Will Oil Keep Rising? How can you Protect Yourself?

From a macroscopic view yes, a finite resource will eventually disappear from the face of the earth and in that process while mankind is adapting to other fuel sources the price of this resource will increase. In the short term, the price of oil is largely dependent on what unfolds in the Middle East. Libya has been the main reason why oil has been experiencing these recent price spikes, although spikes can hardly be used to describe a price that has not yet receded. If Libya remains in a civil war Saudi Arabia is offering to increase production, although with the way the protests are spreading it is likely that more oil bearing countries will start to ferment unrest at being ruled by tyrants and dictators.

I wouldn’t bet too heavily on the oil price receding soon, unless an end in conflict in Libya parallels in increase in production from Saudi Arabia which would be two factors to lower the price. It is better, in my opinion, to be hedging ones bets. If you drive a car and spend lots on oil then you might consider (once the price of oil goes back down) buying oil futures or if you’re feeling adventurous oil ETFs such as UCO. UCO (ProShares Ultra DJ-UBS Crude Oil) aims to reflect twice the percentage increase or decrease of the price of oil. If you are planning on going on a long distance trip in the future that requires oil (either driving or flying) you might consider buying a substantial amount of oil related securities so that if the oil price fly’s you will also be able to.

Why Oil Will Skyrocket

The oil price is set to skyrocket, provided things keep going the way they are. In particular, the situation in Egypt where the government is cracking down on civilians and even shutting down all communications including internet and phone services means that there is a possibility that oil production from the region may become unstable along with transport through the Suez Canal.

Add onto this the ever increasing demand in the east coupled with the finite reserves, unless a great new energy technology is discovered relatively soon oil will soon become a luxury resource.

BP Putting Money on Advertising, PR

BP is spending millions of dollars as of late in advertising it’s oil spill response to the world (see examples below). You’ve probably already seen an ad on Google search, YouTube, and even Facebook! What few people know is that generally speaking, each ad that is clicked corresponds to a few dollars of money BP is spending just so you will view their one-sided opinion on their involvement/ responsibility for the crisis and an overblown picture of how they are helping people out.

My suggestion to BP is the following: Cease the advertising, we’ve seen you enough on television already. Stop trying to play us like fools, hiring hundreds of temporary workers for Obama’s visit to the gulf and dismissing them just hours after he leaves for good. Do not belittle our people or underestimate our intelligence, and most of all stop the oil from leaking and pay back in full all those who you have hurt or destroyed through your reckless actions over the years of your existence. Do not try to pull another stupid trick such as dumping oil dispersants into the gulf – making the oil cleanup impossible while spreading toxic oil and dispersant miles underwater where it can do it’s damage to another realm of the aquatic ecosystem (increasing toxic hydrocarbon levels in fish and destroying their eggs). Yes, we can’t see it on the top of the gulf with a satellite but we know its there and underwater readings after their use indicate a larger oil concentration than if the oil naturally floats to the top.

Rep. Joe Barton Brings Out The Worst In Political Slavery to Oil Lobbyists

Just recently Representative Joe Barton gave a heartfelt apology to BP for the US government’s treatment of the company after the worst environmental disaster of the century. He made sure to remind his campaign contributors (oil companies have legally financed Mr. Barton’s campaigns over the years for $1,400,000) that he was still on their side, and still going to fight for the ones with deep pockets instead of the common man being choked to death by the killing force of toxic waste being spread around a large portion of our country’s coastline. Watching the video below you will find a man who is totally and utterly delusional and loyal not to his country but his pockets and those of his oil producing buddies.

While referencing a ‘due processes’, he is simply saying “lets let lawyers and judges decide who gets money, and since there will be a huge backlog BP will end up owing less and less as people get frustrated from not getting any attention about their financial despair and shift into silence. Oh by the way how about some more ‘campaign contributions’ BP?”

It is such insensitivity towards the common man, and such gracious behavior towards a gigantic and profitable company such as BP that really damages both the man and his party. He called the negotiations for reparations for victims of the BP oil disaster itself a ‘tragedy of the first proportion’, intimating that the US was in some way ‘bullying’ the giant oil company…

Historically speaking, this is not the case – BP has a history of devious and underhanded behaviour that extended beyond ignorance and into actively subverting safety checks and regulations to safe money, and historically paying off whatever repercussions these careless behaviors. Examples included a 200,000 gallon oil spill in Alaska’s north shore due to pipes out of maintenance , a Texas refinery explosion that killed 15 and last year a fine for not improving the safety standards of that very same plant. Worst of all, there are a multitude of former employees who say BP discouraged them from accurately reporting on inspection reports in order to save money using older equipment. Who knows whether this is an industry-wide phenomenon, if so then shame on all of them and let this be a major lesson in how mitigating a disaster starts with preventative action.

Let us also hope this teaches our government to apply the same rules which apply to small businesses and individuals. As Christopher Hayes from ‘The Nation’ put it,

Punitive damages are capped for corporations, while punitive policies proliferate for citizens. This tears the social contract apart, and the only way to repair it is to apply the same principles of accountability up and down the social hierarchy. We should start with BP.

