Tranportation of goods, aviation fuels, commutes, vacation travel, and per the first link... the increased cost of oil based materials for the goods listed...
all of these could be a tumbledown factor for costs.

This is not intended as a political or a scare post... what will be will be, but with time to think out possible ramifications, I look to my own financial situation, to see what it could mean to my lifestyle and pocketbook. Heating, cooling, auto fuel costs, increased food costs (transportation), and household goods. Probably not too serious, but something to consider.

Yes... we could be hit by a rogue comet, a plague, a crop failure, an uncontrollable epidemic, or an alien invasion. I don't think that problems with oil shortages really need a lot of discussion, but I have to admit that guy sure scared me.
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Old 08-28-2013, 01:25 PM   #2
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If you watch enough TV, you could probably find another expert that says the middle east problems are already factored into the price, and that crude is heading lower in the next few weeks as peak driving season comes to an end. I suspect prices might spike for a few days each time one of these issues come to a boil.

The US has relatively cheap energy prices and this is going to drive many more manufacturing jobs to US in the coming years. Cheap energy, more domestic oil/gas production, that is the theme that I would invest in for ER purposes.
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Old 08-28-2013, 01:41 PM   #3
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It's about to shut down, but check out the web site The Oil Drum. A lot more than you want to know about oil supply (or lack there of) on that site.

The short answer, we're heading for big trouble, but not tomorrow.
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Old 08-28-2013, 02:06 PM   #4
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The days when a domestic producer could pump another barrel of oil out of the ground at a marginal cost of $2-$4 are long over. (In the 70's when I worked for an oil company I remember the CEO telling us that the Saudi's marginal cost for another barrel was 25¢ on some of their wells.)

Even though the USA and our Canadian neighbors are in an energy boom, this is all higher cost oil, not the cheap stuff of decades ago. So, prices over $100 a barrel are probably realistic, but $250 seems high. It is also likely that government tax increases will also increase the price of oil products we buy.

The good news about the domestic oil and gas boom is that we will not be as vulnerable to foreign pressure as we were in the 70's and 80's. This is good as it may mean we will be less likely to get involved in the wars and political upheavals of oil producing countries. Of course, oil is fungible, so I may be wrong in this area. Still, cheaper (not cheap) and more abundant energy is a benefit that American industry is benefiting from today. And the Canadians aren't doing so bad either.
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Old 08-28-2013, 02:16 PM   #5
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Quote:
Originally Posted by Masquernom View Post
It's about to shut down, but check out the web site The Oil Drum. A lot more than you want to know about oil supply (or lack there of) on that site.

The short answer, we're heading for big trouble, but not tomorrow.
Interesting web site. If they are right we need a few dozen Elon Musks to drive some changes and for the politicians to get out of the way.
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Old 08-28-2013, 02:22 PM   #6
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I drive a prius, plan to put solar on my house (had it on our other house, then decided to move), and am putting in a small garden soon and try to eat local food when possible.

The possibility of oil prices going up isn't the sole reason I do these things, but it is factored in. Even if prices don't go up in my lifetime, I feel that oil is a limited resource, and see no reason to waste something that's a limited resource, when there are alternatives available that don't cost me more, and usually save me money.
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Old 08-28-2013, 03:19 PM   #7
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Since I was within 2 to 3 weeks of needing heating oil, I decided to order a delivery yesterday and I received it today. No sense paying more during a temporary spike.
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Old 08-28-2013, 03:39 PM   #8
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Based on my own past experiences a few years back, if I ever buy into oil and oil stocks again, SELL. SELL IT ALL.
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Old 08-28-2013, 03:57 PM   #9
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Syria's output is/was apparently 350K barrels per day. It is now down considerably. Syria is NOT a large producer by any stretch of the imagination.

One of Canada's oil sands companies, Suncor, does 350K barrels a day. There are several other companies with slightly less output. The cost is about $32CAD per barrel. This cost has been decreasing. Canada is estimated to have 1/3 or the world's oil reserves. The challenge, as always, is getting them out of the ground and in to a pipeline. A far cry from the $5. Saudi price tag.
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Old 08-28-2013, 04:38 PM   #10
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I still work in the oil patch as a contractor. I have no special insight due to any company connections, but I watch the industry casually.

World population is increasing, energy consumption is increasing and energy supplies are not keeping up and I do not think they can until we get commercial fusion, so O&G is one of my asset classes.

I started out with a Canada index fund for international balance, but I found it tracked Vanguard's energy index fund, so I moved there. Then I figured that maybe I could pick a few individual stocks in the sector and avoid all the dogs and crooks that are of necessity in an index fund. So, I wind up with a little Suncor, TransCanada Pipeline, Spectra Energy, Chevron and a few others. I have not always bought at the best price, but as it is an asset class I have been in for years, that should not matter. I have one dog, LNCO, but it is a small position and I will hold it on speculation that they will sort things out. At some point, I may just bag it and go back to 100% indexing, but this is my fun money.

