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Erik Townsend's Peak Oil View


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#1 DrBubb

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Posted 16 February 2011 - 10:00 AM

Erik Townsend's Peak Oil View
"The Next Global Calamity - Worse than 2008"
================================

Peak Oil is coming... "Sooner than you think..." ?



Some of you may have heard Erik Townsend's interview with Jim Puplava about:
"The Trade of the Decade", involving buying long-dated oil futures contracts.

Had you caught the low around that time, you would have done rather well.

Now Erik has produced two videos concerning his views on Peak Oil, and how investors might position themselves.

He has agreed to shared the links here, and contribute to the chat here from time-to-time.

LINKS:
1/ http://www.eriktowns...-investors.html
2/ http://www.eriktowns...-investing.html

I shall be having a look and making some commentary shortly.
Meantime, he welcomes comments from other GEI posters.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#2 ErikT

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Posted 16 February 2011 - 10:54 AM

Greetings, everyone, and thanks to Dr. Bubb for graciously hosting this discussion here.

The videos themselves invite viewers to "to to my website to discuss the material", but since I have no discussion forum on my site nor any particular desire to create one, Dr. Bubb and I agreed it made more sense to hold the discussion here. So I'll be linking the video pages referenced in the base post back to this thread.

I spoke to Jim Puplava today and his show is fully booked for this coming weekend, but he hopes to interview me briefly for next week's show (Feb. 27), where we'll both announce the availability of the videos to his audience and welcome his listeners to join in the discussion. That should result in an influx of new visitors to this thread in about 10 days time.

My goal in producing these videos was to get an informed discussion going about Peak Oil - both the threat it poses and any counter-arguments that might tend to refute what I say in the videos. So along those lines, I'll kick the discussion off by describing some information I only became aware of after the script was finalized back in December.

If your read Robert Hirsch's The Impending World Energy Mess, or listen to any of the Peak Oil experts talk about oil shale, you will learn that oil shale can only be produced in two ways. The first involves mining the shale (similar to tar sands), and producing it above-ground in a very expensive and environmentally messy process. The second is an experimental technology that heats the shale "in-situ", in order to get the oil flowing out of it. The books say there is no other way to get oil from oil shale.

But notwithstanding what the books say, a good friend of mine who is very experienced in the oil & gas business has personal acquaintances who are now very successfully producing oil in the Bakken shale deposit using horizontal drilling and hydraulic fracturing technologies (only), with no expensive heating. They are producing oil for $25/bbl and obviously making a very appealing profit. This just plain doesn't jibe with the common wisdom in the Peak Oil community that shale oil can only be produced using much more expensive processes.

I'm working with Jim Puplava and his producers to identify an expert on oil shale production to argue the opposing viewpoint, i.e. that oil shale solves or at least delays the Peak Oil problem. I doubt it really solves the problem, but if the 100 or so shale deposits around the world can be produced using hydro-fracking only, that changes the picture considerably and might delay the onset of peak oil by as much as several years. Nothing is cut and dried, however. One source I spoke with said that the Bakken is an anomaly in that about 10% of it can be produced using fracking alone, but that for the other 90%, Bob Hirsch is right and only much more expensive and less efficient (in terms of EROEI) processes can be used. I anxiously seek expert sources who can bring some light to this subject.

On a related note, Marin Katusa of Casey Research recently opined in another FSN interview that North American horizontal drilling and hydro-facturing technologies could be exported to the middle-east, breathing new life into aging giants. Clearly, this won't "solve" the peak oil problem. But depending on how much more efficient these extraction techniques turn out to be, they might allow production rates to be increased enough to delay the "production threshold breach" discussed in the videos. I would absolutely love to find an expert who could offer a credible analysis of what these extraction technologies would mean to presently projected conventional resource decline rates.

So those are just a few topics to get the conversation rolling. Critical feedback is welcome, and I look forward to hearing what the GEI community has to say about the message of these two videos.

All the best,
Erik Townsend
Hong Kong

p.s. My apologies for the quality of the graphics. If you download the MPEG4 files you'll get better quality. The problem was with the software I used to capture the PowerPoint animations as video, and unfortunately after much effort this was the best I could do.

