Investing in Oil

Comment: These are several ways to invest in oil. I'm sure there are many others.

1. You could actually own an oil well! We have an acquaintance in Texas who owns oil wells. My sister had mineral rights to her property (natural gas) that she was able to sell.
   
2. One could invest in an Oil ETF such as the United States Oil Fund (USO). Chart above is a screen shot of USO against the S&P 500.
   
3. There is the United States Gasoline Fund (UGA). When gasoline goes up ... so does UGA. Click here for an interesting chart that compares UGA to USO.
   
4. One could invest in an oil (more properly an energy) company like (blogged earlier here):
   
   • BP p.l.c. (BP) - United Kingdom
     
   • Chevron Corporation (CVX) - United States
     
   • ConocoPhillips Company (COP) - United States
     
   • ExxonMobil Corporation (XOM) - United States
     
   • Royal Dutch Shell plc (RDS) - Netherlands & United Kingdom (Royal Dutch Shell has A and B shares. Info on here: A shares are subject to Dutch withholding tax )
     
   • Total S.A. (TOT) - France
     
5. Then there is the oil sector fund option like the Ishares Dow Jones US Energy (IYE) which has broad holdings (see chart below)

An "extraordinary redefinition of free-market success"

What Is a 'Windfall' Profit?

Excerpt:

The "windfall profits" tax is back, with Barack Obama stumping again to apply it to a handful of big oil companies. Which raises a few questions: What is a "windfall" profit anyway? How does it differ from your everyday, run of the mill profit? Is it some absolute number, a matter of return on equity or sales -- or does it merely depend on who earns it?

Enquiring entrepreneurs want to know. Unfortunately, Mr. Obama's "emergency" plan, announced on Friday, doesn't offer any clarity. To pay for "stimulus" checks of $1,000 for families and $500 for individuals, the Senator says government would take "a reasonable share" of oil company profits.

Mr. Obama didn't bother to define "reasonable," and neither did Dick Durbin, the second-ranking Senate Democrat, when he recently declared that "The oil companies need to know that there is a limit on how much profit they can take in this economy." Really? This extraordinary redefinition of free-market success could use some parsing.

Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any "windfall" tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too. Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. That sounds like a government windfall to us, but perhaps we're missing some Obama-Durbin business subtlety.

Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon's profits don't seem so large. Exxon's profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).

Comment: I've long been a proponent of eliminating corporate taxes altogether. The reality is that individuals pay all of the taxes. Every corporate tax is passed onto consumers in one form or another.

Drilling in Barnett Shale (in Fort Worth!)

How Texas Struck It Rich Beneath Suburbia

Excerpt:

What I've seen is that while Congress balks at drilling in the Arctic National Wildlife Refuge in Alaska out of fear of disturbing a few caribou, we've moved ahead to safely tap into an energy reserve located underneath suburban homes. And there is no better example of how Texas gets the balance right between energy and the environment than the development of the Barnett Shale.

Geologists have known that this reserve contains a mother lode of energy for at least 30 years. Yet even today it's not clear where the boundaries are. Wildcat wells and some dry holes continue to define the perimeter of the Barnett. What we do know is that the formation stretches from the Dallas/Fort Worth area up into rural counties in north Texas, spanning some 5,000 square miles. We also know that there is an estimated 27 trillion cubic feet of natural gas locked up in it. Americans use about 23 trillion cubic feet of natural gas a year; four trillion cubic feet a year are imported. So being able to tap into the Barnett is a big step toward producing all of the country's natural gas needs domestically.

Comment: More from Wikipedia. My Sister's snd Mother's homes are in this region. Nancy sold the her mineral rights for a substantial sum. Mother's property did not have the rights (the developer retained them).

the single largest transfer of wealth in human history

T. BOONE PICKENS: My Plan to Escape the Grip of Foreign Oil

Excerpt:

How will we do it? We'll start with wind power. Wind is 100% domestic, it is 100% renewable and it is 100% clean. Did you know that the midsection of this country, that stretch of land that starts in West Texas and reaches all the way up to the border with Canada, is called the "Saudi Arabia of the Wind"? It gets that name because we have the greatest wind reserves in the world. In 2008, the Department of Energy issued a study that stated that the U.S. has the capacity to generate 20% of its electricity supply from wind by 2030. I think we can do this or even more, but we must do it quicker.

