The Entirety Of The Saudi Arabia Rumor Is Complete Hogwash

There is a tale floating around that Saudi Arabia is somehow single handedly collapsing the price of oil to destroy Western reserve development. And it is total nonsense.

Reports last month show Saudi Arabia is actually cutting production to maintain pricing.

Meanwhile, Saudi Arabia, the biggest oil producer in the Organization of the Petroleum Exporting Countries finally appears to be responding to the lower demand outlook.

According to the IEA, Saudi Arabia cut its oil output by 330,000 barrels a day last month, apparently in response to lower demand from its customers and a shift in the oil producer’s focus toward Asian markets. The Kingdom’s oil exports are likely to have run below 7 million barrels a day for the last four months, their lowest level since September 2011, as domestic consumption ratcheted up over the summer and supply to the U.S. fell, the IEA said.

I would have called bull on this sooner, but I was a little out of the loop and figured the oil selloff was just a correction anyway.

As for demand concerns, IEA reports have demand for oil growing every year for the foreseeable future. They cut the steepness of this growth and now there’s a jockeying move in markets to price out certain projects. But correcting the plunge in oil is going to be as easy as some field development getting publicly mothballed.

There is absolutely no credibility to this tall tale. Saudi Arabia is not going to be able to single handedly destroy the Bakken’s. They probably wouldn’t want to anyway. The US fields need expensive oil to justify development. Expensive oil plays directly into Saudi Arabia’s hand, since they have very low cost extraction.

If Saudi Arabia insists on meeting the demand that the US fields otherwise would have provided, they’re going to do so at a price per barrel closer to $60. Up until recently, they were getting $100 just by leaving some room on the field. That means Saudi Arabia was getting the same revenue for almost half the production levels, geniuses.

What do you think that does for Saudi Arabia’s oil field life expectancy?

The Saudi’s need the fracking oil because it justifies high prices. High prices buy Saudi Arabia vastly more time. Saudi Arabia would be stupid to try and beat down newer methods of extraction because they would exhaust themselves quicker and ultimately those sources would just come back on line anyway down the line.

Hmmm…step aside for newer extraction methods, get the same revenue for half the effort (weighs the one hand)…try and physically drive these methods out of business, exert double the effort with nothing extra to show for it (weighs the other).

Quit trying to be so cute with these conspiracy theories. Jimmy can go fuck himself.

Bought Back More HCLP for $59.39

Over the past week or so, I raised cash to 25%. This was good fortune, as HCLP, my mantelpiece position, has dropped 8% since I let up.

Today, I repurchased half of those shares, which I sold at $64.19 each, for $59.39.

It seems like good enough of a bet to me. HCLP is growing so fast… it’s trading at just over 17x Q3 2014 earnings estimates. I have no good way to guess what HCLP’s earning’s potential is over time; but 17x doesn’t seem unreasonable, particularly with a steady announcement of 5 year supply agreements being announced and 200% revenue growth last year. When you’ve managed to get in on the ground floor of such a high flying position, it just makes sense to hold long a core stake, and ride the waves.

This 8% drop is just another opportunity to make extra money, until such time as that logic is challenged. For the moment, HCLP just managed to touch its 20 day moving average for the first time since early June.

Next earnings announcement is in August. So tell me, who wants to stand in the way of this thing?

A Global Power Shift Is Emerging

Short term cautions not withstanding, we are on the precipice of something great.

The entire structure of the global economy is shifting, slightly and slowly. But like all great change, the most striking of the movement comes all at once, at the end.

The United States is driving this assault of the balances of power, globally, as the energy revolution progresses on our shores. This country is set to become the biggest oil producer in the world – and we are now slowly removing the export restrictions that are the last remaining barrier to this mighty end.

This isn’t just about US trade balances and deficits. Those numbers games matter, but they always matter less than you think.

This game is about power. Oil has been the source of power to our enemies for too long. Russia and the Middle East have fed well on global consumption of this product, erecting their cartels around the flow oil to global industry. It has made them powerful and a threat.