#3 aliveandkicking

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Posted 16 February 2011 - 12:00 PM

Erik

You point out that alternatives to oil will extend the time when we can manage for a few more years. You then go on to say that the crisis will explode in 2012.

But there is a simple reality that people like me no longer have a car and whereas i used 5000L of oil last year this year i will only have used 1000 because i have moved to alternatives that will keep me going for decades.

I was also thinking about living in the countryside since communications mean it does not matter much where i work. Fuel to get groceries or satisfy my wifes desires to shop in the big cities and the fact that country life for an outsider without regular use of a car meant that was not a good idea.

Perhaps people are more sophisticated here? People here are saying that almost no new home will be built in Finland that uses oil for heating and there has been an urgent push to get more nuclear for several years already.

Elsewhere credit expansion has been fueling oil demand and that cannot last. The nature of the world credit crisis is that people are going to be poorer in real terms.

I dont understand why you are saying the market does not know about peak oil.

Also people can adapt just as i am doing.

Finally when we talk about 'demand for oil' i think we also need to see that for a significant chunk of that 'demand' it is really 'desire' rather than 'requirement'.

But you seem to cover most of my points.

#4 ErikT

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Posted 16 February 2011 - 12:47 PM

A&K,

Thanks for your comments! I find your viewpoint very refreshing, and if your own attitude is representative of your entire country, then I applaud you all for being forward thinking.

But honestly, I don't think your view is representative of everyone. Now that "the recession is over" according to most "authorities", SUVs are selling like hotcakes again in the USA. The new 2011 Cadillac Escalade (http://www.cadillac.com/escalade/2011), for example, has completely eliminated the 5.0L engine that was offered "during the crisis years", and now the only option on offer is the standard 6.2L V-8 engine. The 18MPG claimed fuel efficiency is not perceived as a problem by buyers who rejoice in knowledge that the vehicle comes standard with a 26 gallon (100L) fuel tank!

So in the USA, at least, despite fairly high gasoline prices, high-consumption vehicles are again in fashion. But the real story is in emerging markets. In Vietnam and Thailand, the story is all about motor scooters, which have only 3 - 4L gasoline tanks, and get many miles per liter of fuel efficiency. But the point is, millions of people now have them, whereas only a few years ago, motorized transportation was reserved for the filthy rich. Asian economic growth will lead to an extraordinary increase in demand for oil, and it won't be about luxury. It will be about "average people" in these markets starting to have the most basic modern conveniences that most of us take for granted.

The reason I don't think markets are discounting Peak Oil was described in the 2nd video, and is that the term structure of the futures market predicts that prices will go DOWN over the next five years. I find that hard to believe in anything short of Peak Oil-induced depression.

I hope this helps, and thanks again for your comments!

Erik


#5 aliveandkicking

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Posted 16 February 2011 - 02:16 PM

QUOTE (ErikT @ Feb 17 2011, 12:47 AM) <{POST_SNAPBACK}>
A&K,

Thanks for your comments! I find your viewpoint very refreshing, and if your own attitude is representative of your entire country, then I applaud you all for being forward thinking.

But honestly, I don't think your view is representative of everyone. Now that "the recession is over" according to most "authorities", SUVs are selling like hotcakes again in the USA. The new 2011 Cadillac Escalade (http://www.cadillac.com/escalade/2011), for example, has completely eliminated the 5.0L engine that was offered "during the crisis years", and now the only option on offer is the standard 6.2L V-8 engine. The 18MPG claimed fuel efficiency is not perceived as a problem by buyers who rejoice in knowledge that the vehicle comes standard with a 26 gallon (100L) fuel tank!

So in the USA, at least, despite fairly high gasoline prices, high-consumption vehicles are again in fashion. But the real story is in emerging markets. In Vietnam and Thailand, the story is all about motor scooters, which have only 3 - 4L gasoline tanks, and get many miles per liter of fuel efficiency. But the point is, millions of people now have them, whereas only a few years ago, motorized transportation was reserved for the filthy rich. Asian economic growth will lead to an extraordinary increase in demand for oil, and it won't be about luxury. It will be about "average people" in these markets starting to have the most basic modern conveniences that most of us take for granted.