Shall BP Pollute the Air or Water with Excess Oil?

Burning Iraqi oil wells during Gulf War

BP is planning on burning 10,000 barrels of oil per day with a second ship on it’s way to the extraction zone to tap into the underwater geyser. This will keep the same amount of oil from spreading in the ocean, and in the process create a huge plume of air pollution in the Gulf that will suffocate and intoxicate workers’ lungs for miles around. Of course this is the cheapest solution to the logistics problem of processing the excess oil, and has tentatively been approved by the coast guard (the organization largely in charge of managing the government’s interaction with the oil company). Already 90,000 barrels of oil have been burned since the Deepwater Horizon exploded on April 20, 2010, and BP’s future plan is to cut down on the burning as processing capacity increases.

It is interesting to look at the share price of BP since right before the incident. (See below)

BP Stock Price

BP Stock Price after rig explosion and following spill

Why Now is the Best Time Ever to Buy Oil

Oil, the fuel for automobiles, boats, power plants, etc. has recently encountered a major hit to its price. This may or may not be caused by the oil spill in the gulf or the heavier restrictions the US government is planning on making on oil companies. This event could also have been a result of a weaker economy, Greek and Spanish troubles etc.

However, in the grand scheme of things this recent buildup in stockpiles and decrease in price may prove to be a great time to invest heavily into oil futures or even doubling down into double-long oil ETFs. Currently the price of oil futures is $73.69, up today 1.53% after favorable US housing data came out. My estimate is that oil will reach $90 by the end of this year, meaning a 44% increase for the double-longs or 22% for the simple long position.

The gulf oil spill will only help the price of oil, as it is restricting US off-sea drilling. The only scenario in which oil will further decline is if the economies of the world, chiefly China and the US, slow down.

World Nearing Peak Oil – Eventually Peak Water

While it is still the most economical way to fuel our energy needs as humans, fossil fuels especially crude oil is witnessing it’s peak production days. The Hubbert peak theory, which proved very accurate when applied to both US and Norwegian oil discovery and production rates, predicted that the world would reach peak production almost ten years ago. He also added a caveat which stated that if OPEC purposefully lowered it’s production, which it has done in the past, that peak production could be extended to around ten years later. Well, in a few months it will have been exactly ten years later, and thanks to technologies such as Google Earth, we now know that Saudi Arabia is in its last throes of full production capacity.

oil_pipeline

While fresh oil wells do not need water to be injected to extract oil, a secondary oil recovery method indicates that Saudi Arabia is nearing it’s peak production. Water, which is very scarce in Saudi Arabia, costs relatively little as much of the water is subsidized by the government and the Saudi government puts around 2 billion USD per year into water and irrigation. This amounts to around $80 USD per person per year in the country. Saudi Arabia drills for water just like it drills for oil, as much of it’s water supply is from non-renewable groundwater from the deep aquifers.

secondary_recovery

Pictured above is a form of secondary recovery, basically flooding the oil well around the extraction point forcing the oil to the middle. Pictured below are some Saudi farms courtesy of satellite images from Google Earth.

saudi_farms

While the US witnessed it’s peak oil in the 1970′s, it wouldn’t be too far fetched to anticipate world peak oil along with Saudi Peak oil in the next few years. World oil consumption has been given much attention over the last thirty years, yet world water consumption has been following the same trend and has quadrupled in the last 50 years just like oil. Unlike oil, water is a renewable resource and returns every year in the form of precipitation. However, along with global warming the world’s glacier sizes are getting visibility smaller, forcing many countries to buy water from other countries. A 2006 study has predicted that the Alps glaciers will be gone by 2050 and on average about 3 percent of Alpine glacial ice is lost each year. Chacaltaya, a mountain range in Bolivia which boasted a glacier for 18,000 years, has since early 2009 been barren. Below is a photo of the mountain in 2002.

Chacaltaya

Chacaltaya

It is hard to doubt with these concrete pieces of evidence that the sources of easily obtained fresh water are fast disappearing.  Chacaltaya, which had undergone a 80% reduction in size from 1987 to 2007, used to be Bolivia’s only skiing resort. Now Bolivia has none.

Once oil is gone, much of the world will resort to burning coal for its energy needs, if left unchecked the soot and carbon emitted by these power plants will further harm the planet and its water resources.

Photo Credits

Secondary Recovery

http://www.britannica.com/EBchecked/topic/1357080/petroleum-production/81768/Secondary-recovery-injection-of-gas-or-water

Is Gold Overvalued?

Gold is currently trading at around $1040 per ounce, meaning a mere three gold coins will get you a decent used car. Only one gold coin will get you a shiny new state of the art PC, and just 100 ounces of gold will get you a nice house in the suburbs (depending of course where you live). So is it too far fetched to say that gold is overvalued?

The rate of gold production is much different than that of oil, as it has been increasing steadily for the past 100 years while some experts warn of ‘peak oil’, or the soon to be realized time of worldwide peak oil production and the eventual inevitable decline in oil production.

woldgoldproduction

One can also look at the US gold production and notice a sharp increase and contrast this with the decrease in production of oil.