The move by the US to become the world’s largest producer of oil and gas can be viewed through a different lens than financial gain alone: this is also going to completely upend our adversaries. What wars and weapons and diplomacy and cooperation could not possibly have accomplished, given the entrenched interests we faced, this one might push on our part will quickly bring about.

This is a once in a lifetime opportunity. You must get invested in it, and stay invested in it. All US leadership sees the goal, and no one objects to it. The days of getting beat about by monarchies in Saudi Arabia, needing to cut backroom deals that undermine our own morals with foreign militant groups, having to sit through endless meetings while Russian oligarchs threaten our allies with gas supply shortages…these days are coming to an end.

As the US increasingly becomes energy independent, the argument to even have relations with half these villains becomes non sequitur. We can marginalize them while circling around our true allies and real friends.

I can’t see everything that is going to come from this. Naturally US power will follow. And the North and South American continents should improve, swinging towards democracy and capitalism. Outside of that, while I think US energy independence is a good thing, I wouldn’t be surprised if war also follows. Revolutions surely, but also open war between foreign, former energy exporters who find themselves being boxed into a corner. The Saudi’s days are surely numbered, in particular.

My bet is that Russia will not change much, but they will also have to cut less lucrative deals with China to make it. So at least they will be a less powerful, less interfering Russia. Good riddance there.

Suffice to say, this is unpredictability at its best. While I think I see the theme, I do not yet hear the notes. But I’ll take my chances with it anyway. The old order of things was repulsive. I won’t be crying any tears for OPEC, or for Russia.

Up Another 1% Again Today

HCLP just blew through $60, as analysts raise targets in response to the HAL announcement.

BAS is back above $27. I guess I could have held onto all of those shares, but I have no regrets. Retaining a 15% position in BAS is more than reasonable.

SLW is pushing its way to $26.

My only position that is down noticeably today is UEC. And that remains my smallest position at 5% of assets.

Fracking investments remain the place to be. Oil names are doing well by extension (and a high price per barrel). I’m telling you, coal will be the next thing to run.

Have a wonderful afternoon.

Added A Half Position In BTU On “National Coal Day”

I added a small, 5% position to my book in BTU for $16.10, to commemorate the EPA issuing new power plant emission regulations.

My guess is the equity position is worth about $7 now. And they’re losing money every quarter. But this is investing, not guaranteeing. Market forces will either correct through higher electricity prices for consumers, rebalancing the coal market. Or, a third of the US grid goes offline and gun/ammunition manufacturers become the new Coca Cola.

I’m also looking at a few distribution terminals I think might see big volume increases as struggling coal producers – coupled with natural gas exporters looking to Europe – try and tap foreign markets for trade.

I’m moving slow here, not in any rush to push the limits. This is going to be very volatile; lots of room to play individual names sawing 25% up and down, but the overeager will lose a finger if they don’t give themselves room to back off.

The US is about to be the world’s biggest energy exporter for the next century. You can quote me on that. It’s just a matter of edging in and building position.

Your move.

The Time To Accumulate Coal Positions Is Now

I entered into NRP some time ago, which was quickly an unmitigated disaster. The position is down 25% from my purchase price. I sold half the position, along with other partial positions, back in January when I raised cash.

Today, I added back some of that for $14.93.

I want to talk at brief about coal. The time to buy into US coal reserves is now, while euphoria over natural gas is highest and markets are most spooked about a Democrat directed EPA.

I am in no way minimalizing the importance of the shale revolution. Not by a longshot – if you look at my own holdings, BAS and HCLP represent a firm belief in the continued importance of those assets to the US energy equation.

What I am doing is highlighting the continued importance coal will have in US power generation and abroad.

Coal presently makes up just over 1/3 of US domestic generation. This is down from 1/2 earlier this decade, most prominently replaced by the surge in application with natural gas. Yet, markets price in equilibrium of choices, when operating correctly.

We have to presume that markets will find a price that fairly limits benefits between choosing natural gas versus coal versus nuclear versus…for equivalent production of energy. This would suggest that natural gas prices are set to rise (further enhancing the payoff for the producers). I would also expect that, as excess capacity gets utilized, the adaptation of coal plants to gas will subside.