I am probably over-weighted in O&G, but so far, so good. Oil prices have gone up and down (which has affected my employment), but over the long term, the only thing that could rain on my parade is practical fusion. We will see this coming a long time ahead and I will be delighted when it does arrive. If it does arrive.
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Old 08-28-2013, 07:36 PM   #11
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Originally Posted by Ed_The_Gypsy View Post
So, I wind up with a little Suncor, TransCanada Pipeline, Spectra Energy, Chevron and a few others. I have not always bought at the best price, but as it is an asset class I have been in for years, that should not matter.
I have some of these same ones. I bought SE right after it's spinoff. These stocks do not disappoint as long as you don't get carried away with either enthusiasm or despair- as you well know of course, but not everyone does.

I have always been overweight in O&G. Luckily I came mostly after the mid-80s crash, and paid not much when the outlook was thought to be very poor. Some of these have been turned over, but not all. Overall, I would be better off today if I had never sold one ever. Even when apparently bad things happen like all the gas in the Marcellus suddenly make some of Spectra's long haul pipeline look redundant, they do some creative things, reverse some pipes, send some NE gas back to potential LNG exporters.

Not going to be any garage startup start piping gas around the country.

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Old 08-28-2013, 08:02 PM   #12
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I haven't heard anything lately about the Keystone pipeline except that Canada is exploring the idea of taking the pipeline eastward to get to some large shipping port, maybe the St. Lawrence seaway. They may be sick of all the tree huggers down here always talking about the environment and how much it will be impacted by the pipeline. We keep kicking the can down the road but never get anywhere. I be interested in any late word about the pipeline in general.

Actually, we have a Prius and have more than doubled my mileage. I'm doing my part to help the environment.
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Old 08-28-2013, 08:52 PM   #13
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I haven't heard anything lately about the Keystone pipeline except that Canada is exploring the idea of taking the pipeline eastward to get to some large shipping port, maybe the St. Lawrence seaway. They may be sick of all the tree huggers down here always talking about the environment and how much it will be impacted by the pipeline. We keep kicking the can down the road but never get anywhere. I be interested in any late word about the pipeline in general.

Actually, we have a Prius and have more than doubled my mileage. I'm doing my part to help the environment.
My bet is on the shorter routes to BC's West Coast. Kinder Morgan has proposed one for Oil Sands product, from Hardisty to Vancouver. I feel certain there will also be LNG compression and export facilities built, probably farther north on the coast like Kitimat or Prince Rupert. There is a lot of gas with no obvious market in the Peace River area of Northeastern B.C., and a lot of demand in northeast Asia.

I have a modest position in one of the producers/leaseholders up there.

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Old 08-29-2013, 12:06 AM   #14
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I would not want to put money on the northern gateway oil pipeline to BC. The company behind it has a terrible reputation in the US and were cited as such in the Michigan pipeline rupture/cleanup. There are very significant environmental and aboriginal issues.

They have made some very serious blunders, actually out and out mis statements, in their PR campaign and have alienated many people who previously would be supporting it. I think the LNG chances are good. I think the proposed TransAlta pipeline to the east coast will get approval.

I know it's nuts but I suspect that there was a deal made around the F35 purchase and Keystone. F35 has been a political disaster in Canada-no tender, lacks key attributes, late and massive cost overruns, etc. Some are saying now that Canada's planned F35 purchase is dead in the water and will not happen.
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Old 08-29-2013, 03:16 AM   #15
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I thought about this and oil prices don't affect my day to day life much (Philippines). It is mostly just a small bit of inflation in the general economy due to slightly higher transport costs for producers.

Driving a motorbike, my monthly gas expenses are only about $25. Power generation in my region is all coal, natural gas, and renewable energy. I have no heating bill year around. I have an annual flight to the USA across the Pacific and it might add $100-$200 to the price of that plane ticket if oil prices really spike.
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Old 08-29-2013, 07:51 AM   #16
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I would not want to put money on the northern gateway oil pipeline to BC. The company behind it has a terrible reputation in the US and were cited as such in the Michigan pipeline rupture/cleanup. There are very significant environmental and aboriginal issues.

They have made some very serious blunders, actually out and out mis statements, in their PR campaign and have alienated many people who previously would be supporting it. I think the LNG chances are good. I think the proposed TransAlta pipeline to the east coast will get approval.
I side with brett on this one. The First Nations people in BC will not let a black oil pipeline go through their lands. Natural gas, yes. BC is a spiderweb of natural gas pipelines.

I still think there is a better than even chance for the Keystone XL, but it is not guaranteed. That bitumen is going to go somewhere, trust me. And rail has a big black eye. South to the border through friendly Alberta, crossing no provincial lines, seems like a fair bet. Eventually. Until then, my pipelines are delivering dividends today.
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Old 08-29-2013, 11:43 AM   #17
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Brett and Ed, thanks for your comments from the front.

Ha
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