Oil Rules

After a roller coaster, oil-hungry romance over the last 16 months, the melodrama between the U.S. and OPEC may soon be cooling down. Oil continues to fall, and OPEC expects costs to dip lower and lower. Today, oil fell below $70/barrel. On top of that, OPEC is predicting that oil will fall below $50/barrel in 2009.

OPEC is undoubtedly caught in the plot of a bad melodrama, and the U.S. is in the middle of it. Prices were flying high in July, only to sink to a 16-month low of $68.57 last week amid fears that a possible U.S. recession will slow demand further. OPEC’s fears are so harrowing that they decided to move what they are calling their “extraordinary meeting” up from Nov. 18 to Oct. 24 to come to grips with the rapidly falling price of worldwide oil prices.

What’s next? Well, just like in any good soap opera, when the girl gets too dependent on the hot, handsome lover, he cuts her off. He stops being interested. He finds another love. So too, OPEC will cut some of its interest in the U.S. The steamy phase of the relationship will cool down, but I doubt the relationship will end.

As reported by Algerian news media, Oil Minister Chakib Khelil says the global oil market is oversupplied by about 2 million barrels a day. Many investors are expecting to see OPEC cut production by at least 1 million barrels a day.

Whether OPEC will abandon the U.S. completely is somewhat out of the question. This romance is not over yet, but Friday’s meeting will be a good DTR (Define The Relationship) between OPEC and the U.S.

While preparing for a story covering the University of Oklahoma’s 50th anniversary of their Petroleum Land Management/Energy Management Program, I’ve been discovering that landmen truly are jacks of all trades.

T. H. Kaplyn, who was a charter American Association of Petroleum Landmen (AAPL) member, said landmen borrow from several professions in order to specialize in a distinctive field.

“He needs to be part lawyer, geologist, engineer, scout, psychiatrist, salesman, horse trader and diplomat,” wrote Kaplyn, “and there is no particular academic curriculum designed to fit his needs.” (Source: “The Birth and Growth of The University of Oklahoma’s Historic Petroleum Land Management and Energy Management Program”).

In an effort to meet the academic needs of a landman, OU formed the Petroleum Land Management Program in 1958. Since that time, the program has evolved into the OU Energy Management Program, including an ever-widening education for not only landmen, but also energy financiers, A&D professionals and more.

You can read more about the OU Energy Management Program in the upcoming December issue of Oil and Gas Investor magazine.

I am still slowly digesting Boone Pickens’ “The First Billion Is The Hardest.” I’m currently reading a chapter entitled “The Bottom Of The Canyon,” which is a great metaphor of the current economy.

Pickens talks about how he views investments and day traders.

“To make the big money, I’ve found it’s best to take a long-term view, stay focused, and not get spooked by the temporary fluctuations in the market. When I have the odds in my favor, I put my money up and keep it up. If the fundamentals change, I get the hell out of there.”

Pickens says that most people panic when the markets start to fluctuate. However, he says that if you panic, you’ll lose, no questions asked. And that leads us to Booneism #11 in the book:

I told a friend, “This is the kind of market that builds character.” He looked at me and said, “If it gets any worse, you’ll have more character than Abe Lincoln.”

Well, investors, it looks like this is the kind of market that builds character! So put on your stove pipe hats and make the most of it!

–Lindsay Goodier, Online Editor, OilandGasInvestor.com; www.OilandGasInvestor.com; lgoodier@hartenergy.com

Goodness gracious! I sure hope someone got sleep over the weekend, because it seems no one in Washington nor Wall Street did. The House Democrats were busy this weekend planning a second economic stimulus package. Rumor has it that the package would be “somewhat north of 100 billion.”

While any of us will happily accept money that the government gives us (rather than the other way around for a change), haven’t we realized based on the short-lived results from the first economic stimulus package that such packages don’t bring any lasting change to the economy?

Also this weekend, leaders of 15 European nations - gathered in Paris at an emergency meeting and agreed to a plan to assist troubled banks by adding capital through investment and by guaranteeing inter-bank lending. Early Monday, the British government said it would invest $63 billion into the Royal Bank of Scotland, HBOS and Lloyds TSB to help the banks in crisis pull through.