This process may take a little longer to finish, and perhaps gas will even match coal in terms of energy mix before it is done. What I would not count on is coal rapidly or even ever completely being removed from global energy production.

Which brings us to the fears of EPA punitive measures against coal. So far, these are aimed at coal fired power plants. While this would, at least temporarily, hinder US energy production from coal here at home, what is to stop US coal producers from simply shipping overseas? And why is metallurgical coal acting so volatile when it is not a component of US power generation?

The signs, to my eyes, spell clear a story of market overreaction to pop culture and fantasy. Power generation shifts or slides, waxes or wanes. It does not turn on or off. Coal has been systematically shunned regardless of its exact nature (energy versus metallurgical) and the driving catalyst seems to be mostly political.

But politics change and politics in this country are about to.

I will give you a 6 month synopsis of what is about to happen. In November, the DNC is going to get creamed, delivering the Senate to the RNC. You can suspend your political predilections, as this is merely obvious to anyone not sucking their own exhaust. And the GOP has no problem with coal power generation. In fact, the Republicans think the argument against coal power generation is, quote, “stupid”.

This will change the short term plot dynamics that drive most superficial market players. Around middle of 2015 or early 2016, coal will be “the most obvious buy ever”, whereas today it is “fools nonsense.” Of course, when it is “the most obvious buy ever”, it will be at some considerable percentage above where you can take a position today.

This will accelerate especially if it should appear going into the next presidential election that a Republican is about to take the White House (that is still too far out for me to see, but it is certainly not out of the question). In such an event, the current shunning of coal will look especially stupid and myopic.

Regardless of the next presidential cycle though, the simple act of the GOP taking both chambers of Congress should noticeably shift the messaging surrounding out of favor coal plays. Executive overreach through agency bodies, no longer shielded by the Senate, will begin getting visibly and openly reprimanded; or even punished.

This shift, along with coals critical importance to the US economy and abroad, should render this a generous buying opportunity in hindsight.

The Entirety Of The Saudi Arabia Rumor Is Complete Hogwash

There is a tale floating around that Saudi Arabia is somehow single handedly collapsing the price of oil to destroy Western reserve development. And it is total nonsense.

Reports last month show Saudi Arabia is actually cutting production to maintain pricing.

Meanwhile, Saudi Arabia, the biggest oil producer in the Organization of the Petroleum Exporting Countries finally appears to be responding to the lower demand outlook.

According to the IEA, Saudi Arabia cut its oil output by 330,000 barrels a day last month, apparently in response to lower demand from its customers and a shift in the oil producer’s focus toward Asian markets. The Kingdom’s oil exports are likely to have run below 7 million barrels a day for the last four months, their lowest level since September 2011, as domestic consumption ratcheted up over the summer and supply to the U.S. fell, the IEA said.

I would have called bull on this sooner, but I was a little out of the loop and figured the oil selloff was just a correction anyway.

As for demand concerns, IEA reports have demand for oil growing every year for the foreseeable future. They cut the steepness of this growth and now there’s a jockeying move in markets to price out certain projects. But correcting the plunge in oil is going to be as easy as some field development getting publicly mothballed.

There is absolutely no credibility to this tall tale. Saudi Arabia is not going to be able to single handedly destroy the Bakken’s. They probably wouldn’t want to anyway. The US fields need expensive oil to justify development. Expensive oil plays directly into Saudi Arabia’s hand, since they have very low cost extraction.

If Saudi Arabia insists on meeting the demand that the US fields otherwise would have provided, they’re going to do so at a price per barrel closer to $60. Up until recently, they were getting $100 just by leaving some room on the field. That means Saudi Arabia was getting the same revenue for almost half the production levels, geniuses.

What do you think that does for Saudi Arabia’s oil field life expectancy?

The Saudi’s need the fracking oil because it justifies high prices. High prices buy Saudi Arabia vastly more time. Saudi Arabia would be stupid to try and beat down newer methods of extraction because they would exhaust themselves quicker and ultimately those sources would just come back on line anyway down the line.