The reason I don't think markets are discounting Peak Oil was described in the 2nd video, and is that the term structure of the futures market predicts that prices will go DOWN over the next five years. I find that hard to believe in anything short of Peak Oil-induced depression.

I hope this helps, and thanks again for your comments!

Erik


Erik, I am not particularly green or enlightened - 5000L of oil at current prices was already too expensive. Prices in the USA will be a fraction of what we pay here? 1000L of heating oil is USD 1350



#6 littledavesab

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Posted 16 February 2011 - 03:11 PM

There was an Eric from Hong Kong who rang FSN appeared at the end of part 1 Q calls this week. Appeared to be taking the p1'ss out of another Eric (KWN) and the silver crowd.

Anyone we know ?

Well whoever - gave me a biggrin.gif
Inflation / Deflation ?? How about STAGFLATION everyone is right but everyone is wrong!
- (Update) Everyone wrong...... except Goldman Sachs apparently !!!!!!!

If you have an idea for podcast of the week post it here: http://www.greenener...pic=10990&st=40

#7 Colonel WE Kurtz

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Posted 16 February 2011 - 03:15 PM

QUOTE (aliveandkicking @ Feb 16 2011, 02:16 PM) <{POST_SNAPBACK}>
Erik, I am not particularly green or enlightened - 5000L of oil at current prices was already too expensive. Prices in the USA will be a fraction of what we pay here? 1000L of heating oil is USD 1350


Have to agree with Alive and Kicking. Consumption habits focus on serious efficiency, from the individual to the motor manufacturers to industry. Expect mind bendingly efficient cars and light commercials over the next few years.

I used to fly around 40,000 miles a year, do 35,000+ road miles. That was during the boom and it was not a pleasure. Now I live in the country, have a farm, ride a 110cc fuel injected scooter (us e about 2 litres of petrol a week maximum) and drive the truck about 180km a month, have a mountain bike. No air conditioning, run a netbook, a fan, a few efficient bulbs and a fridge. Use around 20kgs of cooking gas a year. For long journeys I take the bus/coach, which is rarely.

Homeworking using high speed broadband will become very common. It was ludicrous, all those people driving to pointless meetings about nothing, hundreds of miles each.

Also I note that a new hydrogen based alternative to gasoline is being tipped to be available around 2012.

There's plenty of these charts out there, each one shows transportation to be the greatest consumer of oil. This is not difficult to fix.







#8 DrBubb

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Posted 16 February 2011 - 08:25 PM

If you are interested in Peak Oil, you should keep an eye on the Oil Futures curve - see thread here
QUOTE (DrBubb @ Feb 5 2011, 03:55 PM) <{POST_SNAPBACK}>
Crude Oil Futures Curve
Shifting curve offers opportunities
======================
Storing "wealth" through Oil Futures.
The curve now is nearly "flat" and that provides an opportunity to "store" wealth at low cost

====== : WTI C. : chg.
Mar 2011 : 89.12 -1.42
Apr 2011 : 91.97 -1.27
May 2011 : 94.15 -1.22
Jun. 2011 : 95.45 -1.21
July 2011 : 96.41 -1.17
Aug 2011 : 96.94 -1.29
Sep 2011 : 97.44 -1.25
Oct. 2011 : 97.93 -1.16
Nov 2011 : 98.37 -1.11
Dec 2011 : 98.80 -1.06

Dec.2011 contract ... update

Dec.2016 contract ... update


(longer dated)
Jun. 2012 : 99.51 -1.11
Dec 2012 : 99.70 -1.02
Jun. 2013 : 98.61 -1.55
Dec 2013 : 99.34 -0.73
Jun. 2014 : 99.86
Dec 2014 : 99.08 -0.80
Dec 2015 : 99.38 -0.92
Dec 2016 : 100.01 -0.92 (note: 2016 premium to 2011 : +$1.21 (that's about 1.2%)
Dec 2017 : 100.83 -0.78
Dec 2018 : 101.50 -0.91
Dec 2019 : 103.21

/source: http://www.cmegroup....weet-crude.html

Historical curve : Oct. 2010, when the nearby contract was near $76

(Note: the "kink" around about $85-87 / this proved to be the ideal BUY point in late 2010 !)

