Peak Oil - The Dawn Of A New Age

June 5th - 6th Update
Sold for Gain CPST $531
Sold for Loss
TGC - $285
Omni - $105
Total Gain - $141

Thursday and Friday were full of action from the start but the real story was oil's biggest single-day leap ever clearing $139 a barrel! This with the release of the nation's unemployment rate which at 5.5 percent in May was the biggest rise in 22 years. All this culminating to drive the Dow down nearly 400 points and raised the once-unthinkable prospect of $150 oil and even higher gas prices by the Fourth of July. Friday can only be described as a bloodbath and the only way the bleeding was going to stop was at the ringing of the bell.

As I have written for 5 years now in Geocrisis Peak Oil is real and is now gone mainstream being reported by CNN and others daily. Back when I first warned others about an impending shortage all I heard was laughter and people saying we would never see $100 a barrel. So what is Peak Oil for those who have never heard of it?

PEAK OIL

Peak oil theory states: that any finite resource, (including oil), will have a beginning, middle, and an end of production, ...and at some point it will reach a level of maximum output, a peak. So when half of all oil in the world is up, the price per barrel will begin to rise. The prices will steadily go up, with about 1,5 to 3 percent a year. But meanwhile, world demand for oil is on the rise, too. Currently, the entire world consumes about 75 million barrels a day -- or 25 billion barrels per year. But in ten years time, demand is expected to rise by more than two thirds, to 135 million barrels a day. Think India and China and you begin to see the picture.

In 1956 M. King Hubbert, a geologist for Shell Oil, predicted the peaking of US Oil production would occur in the late 1960's. Because of this he was derided and outcast by most in the industry until his theory proved spot on. He was the first to assert that oil discovery, and therefore production, would follow a bell shaped curve over its life. After his success in forecasting the US peak, this analysis became known as the Hubbert's Peak and was used to try and establish a global Peak. Below is a chart which you can see states that almost all Oil producing countries have actually reached peak. What you don't see on the chart is Saudi Arabia, Iraq or Iran....Uhmmmmm...no wonder all the recent interest.

This region has been on the minds of many for just this very reason for years. Ever see the ending of Three Days of The Condor with Robert Redford? Former National Security Adviser Zbigniew Brzezinski published a book entitled The Grand Chessboard: American Primacy And Its Geostrategic Imperatives in which he portrays the Eurasian landmass as the key to world power, and Central Asia with its vast oil reserves as the key to domination of Eurasia.

Zbigniew Brzezinski American strategist, professor and
former National Security Advisor to President Carter

He states that for the US to maintain its global primacy, it must prevent any possible adversary from controlling that region. So our National Security Policy has been reshaped for this very contingency. This blog is neither the time or the place to discuss the many ramifications but here are a few quotes to let marinate.

"Let's look at it simply. The most important difference between North Korea and Iraq is that economically, we just had no choice in Iraq. The country swims on a sea of oil."

US deputy defense secretary,
Paul Wolfowitz, in Singapore, 31 May-1 June, 2003

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... "by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? ... While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow."

Dick Cheney, then Halliburton CEO, 1999

In an analysis from the editors of Nightline of ABC News entitled “Spoils Of War In Iraq War, To The Victor Goes The Oil” it states,

"The fundamental issue is, the day after Saddam is removed, the Iraqi oil industry is open for grabs, and it will depend upon the government of Iraq to decide how it will dispense that resource," says oil consultant Rob Sobhani, a professor at Georgetown University in Washington. "Certainly, American companies would be in a very, very strong position to compete for the right."

"Once the fighting starts, you have to be involved or you are irrelevant," says Emerson. "And it's not just because of the Iraqi oil. It's because of the oil in the entire region. You want to be part of the postwar world in the Persian Gulf."

The Oil Corridor
And just look at all that Oil In Iran...
Uhmmmmmmm.............

The significance of the vast oil reserves of the Middle East cannot be understated. Besides the trillions of dollars to be had by multinational oil companies drooling over the prospect of taking over these vast oil reserves, there is also the impending economic disaster of peak oil to think about. Our economy is industrial oil based, and without a reliable source, would soon collapse as a result oil depletion. At current levels of US production, our oil reserves would last approximately ten years without an outside source. Iraq on the other hand has oil reserves that will last 526 years!

Now to any casual observer it cannot go unnoticed that in our war on terrorism since 9/11, we have gone after oil producing states or swing production states. Afghanistan, which is now interestingly, but not surprisingly headed by Hamid Karzai, Chairman of the Interim Administration for Afghanistan. Hamed Karzai was the main intermediary between the Mujahedin and the CIA who later became a top advisor to Unocal. It was Unocal who sought the development of an oil pipeline across Afghanistan to tap into the Caspian reserves. Is the picture getting any clearer?

Next on the list we have Saudi Arabia, Iraq and now Iran with geopolitical developments in West Africa, Venezuela, and Colombia. All areas where terrorism appears, exactly where the oil is or in the swing producing nations. Coincidental? Maybe, maybe not, though highly suspect for even the most skeptical.

So what does all this mean besides higher gas prices? It means that anyone who thinks that Oil or energy stocks are going anywhere but up in the long term needs to have there head examined. Which is why if your in the market right now after Fridays close, I hope your in energy stocks because Monday looks like a perfect set up for a Black Monday with the dollar falling, oil rising and Financial's collapsing. Which all means that recession is a fact. Of course for the bobble heads on the news to be saying that is looks like a recession is like telling those who have been knee deep in the water that it looks like there is a storm on the way. Really...??? Thanks for the Update CNBC!

So I am still long in my solars and even bought more on the lows Friday. CSUN is still in a great position with it being down 40% from its fifty-two week high of $19.23 and having posted revenues for the three months ended March 31, 2008 of $77.0 million, surging 32.3% from the first quarter in 2007.

Friday I also went ahead and purchased another Oil stock KOG as I wanted to be all energy with two exceptions MTL and RCH. But first KOG, as you can see this has had a tremendous run up with oil and I'll be in for a few dollars here.

BEXP looks like it is coiled to make a move on any news so were holding strong and looking for what looks like a promising next couple of weeks. With such a choppy market Swing trading becomes more difficult with all the volatility in the market and the day traders making good profits.

My one exception to energy stock was MTL. This is a monster short and long term play. I've been watching this for months and after the split have been waiting for the dip which occurred for me on Wednesday so I bought Thursday AM with a little over 5k. With a divi and such a gorgeous chart, I have to go long here.

Thursday I also picked up some shares of RCH which has some big contracts in Dubai and will ring the Nasdaq bell on June 12th. RCH has been perky with alot of recent interest so I'll bite and hang for a week or so to ride a wave.

Outside of those purchases I am holding about 7k in cash for what I hope to be some good buys come Monday if we see a sell off. I will be primed and ready secure in energy and cash ready to pounce!