Hmmm…step aside for newer extraction methods, get the same revenue for half the effort (weighs the one hand)…try and physically drive these methods out of business, exert double the effort with nothing extra to show for it (weighs the other).

Quit trying to be so cute with these conspiracy theories. Jimmy can go fuck himself.

Bought Back More HCLP for $59.39

Over the past week or so, I raised cash to 25%. This was good fortune, as HCLP, my mantelpiece position, has dropped 8% since I let up.

Today, I repurchased half of those shares, which I sold at $64.19 each, for $59.39.

It seems like good enough of a bet to me. HCLP is growing so fast… it’s trading at just over 17x Q3 2014 earnings estimates. I have no good way to guess what HCLP’s earning’s potential is over time; but 17x doesn’t seem unreasonable, particularly with a steady announcement of 5 year supply agreements being announced and 200% revenue growth last year. When you’ve managed to get in on the ground floor of such a high flying position, it just makes sense to hold long a core stake, and ride the waves.

This 8% drop is just another opportunity to make extra money, until such time as that logic is challenged. For the moment, HCLP just managed to touch its 20 day moving average for the first time since early June.

Next earnings announcement is in August. So tell me, who wants to stand in the way of this thing?

A Global Power Shift Is Emerging

Short term cautions not withstanding, we are on the precipice of something great.

The entire structure of the global economy is shifting, slightly and slowly. But like all great change, the most striking of the movement comes all at once, at the end.

The United States is driving this assault of the balances of power, globally, as the energy revolution progresses on our shores. This country is set to become the biggest oil producer in the world – and we are now slowly removing the export restrictions that are the last remaining barrier to this mighty end.

This isn’t just about US trade balances and deficits. Those numbers games matter, but they always matter less than you think.

This game is about power. Oil has been the source of power to our enemies for too long. Russia and the Middle East have fed well on global consumption of this product, erecting their cartels around the flow oil to global industry. It has made them powerful and a threat.

The move by the US to become the world’s largest producer of oil and gas can be viewed through a different lens than financial gain alone: this is also going to completely upend our adversaries. What wars and weapons and diplomacy and cooperation could not possibly have accomplished, given the entrenched interests we faced, this one might push on our part will quickly bring about.

This is a once in a lifetime opportunity. You must get invested in it, and stay invested in it. All US leadership sees the goal, and no one objects to it. The days of getting beat about by monarchies in Saudi Arabia, needing to cut backroom deals that undermine our own morals with foreign militant groups, having to sit through endless meetings while Russian oligarchs threaten our allies with gas supply shortages…these days are coming to an end.

As the US increasingly becomes energy independent, the argument to even have relations with half these villains becomes non sequitur. We can marginalize them while circling around our true allies and real friends.

I can’t see everything that is going to come from this. Naturally US power will follow. And the North and South American continents should improve, swinging towards democracy and capitalism. Outside of that, while I think US energy independence is a good thing, I wouldn’t be surprised if war also follows. Revolutions surely, but also open war between foreign, former energy exporters who find themselves being boxed into a corner. The Saudi’s days are surely numbered, in particular.

My bet is that Russia will not change much, but they will also have to cut less lucrative deals with China to make it. So at least they will be a less powerful, less interfering Russia. Good riddance there.

Suffice to say, this is unpredictability at its best. While I think I see the theme, I do not yet hear the notes. But I’ll take my chances with it anyway. The old order of things was repulsive. I won’t be crying any tears for OPEC, or for Russia.

Up Another 1% Again Today

HCLP just blew through $60, as analysts raise targets in response to the HAL announcement.

BAS is back above $27. I guess I could have held onto all of those shares, but I have no regrets. Retaining a 15% position in BAS is more than reasonable.

SLW is pushing its way to $26.

My only position that is down noticeably today is UEC. And that remains my smallest position at 5% of assets.

Fracking investments remain the place to be. Oil names are doing well by extension (and a high price per barrel). I’m telling you, coal will be the next thing to run.

Have a wonderful afternoon.