Hedging Oil prices through the stock market:

There was a great BUY opportunity in early Dec., for the Dec. 2016 contract

Link to Oil Futures thread: http://www.greenener...showtopic=13840

Any thoughts on where Dec.2016 might be headed over the next year or so, Erik?
Latest: 101.09 a +0.39

Do you think it will fall back to that "kink"/Buy point at $85-87 per barrel.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#9 InternationalRockSuperstar

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Posted 16 February 2011 - 10:04 PM

QUOTE (ErikT @ Feb 16 2011, 12:47 PM) <{POST_SNAPBACK}>
I find that hard to believe in anything short of Peak Oil-induced depression.


so what do you think caused the 1929- depression?


#10 deeper

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Posted 16 February 2011 - 10:10 PM

Great videos. Watching II now.

#11 underling

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Posted 16 February 2011 - 11:17 PM


@ Erik Townsend


Refreshing to hear you wish to engage in conversation with people who hold an alternative opinion.

If you're looking for a gainsayer Robin S Mills wrote the book 'The Myth of the Oil Crisis' ( http://www.oilcrisis...iles/Author.htm ) which is packed with figures, graphs and ideas which tackle the arguments of peak oil theory. It may be worth contacting him to see if he'd make comment here.

Part of argument against peak oil is that new technologies will fill the gaps and replace. Hope you don't mind but I've PM'd you the e-mail address of an author who may or may not wish to engage in the conversation.

Personally, I doubt I can play any part in the conversation but look forward to reading the thread. Good luck with it.


Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it and live up to it.

#12 ErikT

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Posted 17 February 2011 - 02:30 AM

QUOTE (DrBubb @ Feb 17 2011, 04:25 AM) <{POST_SNAPBACK}>
Any thoughts on where Dec.2016 might be headed over the next year or so, Erik?
Latest: 101.09 a +0.39


Dr. Bubb,

I'm long that contract and bullish on its long-term prospects, but there is much better liquidity in the 2015 contract. While it's tempting to lock in another year's time in case the production threshold breach is delayed by some of the factors I described in my first reply, the wider bid-ask spread probably isn't worth it. I would be more inclined to get exposure to the 2015 futures and then roll them forward in a year or two when there is more liquidity in the 2016 and 2017 contracts.

Erik

#13 ErikT

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Posted 17 February 2011 - 02:38 AM

QUOTE (underling @ Feb 17 2011, 07:17 AM) <{POST_SNAPBACK}>
@ Erik Townsend


Refreshing to hear you wish to engage in conversation with people who hold an alternative opinion.

If you're looking for a gainsayer Robin S Mills wrote the book 'The Myth of the Oil Crisis' ( http://www.oilcrisis...iles/Author.htm ) which is packed with figures, graphs and ideas which tackle the arguments of peak oil theory. It may be worth contacting him to see if he'd make comment here.

Part of argument against peak oil is that new technologies will fill the gaps and replace. Hope you don't mind but I've PM'd you the e-mail address of an author who may or may not wish to engage in the conversation.

Personally, I doubt I can play any part in the conversation but look forward to reading the thread. Good luck with it.


Underling,

Thanks very much for this information. Jim Puplava has been looking for a good expert guest to represent the "other side of the story" on Peak Oil for some time. He's invited Daniel Yergin on the show several times, but Mr. Yergin has not responded.

I have now ordered the book, e-mailed Robin introducing myself and encouraging him to watch the videos then weigh in here with his critical feedback, and have also e-mailed Jim suggesting Robin as a possible future guest on FSN. Thanks so much for this very helpful lead!

