MetaTrends Profit

Keeping your oil in the ground

by: agrossfarm 02/23/05 12:25 pm

Keeping your oil in the ground (certainly the incremental production that would be costly to produce) is understandable and predictable, given the supply/demand outlook going forward (for those of us who look forward, rather than backward like many oil analysts, Majors, rating agencies, etc.).

Once this sinks into the petroleum outlook in your brain, I suggest you start to think about how this will increasingly affect oil exporters (if you haven't considered this already).

Rising prices and continued depletion
1. give them a disincentive to rush expensive recovery programs
2. makes selling additional volume unnecessary to meet their capital needs
3. makes it less adviseable for them to reduce their prices if/when demand temporarily declines
4. will eventually convince them that, even if alternatives like FT-conversion of gassified coal, nukes, and wind get competitive, that
a. petroleum prices will tend to stay high because of its use as chemical feedstock
b. the long timelag before the expensive alternatives are ubiquitous enough to be a competitive threat will still leave them with plenty of pricing power

I am looking for the extension of Contango further out the curve as the situation sinks into the hard heads of the disbelievers. This, IMO, includes many future traders and mid- to large sized industry players who are hedging and, by doing so, shooting themselves in the foot, month after month.

Perhaps we need a Petroleum Hedgers Anonymous, who like Goldcorp, can publicly make a committment to kick the habit and clean up their act.

posted by agrossfarm @ 9:30 AM