Added A Half Position In BTU On “National Coal Day”

I added a small, 5% position to my book in BTU for $16.10, to commemorate the EPA issuing new power plant emission regulations.

My guess is the equity position is worth about $7 now. And they’re losing money every quarter. But this is investing, not guaranteeing. Market forces will either correct through higher electricity prices for consumers, rebalancing the coal market. Or, a third of the US grid goes offline and gun/ammunition manufacturers become the new Coca Cola.

I’m also looking at a few distribution terminals I think might see big volume increases as struggling coal producers – coupled with natural gas exporters looking to Europe – try and tap foreign markets for trade.

I’m moving slow here, not in any rush to push the limits. This is going to be very volatile; lots of room to play individual names sawing 25% up and down, but the overeager will lose a finger if they don’t give themselves room to back off.

The US is about to be the world’s biggest energy exporter for the next century. You can quote me on that. It’s just a matter of edging in and building position.

Your move.

The Time To Accumulate Coal Positions Is Now

I entered into NRP some time ago, which was quickly an unmitigated disaster. The position is down 25% from my purchase price. I sold half the position, along with other partial positions, back in January when I raised cash.

Today, I added back some of that for $14.93.

I want to talk at brief about coal. The time to buy into US coal reserves is now, while euphoria over natural gas is highest and markets are most spooked about a Democrat directed EPA.

I am in no way minimalizing the importance of the shale revolution. Not by a longshot – if you look at my own holdings, BAS and HCLP represent a firm belief in the continued importance of those assets to the US energy equation.

What I am doing is highlighting the continued importance coal will have in US power generation and abroad.

Coal presently makes up just over 1/3 of US domestic generation. This is down from 1/2 earlier this decade, most prominently replaced by the surge in application with natural gas. Yet, markets price in equilibrium of choices, when operating correctly.

We have to presume that markets will find a price that fairly limits benefits between choosing natural gas versus coal versus nuclear versus…for equivalent production of energy. This would suggest that natural gas prices are set to rise (further enhancing the payoff for the producers). I would also expect that, as excess capacity gets utilized, the adaptation of coal plants to gas will subside.

This process may take a little longer to finish, and perhaps gas will even match coal in terms of energy mix before it is done. What I would not count on is coal rapidly or even ever completely being removed from global energy production.

Which brings us to the fears of EPA punitive measures against coal. So far, these are aimed at coal fired power plants. While this would, at least temporarily, hinder US energy production from coal here at home, what is to stop US coal producers from simply shipping overseas? And why is metallurgical coal acting so volatile when it is not a component of US power generation?

The signs, to my eyes, spell clear a story of market overreaction to pop culture and fantasy. Power generation shifts or slides, waxes or wanes. It does not turn on or off. Coal has been systematically shunned regardless of its exact nature (energy versus metallurgical) and the driving catalyst seems to be mostly political.

But politics change and politics in this country are about to.

I will give you a 6 month synopsis of what is about to happen. In November, the DNC is going to get creamed, delivering the Senate to the RNC. You can suspend your political predilections, as this is merely obvious to anyone not sucking their own exhaust. And the GOP has no problem with coal power generation. In fact, the Republicans think the argument against coal power generation is, quote, “stupid”.

This will change the short term plot dynamics that drive most superficial market players. Around middle of 2015 or early 2016, coal will be “the most obvious buy ever”, whereas today it is “fools nonsense.” Of course, when it is “the most obvious buy ever”, it will be at some considerable percentage above where you can take a position today.

This will accelerate especially if it should appear going into the next presidential election that a Republican is about to take the White House (that is still too far out for me to see, but it is certainly not out of the question). In such an event, the current shunning of coal will look especially stupid and myopic.

Regardless of the next presidential cycle though, the simple act of the GOP taking both chambers of Congress should noticeably shift the messaging surrounding out of favor coal plays. Executive overreach through agency bodies, no longer shielded by the Senate, will begin getting visibly and openly reprimanded; or even punished.

This shift, along with coals critical importance to the US economy and abroad, should render this a generous buying opportunity in hindsight.

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