Erik


#14 deeper

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Posted 17 February 2011 - 02:23 PM

Erik,

For those heavy to gold exposure, would it make sense to transition to oil and gas exposure? In your scenario, I don't see gold necessarily following the oil price up.

Any thoughts?

Thanks

#15 Jake

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Posted 18 February 2011 - 05:13 AM

QUOTE (ErikT @ Feb 16 2011, 10:54 AM) <{POST_SNAPBACK}>
Greetings, everyone, and thanks to Dr. Bubb for graciously hosting this discussion here.



If your read Robert Hirsch's The Impending World Energy Mess, or listen to any of the Peak Oil experts talk about oil shale, you will learn that oil shale can only be produced in two ways. The first involves mining the shale (similar to tar sands), and producing it above-ground in a very expensive and environmentally messy process. The second is an experimental technology that heats the shale "in-situ", in order to get the oil flowing out of it. The books say there is no other way to get oil from oil shale.

But notwithstanding what the books say, a good friend of mine who is very experienced in the oil & gas business has personal acquaintances who are now very successfully producing oil in the Bakken shale deposit using horizontal drilling and hydraulic fracturing technologies (only), with no expensive heating. They are producing oil for $25/bbl and obviously making a very appealing profit. This just plain doesn't jibe with the common wisdom in the Peak Oil community that shale oil can only be produced using much more expensive processes.

I'm working with Jim Puplava and his producers to identify an expert on oil shale production to argue the opposing viewpoint, i.e. that oil shale solves or at least delays the Peak Oil problem. I doubt it really solves the problem, but if the 100 or so shale deposits around the world can be produced using hydro-fracking only, that changes the picture considerably and might delay the onset of peak oil by as much as several years. Nothing is cut and dried, however. One source I spoke with said that the Bakken is an anomaly in that about 10% of it can be produced using fracking alone, but that for the other 90%, Bob Hirsch is right and only much more expensive and less efficient (in terms of EROEI) processes can be used. I anxiously seek expert sources who can bring some light to this subject.

On a related note, Marin Katusa of Casey Research recently opined in another FSN interview that North American horizontal drilling and hydro-facturing technologies could be exported to the middle-east, breathing new life into aging giants. Clearly, this won't "solve" the peak oil problem. But depending on how much more efficient these extraction techniques turn out to be, they might allow production rates to be increased enough to delay the "production threshold breach" discussed in the videos. I would absolutely love to find an expert who could offer a credible analysis of what these extraction technologies would mean to presently projected conventional resource decline rates.

So those are just a few topics to get the conversation rolling. Critical feedback is welcome, and I look forward to hearing what the GEI community has to say about the message of these two videos.

Hi Erik,
I appreciate your time and all the information you have gathered and shared here in these two vidoes (and other podcasts, articles and comments from CM, 2beers steve, FS and GEI). I confess to being totally lost on the last 10 minutes of video 2 where you get into the gobbledy gook of investing strategies. And I am very wary of writing off a big deflationary episode throwing a spanner in the works of your analysis. However I am all ears and trying to keep up with this topic.

Steve Crower recently had a good podcast with steve 2 beers where he pushed the idea of this 'plateau' peak oil, through technological advances and Bakken etc. I post the link, in case you or anyone hasn't heard it. The comments to the show see James H. Kunstler throw in a comment and also a reply from Crower beside a few others.

I guess I am interested in how long this 'plateau' could be extended because, as you say, timing is everything, the all important factor for getting this right. Bugger that it is so difficult! For example I have thoughts that the 'ACH' window, if we dont have another deep shock, could be already at an end and we are actually in, or entering right now, the 'crisis' window with the volatility showing through from 2008.

James Puplava's recent interview with Robert Hirsch about his new book and where we are right now was quite a wake up call (at least to me) and Robert's careful consideration and strength of feeling conveyed in his language was measured and yet full of portent and urgency. It says a lot to me that you give weight to this very book towards the end of your video presentation-more so that even Twilight in the Desert.

