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 | Dallas, TX
April 26, 2008, 08:00 EST |  | Dr. Joe Duarte's Market I.Q. |  |  | | |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Report: $200 Oil. $7 Gasoline.
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 | What's Hot Today: | |
News For Thought
A $7 billion real estate projec in Seattle has been mothballed signaling that commercial real estate is starting to weaken significantly as credit tightness has finally reached even the tallest buildings and the biggest pedigrees.
According to The Wall Street Journal: "Seattle's Clise family is pulling a 13-acre property for sale for at least $600 million off the market, at least temporarily. The property was intended to be the catalyst for a project that would have totaled the square footage of as many as five Empire State Buildings, putting it on the scale of London's Canary Wharf or the former World Trade Center in New York."
Several caches of "newly made" Iranian arms has been found in Iraq. According to The Wall Street Journal: "Officials in Washington and Baghdad said the purported Iranian mortars, rockets and explosives had date stamps indicating they were manufactured in the past two months. The U.S. plans to publicize the weapons caches in coming days. A pair of senior commanders said a presentation was tentatively planned for Monday." | |
| Report: $200 Oil. $7 Gasoline. | |
 | | IEA Numbers Wrong Says CIBC Analyst |  | |
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Oil prices will rise to $200 per barrel and gasoline will move to $7 per gallon by 2012, according to CIBC Jeff Rubin.
According to AFP: "The CIBC report says the International Energy Agency's current oil production estimates overstate supply by about nine percent, since it wrongly counts natural gas liquids -- which are not viable for transportation fuel -- in its numbers."
Rubin seems to have moved toward the conclusions reached by the Peak Oil group, noting that rising depletion rates and flat production will lead to tighter supplies as demand continues to rise.
To be sure, he hedges his bets some, noting "Whether we have already seen the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity."
The issue remains that even if U.S. demand falls, global demand won't, thus the oil gluts that have developed during past U.S. economic recessions won't develop, while at the same time the major fields that have produced the world's oil supplies are no longer able to keep up as "more drivers on the road in Russia, China and India will surely pick up the slack in demand."
In the news release, Rubin makes two key points:
1. "While natural-gas liquids only account for 10% of total supply, they account for virtually all of the increase in petroleum-liquids production since 2005." and
2. "Stripping out natural-gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why oil prices have doubled over that period."
So what does this all mean? According to Marketwatch: "The portion of natural-gas liquids in total oil production is increasing, from about 4% in the 1970s to an estimated 10% by 2012, CIBC said. Natural-gas liquids are not a viable substitute for oil and cannot be economically used as a basis for gasoline, diesel or jet fuel." And how much of demand is actually coming from countries outside the OECD?
According to Marketwatch, car sales have been rising in countries such as Russia and Brazil, while U.S. and European sales are flat. As we noted here earlier this week, GM is boosting its investments and production capacity in China, along with other major manufacturers such as Volkswagen, as they gear up for what they expect will be surging sales there in the future.
Marketwatch added: "Demand from major oil producers and exporters is also seen rising. Over the last three years, oil consumption in OPEC members has grown an average of over 5% a year. Combined demand from OPEC members, together with Russia and Mexico, already stood at about 13 million barrels a day, the world's second largest after the U.S."
Throw in subsidies from governments in places like Iran and Venezuela and you have no market mechanism to curb demand.
Conclusion
So we're back to the old chicken and egg situation. Is Peak Oil a man made or natural phenomenon. Sure, few people are saying that Peak Oil has been in progress for a while, or that it's close by. Jim Puplava, Matthew Simmons, and to some degree this scribe are on record as saying that it's probably here.
Yet, the big question is whether there is enough oil out there to keep the concept from becoming a reality.
To us, at this point, it seems as if there probably is, but that it's not easy to get at it, and that the major producers, ie. OPEC, have been caught either with their pants down, or have actually looked the other way to let this happen.
Think about it. Venezuela has 10,000 fields that have oil under them but that have been shuttered because the Chavez government can't find enough engineers, money, and qualified workers to get them back online, according to multiple reports.
Nigeria is well known to have vast supplies, but due to political instability, and lack of planning is also falling behind in its ability to maintain its fields. Iran's oil infrastructure is reportedly in a state of disrepair.
Russia also squandered supplies for years due to poor field maintenance. And now recent reports suggest that the Saudis have some decent finds that they aren't even going to tap because they have suddenly become conscious of leaving a legacy to future generations.
To us, it seems as if the oil producers have decided to practice benign neglect at a time when existing accessible supplies are getting tapped out due to rising demand.
And that means that Peak Oil is probably here, but that it may not entirely be a natural depletion phenomenon, as much as a process aided by shrewd, and in some cases accidental and/or blundering behavior on the part of politically and profit minded producers.
In other words, Peak Oil, if that's what we're in the early stages of, might really be a Big Squeeze by the likes of Hugo Chavez, the House of Saud, Iranian Mullahs and the Kremlin.
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 | Technical Summary: | |
Stocks Rally But Indexes Do Not Deliver Breakout
Nasdaq is starting to break above 2400, while the S & P 500 is doing the same near the 1380 area.
As more time passes, the chances of an upward break out and an extension are likely to rise.
That could still change, though, especially in a jittery market such as this one. For now, though, we are looking to add positions to our growth stock list. We have added one new position. See below.
Our S & P timing model is still on the long side and we still have several open positions in our growth stock list.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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Google (Nasdaq: GOOG) Is Still Struggling
Google (Nasdaq: GOOG) proved that it can still make money, but the stock is still struggling some.
Chart Courtesy of StockCharts.com
To be sure, the 100 plus point move made by the stock since it bottomed earlier this month is impressive, especially since about $80 of it came in one day after a better than expected earnings report.
But after that things seemed to stall out, just below the 200-day moving average. That's the kind of activity that suggests that big money is still hesitant about the company's futures.
The thing about Google is that although it prints money with the best of them, it can't seem to print enough of it to satisfy enough people these days. For one thing even though it has huge gross margins at 69%, it still sells at nearly 40 times trailing earnings.
And despite all its earnings, the return on equity is below 20%, which suggests that although things are going fairly well, management could do more to make more money.
So is the story over? Not likely, but the going could be a lot slower than we've seen in the past.
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