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Sunday, December 21, 2008

Peak Oil and a call for Crude Oil CW in Bursa

I like this article because of the balance that it provides. Short, simple, for future reference - http://gas2.org/2008/12/15/iea-chief-economist-says-peak-oil-will-come-in-11-years/

The thing for me to take out of this is that "peak oil" is a concept where many people have many strong and yet different views about it, ranging from "it's going to happen in 10 years time" to "it might never happen because the world will find new sources of energy through improvements in technology" ...

Even the IEA (International Energy Agency) chief changed his mind, that peak oil might hit in 2030, and brought that down to 2020, which makes it much sooner.

Obviously, "peak oil" is a highly important and highly critical concept simply because our world is so energy dependent, and if the world fails to address our long term future energy needs, then, some says "human civilization as we know it today" could come to "an end".

I tend to agree with the author that it is too important to NOT plan for it.

Even if it's going to happen in 30 years time or 50 years time, the possibility that it could happen in 10 years time means it's too important to do nothing.

So, I strongly lean towards the idea of taking out an "insurance policy". And like all insurance policy, only a small % of assets needs to be committed, not the entire portfolio.

And when crude oil prices is so low and potentially volatile, it would only makes sense to trade a significant portion of it. Note that the recent Nymex crude oil price is not across the board, but only to the expiring January contract on Dec 19. The February contract did not behave in the same manner.

Unfortunately, there isn't a really decent crude oil counter in Bursa that provides direct exposure, nor is there sufficiently large volume and liquidity that a single or a small group of players does not control the prices on a regular basis ... In my chatbox, I have expressed strongly ideas for Bursa and brokers to consider creating products that are linked to crude oil prices, such as a relatively simple, straightforward, call warrant based on crude oil prices. When crude oil prices are in a "lowish range" like it is now, it should be a relatively straightforward matter for the professionals to hedge their exposures, and to write such Call Warrants and introduce these to Bursa. The call warrant can be so designed so that it could be in the money, even if Crude Oil falls to USD20, thereby, making it a very low odds of having a zero value at expiry. At current price of $35-$40, if it goes back to $50-$60, the instrument will have doubled one's money, and $50-$60 might not be an unreasonable target over the next year or 2. An expiry date of 9 to 12 months would be excellent. If the introduction of such call warrant can be timed when crude oil is around $35, then, I believe such Call Warrant will be HIGHLY popular, especially when crude oil price starts to run back to above $40. Many traders would flock back to Bursa just from this CW alone.

If you support the introduction of such call warrants, don't be shy to drop a note in the comments section.

Let's hear your views!

1 comment:

Clifford J. Wirth, Ph.D. said...

Independent studies conclude that Peak Oil production will occur (or has occurred) between 2005 to 2010 (projected year for peak in parentheses), as follows:

* Association for the Study of Peak Oil (2007)

* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008 to 2010)

* Tony Eriksen, Oil stock analyst (2008)

* Matthew Simmons, Energy investment banker, (2007)

* T. Boone Pickens, Oil and gas investor (2007)

* U.S. Army Corps of Engineers (2005)

* Kenneth S. Deffeyes, Princeton professor and retired shell Geologist (2005)

* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

* Chris Skrebowski, Editor of “Petroleum Review” (2010)

* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)

* Energy Watch Group in Germany (2006)


Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”

"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."

http://www.energywatchgroup.org/fileadmin/global/pdf/EWG_Press_Oilreport_22-10-2007.pdf

With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html

I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. http://survivingpeakoil.blogspot.com/