Anyway here's the link to Steve Crower's podcast on 2 beers with steve. Thanks again for your valued input.

http://twobeerswiths...crower/comments
"We are reaping what has been sown over the last three decades of creating a grotesquely unequal society with an ethos of grab as much as you can by any means. A society of looters created by MPs and their expenses, bankers and their bonuses, tax-evading corporations, hacking journalists, bribe-taking police officers, and now a group of alienated kids are seizing their chance. This is not to condone but to understand." - John McDonnell MP


"Things got a bit out of hand & we'd had a few drinks. We smashed the place up and Boris set fire to the toilets."
David Cameron, 7th June 1986.

#16 Jake

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Posted 18 February 2011 - 05:20 AM

QUOTE (deeper @ Feb 17 2011, 02:23 PM) <{POST_SNAPBACK}>
Erik,

For those heavy to gold exposure, would it make sense to transition to oil and gas exposure? In your scenario, I don't see gold necessarily following the oil price up.


Why not? This might be a very valuable question...especially if you consider the huge sell off in oil in 2008 may well occur again. Gold sold off the least of all the commodities. Unless you are confident of playing all the investment strategies right in oil and gas, gold might be the sure and simple way to protect your wealth.

I'd appreciate any thoughts you have on this too, Erik.

"We are reaping what has been sown over the last three decades of creating a grotesquely unequal society with an ethos of grab as much as you can by any means. A society of looters created by MPs and their expenses, bankers and their bonuses, tax-evading corporations, hacking journalists, bribe-taking police officers, and now a group of alienated kids are seizing their chance. This is not to condone but to understand." - John McDonnell MP


"Things got a bit out of hand & we'd had a few drinks. We smashed the place up and Boris set fire to the toilets."
David Cameron, 7th June 1986.

#17 DrBubb

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Posted 19 February 2011 - 06:58 AM

QUOTE (ErikT @ Feb 17 2011, 10:30 AM) <{POST_SNAPBACK}>
Dr. Bubb,

I'm long that contract and bullish on its long-term prospects, but there is much better liquidity in the 2015 contract. While it's tempting to lock in another year's time in case the production threshold breach is delayed by some of the factors I described in my first reply, the wider bid-ask spread probably isn't worth it. I would be more inclined to get exposure to the 2015 futures and then roll them forward in a year or two when there is more liquidity in the 2016 and 2017 contracts.

Erik

More liquidity in 2015 :
Yes, that makes sense.
But I reckon the Dec. 2015 and Dec. 2016 prices are pretty similar, and over time liquidity will move out to 2016 and beyond. Meantime, I want to have some charts that track 2011 and 2016 prices, so we can see how the 5 year oil spread behaves.


Dec. 2016 Wti Crude was cheaper than Dec. 2011 oil

What amazed me (and I believe we spoke about it at the time) was how cheap the long-dated prices got in early Dec. 2010, when they pulled back to near that $85 pinch point. In hindsight, that would have been an ideal time to buy, if your simple desire was just to GET LONG on long-dated Oil futures. (I haven't yet checked to see what happened to Brent prices in that timeframe.)

Having said that, it is possible to be bullish on oil in 5-6 years time, and still think we may see a big drop in oil in 2011 or 2012 - if we see a double dip recession of worse. I believe that pundits like Nicole Fosee and Charles Hugh Smith see an "oil bust" the first step in a drama that will take us to far higher prices.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#18 Jake

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Posted 21 February 2011 - 02:47 AM

Some quotes from Robert Hirsch in his interview with James Puplava relevant here perhaps...

On Hirsch report...

" this was way, way, way beyond their comfort level and so far outside of the box that they didn't know what to do with it''

''the realisation that this is a huge, huge problem beyond anything done before short of industrialising to fight the 2nd WW-even that...''

On the problem...

"there is a problem here associated with who in authority stands up and says this problem is coming-relatively soon. The person or organisation that stands up and says that is going to initiate the chaos that will be associated with the public realisation of the problem...when the public hear those things there will be panic...''

"People will panic; they will be disorientated, they will try and hoard gasoline causing immediate shortages''


On the ramifications...