My plan calls for taking the energy generated by wind and using it to replace a significant percentage of the natural gas that is now being used to fuel our power plants. Today, natural gas accounts for about 22% of our electricity generation in the U.S. We can use new wind capacity to free up the natural gas for use as a transportation fuel. That would displace more than one-third of our foreign oil imports. Natural gas is the only domestic energy of size that can be used to replace oil used for transportation, and it is abundant in the U.S. It is cheap and it is clean. With eight million natural-gas-powered vehicles on the road world-wide, the technology already exists to rapidly build out fleets of trucks, buses and even cars using natural gas as a fuel. Of these eight million vehicles, the U.S. has a paltry 150,000 right now. We can and should do so much more to build our fleet of natural-gas-powered vehicles.

Comment: Straight talk from an oilman!

Lack of investment to blame

BP chief Tony Hayward says lack of investment to blame for oil spike

Excerpt:

"Producers are being hampered by 25 years of low investments, because of low prices," Mr Hayward told the Asia Oil and Gas Conference in Kuala Lumpur today. "The result is a supply chain being stretched to breaking point."

Comment: & speculation & The Fed's strategy

Excerpt:

Zhang dismissed the idea that rising demands in industrializing countries such as China and India should be blamed for the surge of oil prices.

"This is an incomprehensive idea since decisive factors for oil prices have run further beyond the concept of supply and demand," Zhang said in his speech at the energy ministers meeting between India, China, the United States, Japan and South Korea.

Zhang noted that from 2003 to 2006, world oil consumption posed annual increases of 1.9 percent, 3.8 percent, 1.2 percent and 0.7 percent respectively. "The rates were all in normal range."

He suggested that his counterparts put the rising oil prices into the context of global financial market, which could be affected by a wide range of factors such as the change of exchange rates, geopolitics, political instabilities and natural disasters.

"All these may turn to be reasons for speculation, ...and from this way of thinking, an answer to the current record high oil price could be found," Zhang said.

Excerpt (view article for chart):

The Fed's strategy has triggered a dollar rout and commodity boom that has sent food and energy prices soaring. The nearby chart shows how oil prices have risen as interest rates have fallen. This commodity spike has made a recession more likely, not less. The trend is ominous enough that early last week Fed Chairman Ben Bernanke finally dropped his not-so-benign neglect and talked up the dollar; oil prices fell.

Our "non-energy" policy

George Will: The gas prices we deserve

Excerpts:

One million barrels is what might today be flowing from ANWR if in 1995 President Bill Clinton had not vetoed legislation to permit drilling there. One million barrels produce 27 million gallons of gasoline and diesel fuel. Seventy-two of today's senators — including Schumer, of course, and 38 other Democrats, including Barack Obama, and 33 Republicans, including John McCain — have voted to keep ANWR's estimated 10.4 billion barrels of oil off the market.


So Schumer, according to Schumer, is complicit in taking $10 away from every American who buys 20 gallons of gasoline. "Democracy," said H.L. Mencken, "is the theory that the common people know what they want and deserve to get it good and hard." The common people of New York want Schumer to be their senator, so they should pipe down about gasoline prices, which are a predictable consequence of their political choice.
...
The U.S. Minerals Management Service says that restricted area contains perhaps 86 billion barrels of oil and 420 trillion cubic feet of natural gas — 10 times as much oil and 20 times as much natural gas as Americans use in a year.


Drilling is underway 60 miles off Florida. The drilling is being done by China, in cooperation with Cuba, which is drilling closer to South Florida than U.S. companies are.


Comment: We want to be energy independent, but we don't want to drill our own resources, or have our own refineries, or have any new nuclear plants.

100 years of oil

100 years ago today, Middle East oil discovered

Wiki: William Knox D'Arcy

BP: First oil


Comment: It's hard to imagine life without oil!

The delusions of 'Energy Independence.'

5 Myths About Breaking Our Foreign Oil Habit

5 Myths:

1. Energy independence will reduce or eliminate terrorism.
   
2. A big push for alternative fuels will break our oil addiction.
   
3. Energy independence will let America choke off the flow of money to nasty countries.
   
4. Energy independence will mean reform in the Muslim world.
   
5. Energy independence will mean a more secure U.S. energy supply.
   

Excerpt: ... we're woven in with the rest of the world -- and going to stay that way. Today, in addition to gasoline imports, the United States is buying crude oil from Angola, jet fuel from South Korea, natural gas from Trinidad, coal from Colombia and uranium from Australia. Those imports show that the global energy market is just that: global. Anyone who argues that the United States will be more secure by going it alone on energy hasn't done the homework.

Comment: Good article. Additionally the sad fact is that alternative fuels are less cost effective than oil (for example ethanol!). Forthcoming book: Gusher of Lies: The Dangerous Delusions of Energy Independence