Daily Archives: December 8, 2009

Unswayed by Political Risks (by Oil Price)

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As multinational military forces have left Iraq, international petroleum companies have eagerly descended — seduced by the long-term potential of vast oil reserves off-limits to foreigners for decades. Yet lingering violence, legal questions and political uncertainty make doing business in this country a gamble.

In the first international oil auction held last June, widely seen as a failure, the Iraqi government awarded a firm contract to only a consortium of British Petroleum and the China National Petroleum Co. to further develop the Rumaila field over 20 years. Iraq recently forged an initial agreement with a group comprising Exxon Mobil and Royal Dutch Shell to develop the West Qurna field, and one with an ENI-led consortium of Occidental Petroleum and Korea Gas for the Zubair oil field.

Under ratified deals, firms stand to gain a mere $2 profit on each barrel added to production because the Iraqi government wants to convey “they're not going to let the oil companies take over,” said Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies (CSIS), a Washington-based think tank.

The operator of each 20-year service contract, which may be extended for five years, “will still make a rate of return in the double digits,” said Ruba Husari, founder and editor of the Web site Iraqoilforum.com, via e-mail from Baghdad. The country’s proven oil reserves were last estimated at 115 billion barrels. These massive reservoirs, and the low costs linked to such an uncomplicated operation, essentially make it “easy oil” for firms, Husari said.

Iraq will boast some six million to 10 million barrels a day over the next several years, analysts tell Oilprice.com. This scenario illustrates why oil companies perhaps are now more willing than last summer to gain an initial foothold in the industry on the government’s strict terms and thus build a long-lasting relationship that may lead to a production-sharing contract “for some discovered-but-yet-undeveloped oil field,” Ebel said. “It’s a hopeful assumption; I don’t know how realistic it is.”

Yet as companies salivate over Iraq’s potential, legal and political issues are still problematic to doing business. The war-ravaged country's “weak and ill-defined legal structures,” and uncertain moves by the next government slated to be elected in January, may result in canceled service contracts, warned David Bender, an analyst in the Middle East practice of the Eurasia Group’s Washington office.

Through conversations with oil firms, Bender has gleaned that Iraq is probably not “quite at the point in which legal details are the most important aspect” and is focused instead on the larger political process. As a result, he said, members of a newly elected government, influenced by their own interest groups and “power politics,” may annul contracts despite the associated penalties.

Finalizing a long-awaited hydrocarbon law governing the oil industry will be a top priority of the next government, said Mishkat al-Moumin, an adjunct scholar at the Washington-based Middle East Institute and Iraq’s environment minister from 2004 to 2005. Ideally, the legislation will outline investing in new oil fields, establishing a council to manage petroleum issues and offering a mechanism allocating oil revenues, she added.

The absence of an agreement to share oil revenues with the northern Kurdistan Regional Government continues to plague Baghdad, which never recognized as legal the Kurds’ independent oil deals with smaller companies. “If you get an oil law in place, will the Kurds accept that oil law or will they say . . . ‘You’re not giving us enough share of the income that you get from our oil,” questioned Ebel, the CSIS analyst.

Although it is too early to measure the internal impact of opening up the oil industry, in five years oil money will likely flow down to ordinary Iraqis, al-Moumin predicted. The Iraqi government is now debating whether to distribute checks to citizens  allocating their fair share or to broadly invest in infrastructure and services, she said.

As the central government and international companies gear up for a second oil field auction pegged for Dec. 11 to 12, Eurasia Group’s Bender expects firms this time to be undeterred by initially meager profits, and increasingly tempted by what may become “the most lucrative, exciting oil market in the world.”

 

This article was written by Fawzia Sheikh of OilPrice.com who focus on Fossil Fuels, Alternative Energy, Metals, Oil Prices and Geopolitics. To find out more visit their website at:http://www.oilprice.com

Compromised? (by Jeff Patterson)

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I hear from a lot of people how the dollar's decline is over. Therefore I thought I would post a chart of FXE. From my perspective the up trend has not been compromised. Does it look like the up trend is broke? The purple line which is the 90d s.m.a just needs to be tested to cleanse out all the complacent and weak longs. Look back to 06-08 for some perspective. Also does it look like gold's long term trend has been compromised?

So we see FXE about test the 90 day. Numerous gold stocks are at the 90 day or approaching them, which also happens to be their long term upward trend lines. Add to that concoction that UUP is about to test its 90 day, which is down sloping and what you have is a nice chance to get long some gold and FXE and be part of the continuing up trend once it resumes from this current shake out.