''Employers will cut back on employment, stock market will drop..there will be significant inflation and you'll get into a recession that gets worse and worse each year. If you stop to think about it that's gruesome. Really gruesome. Who wants to be the one and stand up and announce the problem and whatever solutions that are might have and cause chaos in the world."

"It ain't easy and it takes leadership above and beyond almost anything that I can conceive of."

On what to do...

" If there is something terrible looming on the horizon and you have verified it, my view is that you stand up and say so.

Let the people go through the panic and other emotions in order to get to the point where you can begin to face up to what's involved and do whatever you can, as fast as you can, to work the problem.

The alarm has been sounded but it hasn't resonated with the people.

It's gonna happen.

The decline will happen relatively quickly... 2-5 years.

There are things you'll wanna do and there are things you definately DONT want to do.''

Finally...

''At some point this is all going to become obvious and then, there is going to be chaos.'
"We are reaping what has been sown over the last three decades of creating a grotesquely unequal society with an ethos of grab as much as you can by any means. A society of looters created by MPs and their expenses, bankers and their bonuses, tax-evading corporations, hacking journalists, bribe-taking police officers, and now a group of alienated kids are seizing their chance. This is not to condone but to understand." - John McDonnell MP


"Things got a bit out of hand & we'd had a few drinks. We smashed the place up and Boris set fire to the toilets."
David Cameron, 7th June 1986.

#19 DrBubb

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Posted 24 February 2011 - 02:27 PM

(Erik has had some technical problems getting onto the site / see: thread ...
And he has asked me to post the following message and responses here):

All,
Please forgive my apparent silence on this thread. I am having severe technical problems posting on this site, which I’ve so far been unable to resolve....If anyone has any suggestions, I’m all ears. I can’t post to this thread until I find a solution, and the videos will be put on the FinancialSense homepage this weekend, so I’m expecting a bunch of new traffic here. Any help much appreciated!

Now to the questions posed recently:

QUOTE (deeper @ Feb 17 2011, 10:23 PM) <{POST_SNAPBACK}>
Erik,
For those heavy to gold exposure, would it make sense to transition to oil and gas exposure? In your scenario, I don't see gold necessarily following the oil price up.

Any thoughts?
Thanks


I think that all depends on whether you intend active or passive management. If I had to choose something to buy and hold for 3 years, it would go gold. Hands down, no question about it. I actually think there's far more profit opportunity in oil, but you need to follow the markets and trade it actively. As described in the videos, I don't expect a one-way market. There will be some big ups and downs, and the most profitable traders will be those who can hedge their bets and anticipate a lot of volatility.


QUOTE (Jake @ Feb 18 2011, 01:13 PM) <{POST_SNAPBACK}>
Steve Crower recently had a good podcast with steve 2 beers where he pushed the idea of this 'plateau' peak oil, through technological advances and Bakken etc. I post the link, in case you or anyone hasn't heard it. The comments to the show see James H. Kunstler throw in a comment and also a reply from Crower beside a few others.

I guess I am interested in how long this 'plateau' could be extended because, as you say, timing is everything, the all important factor for getting this right. Bugger that it is so difficult! For example I have thoughts that the 'ACH' window, if we dont have another deep shock, could be already at an end and we are actually in, or entering right now, the 'crisis' window with the volatility showing through from 2008.

James Puplava's recent interview with Robert Hirsch about his new book and where we are right now was quite a wake up call (at least to me) and Robert's careful consideration and strength of feeling conveyed in his language was measured and yet full of portent and urgency. It says a lot to me that you give weight to this very book towards the end of your video presentation-more so that even Twilight in the Desert.

Anyway here's the link to Steve Crower's podcast on 2 beers with steve. Thanks again for your valued input.

http://twobeerswiths...crower/comments


Steve Crower is a really good guy. I’ve e-mailed him links to the videos, and hopefully he’ll feel inclined to join us in this discussion.

The plateau can be extended for as long as new non-conventional production can be brought online to make up for conventional decline. In theory this could be indefinite if enough non-conventional supply could be found to compensate for the inevitable decline of conventional supply.