Also on Monday, four central banks, including the Federal Reserve, announced new measures aimed at thawing the credit markets. Provisions include providing unlimited short-term dollar funds at fixed interest rates.

We’re off to another interesting start to the week!

–Lindsay Goodier, Online Editor, OilandGasInvestor.com; www.OilandGasInvestor.com; lgoodier@hartenergy.com

Well, it’s starting out to be a happy financial Thursday as stocks jumped 100 points just in the first few minutes of trading today. Yet oil is still down to $89 as recession fears continue to rise.

Talks are swirling that OPEC may actually cut production if costs fall below $80. And based on the current trends, prices could fall that low by even next week.

I like a quote I just read by Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney.

“The bubble has burst. Before any real increase in prices, we need to see some good economic data from around the world, and that could be a few months.”

If ever there were any doubts, oil’s most recent roller coaster high has ended, and things are slowly crashing down.

Well, I opened my wallet this morning, and you’ll never believe it…

All right, enough with the fun and games. Wall Street is reeling after yesterday’s House rejection of the $700 billion bailout plan. And the rejection of the bailout plan wasn’t the only shock of the day yesterday thanks to Citigroup’s takeover of Wachovia. Even though the FDIC is saying Wachovia did not fail, the takeover is just an added ripple in a ever-widening financial crisis that is now taking on global implications. According to statements from the FDIC, Citigroup will take up to $42 billion of losses from Wachovia’s $312-billion loan portfolio.

Rumors of more bank closures are swirling and stock brokers are on edge. What’s an investor to do? Well, I was always taught to invest when things are bad. If it’s true that what goes up must come down, then it must also be true that what goes down must go back up, right? But can things only go up from here? Could the largest dip in Wall Street be followed up by an even worse dip? It’s still hard to tell.

I just hope the next time I glance at the dollar bill in my wallet that George Washington isn’t weeping.

The last 12 days have been monumental for the Bayou City — on top of tree, house, boat and car damage, Ike rendered us with the city’s greatest –I mean — worst power outage in history.

For those without power, many are angry and feeling desperate at this point. Centerpoint Energy has announced that most of its 495,000 customers who are currently powerless should have power by this weekend, but for individual homes without power that aren’t connected to widespread power outages, it may be a few more weeks or even months before the power comes back on.

Seeing Houston, the Energy Capital of the World, mostly without energy, has been intriguing. Not only were most people without electricity in their homes last week, but their offices were also without power. Business slowed and is only now regaining momentum. People are once again growing accustomed to “real food” instead of cans of soup heated by makeshift candle cookers or granola bars. The lines at the grocery store and gas stations are back to normal. Tolls have been free the last couple weeks, but drivers on Houston’s Beltway 8 will have to start paying up again come Saturday.

Houston’s energy is almost back — in more ways than one.

Recently I’ve been enjoying T. Boone Pickens’ new book, The First Billion Is the Hardest. One part that stood out to me during my post-Hurricane-Ike-reading was Pickens’ description of shareholders in 1980’s:

“It was averaged that approximately 20 percent of the U.S. population owned shares in corporations. They had an average age of 44, a yearly household income of $37,000, and a stock portfolio of $6,000.” - Pickens, p. 40

Realizing that this group was largely unrepresented and not particularly wealthy, Pickens decided to take a stand in the summer of 1986. He launched the United Shareholders Association (USA), a national lobbying group dedicated to giving American shareholders a platform and a voice.

Pickens shares in his book how many companies in the ’80s expected their members to ante up, even when the CEOs and presidents themselves didn’t have enough faith to hold large shares. By 1993, USA had attracted 65,000 members, scored a number of major victories and spaked a national dialogue on corporate governance issues. By 1993, the Association had completed its mission: to change corporate culture so that shareholder concerns were more integrated into business decision and planning.

So with the mission accomplished, they shut down USA.

And a new “Booneism” was coined:

The higher a monkey climbs a tree, the more people can see his ass.