Furthermore the dollar index or UUP has done nothing to confirm a break of its primary trend. Is a counter trend rally possible, sure, but I think its just about run its course, it can move a little higher from here. If you think about the dollar from a fundamental perspective there is no reason for it to change direction yet. There are so many reasons why it will stay weak. 

One final note December, January and February are historically very strong for gold.

FXE DAILY

Snapshot-59
 

UUP DAILY

Snapshot-60
 

AU DAILY

Snapshot-62
 

GG DAILY

Snapshot-64

1937 vs 2007 Bear Market Correlation (by TheInflationist)

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This is our first post on SOH – hope this finds its way to fellow Slopers (Thanks Tim).

1937 vs 2007 fibonacci correlation by www.theinflationist.com
1937 vs 2007 fibonacci correlation by www.theinflationist.com

Although
the backbone of our analysis is NOT based on fibonacci numbers or
anything conventional, our analysis and comparison of 1937 vs 2007
produced uncanny results.

In 1937, DJI peaked at 194.4, bottomed at 98.95 and subsequent bear
market rally peaked at 158. So it dropped 95.45 points from peak to
bottom. Of this, the bear market rally regained 59.05 points
(158-98.95). The ratio of retracement 59.05/95.45 = 0.6186. For those
of you who are not aware of the principles of Fibonacci and its
application in trading, Fibonacci numbers are numbers where each one is
the sum of the previous two numbers. Read below for more details on
Fibonacci numbers. We arrived at this ratio inadvertently, without even
realising the significance of 0.618 until it was pointed out to us
.
Coincidental? Perhaps.

Regardless, we applied the same Fibonacci ratio to the current rally
in an attempt to see where this rally will peak. Based on the same
Fibonacci ratio, a peak of 11255 will produce the same retracement as
1937. This has to be a closing price, which means the high of the day
will probably hit 11300 for those trading with a sniper rifle (we prefer the shot gun approach!).

We are concern enough to scale back some of our additional shorts
opened Friday, to provide sufficient firepower to short 100% at 11300.
11300 appears high enough to wipe out the remaining bears in our camp
and provide the undoubted confidence in bulls. This would fit with a
"blow off" top we have been talking about. We will take the little
profits we have from our S&P shorts opened Friday. Also will look
into the weekly (or monthly if available) Binary Index trade for 11300
as insurance.

We have a busy weekend ahead so we will rush this analysis to print. We will add more to this as time permits so do check back.

Why compare 1937 with 2007 ?

For new readers, our attention focused on 1937 after we compared all
previous significant bear markets since 1929 and the Nikkei's 1989
(because of the similiarities in monetary policies quoted by many eg
"Mish" Mike Shedlock) – and found that 1937's chart looked identical to
the current. Check the full post here.

www.theinflationist.com
www.theinflationist.com

We then zoomed in on 1937 after noting the striking resemblance and compared with the current decline in more detail here.
We were not sure though, whether the current rally equivalent was at
point A or B (see below). We felt that if we were at point A, then that
would mean that we have topped at 10500, and to expect a pullback
before further rally to hit 11000 at point B. When news of Dubai
default came up, we thought "Perfect timing!" – and that it was going to be used as the "excuse" for
the expected pullback. That was not to be as markets resumed the rally
after the weekend to make higher highs.

1937 Crash Vs 2007 Bear Market

We then searched the web to see if anyone else saw this. We found
one – Louise Yamada. She tries to explain the similarities of 1937 and 2007 both
from a fundamental and technical perspective. Here is what she says about 1937 vs 2007
(2/5 videos)

Where to From Here ?

1937vs2007fibonacci2

Good luck to all.

———————

Fibonacci Numbers, Fibonacci's Golden Ratio

0

1

1

2

3

5

8

13

21

34

55

89

etc

The division of any two adjacent numbers gives the amazing Golden number e.g.
34 / 55 = 0.618

It is called the Fibonacci series after Leonardo of Pisa or (Filius
Bonacci), alias Leonardo Fibonacci, born in 1175, whose great book The
Liber Abaci (1202) , on arithmetic, was a standard work for 200 years
and is still considered the best book written on arithmetic. It was the
principal means of demonstrating and introducing the enormous
advantages of the Hindu Arabic system of numeration over the Roman
System. Leonardo's reputation amongst scholars was deservedly great. It
was so outstanding that King Frederick II, visiting Pisa in 1225, held
a public competition in mathematics to test Leonardo's skill and he was
the only one able to answer the questions (Huntley 158). Fibonacci
ratios occur naturally around us: width vs height of picture frames, no
of petals in a flower, etc (see the mystery of Fibonacci Ratio and Numbers)