As Milton Friedman once said, the solution to high prices is high prices! In other words, the higher the price of oil, the greater the incentive (and the more available the capital) to develop new non-conventional resources. In a bizarre way, the geopolitical crisis ( Egypt , Libya , Bahrain , etc.) that is now developing will help extend the plateau. If some of the middle-eastern conventional projects are taken offline (for example if Qadaffi’s henchmen follow through on his threat to blow up the oilfield resources in Libya), crude prices will skyrocket and that will fund more aggressive development of the Bakken, Athabasca tar sands, etc. etc. Then eventually the trouble in Libya will abate, those resources will be brought back online, and there will be more supply. If all goes well, that is (big bet).

On the other hand, a big price shock in coming weeks might be just what it takes to crash the global economy, and a repeat of 2008 would mean crude prices falling to the point that no capital would be available for any kind of non-conventional project development. That would shorten the plateau.

The point is, you really can’t say for certain. A lot is in flux right now, and how it turns out will depend on both the geopolitical and economic landscapes.

A major question I still consider to be only vaguely answered is what the real story is on producing shale oil using hydro-fracking (only) and no heating. I know people who are producing oil in the Bakken shale for ~$23/bbl, something that should be impossible if you read what the PO camp (including Bob Hirsch) has written on oil shale. Some of my sources are telling me “But that’s an anomaly – only a small (<10%) part of the Bakken can be produced that way”, but my contacts in the Bakken (who are drilling real holes and selling real oil for real money) say otherwise. I’m still working on getting to the bottom of this question.

The really big development since the video was recorded is everything going on in Egypt/Libya/Bahrain/etc. My video talks about a crisis window. What wasn’t said explicitly is that the “crisis” in question is a geological/economic crisis – the crisis of peak oil and peak cheap oil. Now we have another crisis being superimposed on top of my timeline, and it’s a geopolitical crisis. This is not a case of my “crisis window” arriving earlier than expected. Rather, it is a matter of another crisis window (the geopolitical one) starting now, in addition to the factors in my timeline. I guess I was more prescient than I thought by choosing “Anything could happen” as the name I gave to the time between now and the beginning of the geological crisis window.

This gets very interesting because the two crises have opposing effects on the term structure of the crude oil market. The geological (peak oil) crisis will be all about oil costing more in the future than it does in the near term, because of the geological phenomenon of conventional production decline. The geopolitical crisis, on the other hand, tends to force much higher near-term prices because of anticipated continued political unrest threatening near-term production, but would normally tend to anticipate declining longer-term prices as the present tension eventually abates.

These opposing forces may create some really extraordinary opportunities for spread traders. I expect the long-term backwardation to deepen as a result of the geopolitical tension coupled with an under-appreciation of peak oil. That will create a huge speculative opportunity, but picking the bottom (in terms of the calendar spread differential) will be challenging to say the very least!

All the best,
Erik
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#20 DrBubb

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Posted 26 February 2011 - 02:20 PM

TO JOIN THE DISCUSSION here
=====

Any new folks arriving as a result of listening to the interview with Erik Townsend on Financial Sense, and most welcome to join.

Here's the new Joining-as-Member procedure:
Here's what you do:

1. Send an email to me at: New@GlobalEdgeInvestors+dott Com (ie using ".com" ending, not "dott Com")

2. Explain in a sentence or two, why you would like to be a member


3. Give me the User name that you would like to use (in the email)

4. I will set you up, and give you a temporary password

I will make you a member - so you can post here.

We are also working on a new automatic sign up procedure, but there may be a small joining fee (maybe $1.00) to prevent spamsters
from joining and abusing their membership.

== ==

Note:
I realise that this is sub-optimal for some to go thru this - and I don't particularly like it either.
Problem was were were being attacked by spamsters, with 10-20 new ones arriving every day, and I had to find a way to stop that, so we moved (temporarily perhaps) to a manual registration procedure. Please be patient, because we have have some other issues (sign on problems, and image replacements) hit us all at the same time.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix




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