US gold production

US Oil Production

US Oil Production

Resources:

Recent Gold Production

http://minerals.usgs.gov/ds/2005/140/

Historical Gold Production

US Census Bureau (1960) Historical Statistics of the United States, p.371.

Leaked Papers Reveal Lockerbie Bomber Released for Oil Deal with Libya

Commercial considerations were the driving force behind the ‘deal’ to free terrorist bomber Abdelbaset Ali Mohmed al-Megrahi, leaked papers from Jack Straw, the justice secretary, to Kenny MacAskill, his counterpart in Scotland who took the stance to make and defend the decision. These leaks will most likely infuriate those who were already disgusted with the move, and probably invoke retaliatory responses from the United States, who lost the most citizens on flight Pan Am 103.

According to Times Online [1],

Edward Davey, the Liberal Democrat foreign affairs spokesman, said: “This is the strongest evidence yet that the British government has been involved for a long time in talks over al-Megrahi in which commercial considerations have been central to their thinking.”

His account is confirmed by other sources. Sir Richard Dalton, a former British ambassador to Libya and a board member of the Libyan British Business Council, said: “Nobody doubted Libya wanted BP and BP was confident its commitment would go through. But the timing of the final authority to spend real money was dependent on politics.”

Bob Monetti of New Jersey, whose son Rick was among the victims of the 1988 bombing, said: “It’s always been about business.”

A sad and chilling reality, as one of the world’s worst muderers is released on “compassionate grounds” and business deals with Libya begin, with BP standing to gain the most from these lucrative oil deals.

[1] Lockerbie bomber ‘set free for oil’

Palin Accuses Obama of Hijacking Energy Supply

Recently Sarah Palin, who recently announced her voluntary resignation by the end of this month, has slammed Obama for hijacking the security of our energy supply in considering imposing cap-and-trade measures on businesses (in essence the limiting of carbon emissions) in a Washington Post article.

She argued that “domestic” solutions are the best way to deal with the energy crisis, such as building of a pipeline from Alaska. She also said that every state can consider nuclear energy, and that Obama’s plan would “outsource [our energy supply and its environmental impact] to China, Russia and Saudi Arabia”. Obama, on the other hand, feels that America should be at the forefront of the green revolution, and also mentioned other countries in his first address to Congress, “We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet it is China that has launched the largest effort in history to make their economy energy efficient.”

Palin wrote that the carbon caps would put more burden on the poor in the form of higher energy bills. She ardently supported drilling in ANWR, below is a quote:

We can safely drill for U.S. oil offshore and in a tiny, 2,000-acre corner of the Arctic National Wildlife Refuge if ever given the go-ahead by Washington bureaucrats.

Palin, while making some good points in regards to how cap-and-trade would negatively affect businesses, especially those polluting industries that use oil and oil based products, seems blind to the ultimate goal of preserving the environment by decreasing oil consumption and allowing animals that small section of land that was set aside for their protection. She also is in a bad position of lecturing the President after suddenly announcing that she will be resigning at the end of this month. Formerly the champion of the “bridge to nowhere” until that “bridge to nowhere” was going nowhere, Palin lacks the authority to change our current more environmentally friendly energy policy.

In the global scheme of things, I think it’s best that people take the hit in the short term while looking forward to the advantages that come with increases in technology in renewable energy. Nuclear power is good as well but comes with increased risk of meltdown or subverse activity and also there is a limited supply of uranium and plutonium, and nuclear waste is a major headache.

With oil prices so low, it is harder to make money making renewable energy solutions, but with government backing to a tune of $15 billion a year, the industry should survive and hopefully come up with something is ready by the time the next oil price spike comes along. As someone who is accustomed to mass-transit (bus, subway, train), while also accustomed to the gas-guzzling lifestyle of a suburbanite (driving a car back and forth from school round-trip duration around 1 hour) I must say that sacrifices must be made and our current rate of consumption is unsustainable given the increases in demand across the world and the limited production capacity and most importantly the limited supply of the very dirty substance known as oil.


Oil Supplies High, Demand Low

The Organization of Petroleum Exporting Countries recently decided to cut production of oil in an effort to raise prices, says Bloomberg. A funny thing about it is people are betting against the price of oil, in an ever worsening economy. The US Department of Energy predicts a .5% drop in demand next year, it seems the Recession of 08′ is finally doing some good (reducing fossil fuel consuption). The unfortunate thing about the oil drop is that it will probably cause a reduction in R&D on alternative energy.

What is Nazi oil?

From Time magazine 1977 article,

When Nazi Germany first planned it’s war, It knew that it had no stable oil reserves. It is for that reason that they developed an efficient way to convert coal into oil. The technology was even advanced enough capture the pollution caused by doing it! After WWII, Americans captured the technology, but have scattered the documents across the nation. In 1977 American scientists recompiled the Nazi documents.

http://www.time.com/time/magazine/article/0,9171,914910,00.html

Environmental Impact

Converting coal to oil itself produces pollution, and combine that with burning the oil itself, and it’s pretty obvious that “Nazi oil” is more polluting that regular oil.