Interviewing an energy trader tomorrow on oil prices

[Bluemyboy]

The guy is taking off out of town for a couple weeks unexpectedly and I am coming up with a list of questions. I am doing a report on Oil Prices for a finance class I am in.

If you want me to ask him anything post it here. He is very open, so I'll ask him just about anything on or around the topic and he will have some response even if it is in jest.

His background is in economics, specifically energy economics. He has worked all throughout the industry and now owns an energy trading firm in Washington. Just thought some people might have some questions.

[SeaGal]

thoughts on our reserves at Bryan Mound and three others ...effect on crude and gas prices, if any. Is continuing to fill them a sound economic policy given current prices?

why are oil companies showing record profits (at least since 2005) and most recently Exxon's 40.61 billion http://http://money.cnn.com/2008/02/01/news/companies/exxon_earnings/ yet consumers don't seem to benefit from those profits.

and what about ceo pay? Lisa Myers is NBC’s Senior Investigative Correspondent says "What about CEO pay?

Chevron's CEO received $37 million in total compensation last year. Conoco Phillips' CEO got $17 million. Those are big numbers, but experts say they are in line with Wall Street's inflated standards.

Then there's Exxon's CEO and his stunning $400 million pay and retirement package — which an industry spokesman still defends.

“One has to compare any executive's compensation with the performance of the companies that they manage,” says John Felmy, the chief economist at the American Petroleum Institute.

Oil industry officials also argue that some profits are passed on to average Americans, who invest in the companies. But critics say, in most cases, those dividends won’t begin to offset the high cost of gas — and the outrage."

[SeaGal]

Should the government break up the big oil companies to bring down prices?

“This (prices this high) did not happen when there were 15 or 20 oil companies because you'd find good old-fashioned American competition would work,” says Sen. Charles Schumer, D-N.Y.

In 1998, there were 11 major oil companies. After six mergers, today, there are five. But experts say the cry to break up these behemoths ignores the reality that the U.S. imports two-thirds of its oil — and these companies have little control over price.

[Bluemyboy]

Here is what I sent him, feel free to chime in as well if you want with any answers. Alot of this stuff I have a general understanding of (I am graduating with a major in Fin econ and minor in envir studies), but want to dive deeper, which is why I am writing a paper on this.


General Speculation:
- How much is the price of oil now due to speculators? I mean right now are prices moving mainly because people who others hold in respect are spitting out numbers like we will see 150$-200$ a barrel. From your position do you see more people wanting to short crude futures?

-When oil companies decide to extract oil, they need to try and predict future prices, right? I think you talked a little about this in class. How long does the crude sit around before it is sold? How big a role does the oil companies speculation of future prices affect the prices we see on a barrel of Crude? If the oil companies are off on their estimates can they directly influence the price today. How does being wrong on their future estimates affect the companies themselves and the oil industry?

-Has speculation on the dollar had a major effect on crude prices? In general how much has the weakened dollar added to prices?

-Any validity to the Memorial Day theory.... price of oil will peak around Memorial Day? Is this something we have seen in the past or something similar. Would it make more sense to expect a peak closer to the middle of the summer when driving is at its busiest?

-Thoughts on what happened this morning with the loss of reserves and increase in prices. What effect will the announcement have on the near future? Looked like the some airlines took immediate action. Will we see this more and more, will this lead to a slow down soon or even a reversal? Where do you expect the price to somewhat settle?

-What effect if any has the electronic trading systems affected speculation of oil by making it easier for more people to get involved? Or has it had any effect in your opinion?

-Anything else you want to expand on about speculation, I know you were talking about some specific players who you did not like too much because of the press releases they were putting out. If you want to expand on that or anything else related to speculation.

Geo-Politics:
-How is the presidential election affecting oil? What can we look forward to as the race progresses?

-What are the biggest differences between the candidates in terms of oil policy? Would any of the candidates seriously consider drilling offshore?

-Republicans seem to be the party tied most closely with "Big Oil". Your thoughts on that perception.

-In your opinion what candidate is best in terms of their energy policy?

Oil Companies:
-I know we talked about this a little in class, but if there is anything more you have to say on the record profits/CEO pays vs the record high prices. Is this all just due to an increase in demand or is there something else that should be inferred?

-Are their less Oil companies now then in the past? How has this affected the prices in your opinion?

-Is there any evidence of price manipulation by oil companies at any level in your opinion? Or is it all just media driven and people looking for a scapegoat?

-We hear all the bad about oil companies and never the good, anything I should really try to highlight in terms of something that people may not know about the oil companies which they do?

Other:
-thoughts on our reserves at Bryan Mound and three others ...effect on crude and gas prices, if any. Is continuing to fill them a sound economic policy given current prices?

-Are the countries we are buying the oil from the same ones re-investing the money in oil futures and driving the prices up themselves?

-How big a role in prices does the state of our reserves and refineries affect prices of crude and prices at the pump?

-How long do you think if ever until we are domestically producing most of our oil?

- How much will the price per barrel slip this summer, and where will the price go for the remainder of the year and into 2009?

-Why does the price at the pump and the price of crude differ in how much it will go up and down? How many additional factors are there to this?

-Seems people like to blame the American culture for the high gas prices, how much effect has the world demand had on the price of oil and the price at the pump?

-What area of energy will/is benefiting the most due to the high oil prices? How much higher in your opinion does the price need to rise for a huge move to alternatives? Are we already there?

-What makes up the price of a gallon of gas? What makes up the price of Crude? (General)

Last one, sorry....
-Not sure if you are an NBA fan, but since you deal in speculation and predictions I had a guy that wanted to know who you like in the Lakers/Spurs series.

[Bluemyboy]

kinda just summarizing what he said.

- How much is the price of oil now due to speculators? I mean right now are prices moving mainly because people who others hold in respect are spitting out numbers like we will see 150$-200$ a barrel. From your position do you see more people wanting to short crude futures?

...basically who really knows. He thinks the bigger problem is the big names and major analysts putting out the headlines and individual traders reacting to them. He says the media is partially to blame because they don't let these high future expectations die. They tend to hype the higher number, as in if an analysts says 150-200$ a barrel, news will usually portray the higher number. He also thinks that announcements by people like T.Boone Pickens probably have reason to make high predictions because of major investment in alternatives.

In general he thinks that the more people involved leads to more liquidity and thus in general it might be good to have more people involved in setting the price.

-When oil companies decide to extract oil, they need to try and predict future prices, right? I think you talked a little about this in class. How long does the crude sit around before it is sold?

says we have oil sitting in inventory for 4-5 days. So, not very long. This is also a big problem as it leads to more uncertainty. He kind of went on tangent here talking about how small little things can snowball into bigger deals with the way the prices are set. He used two examples, one was a cutback from China as the Olympics approach. Also Bush's statement on the strategic oil reserves. Says that some people consider these small things, but they can really move the price obviously and lead to a bigger snowball effect.

-Has speculation on the dollar had a major effect on crude prices? In general how much has the weakened dollar added to prices?

He says that there is no doubt the weakened dollar has had an effect. He talked a little how much the dollar is compared to the euro and how that has played a role. He talked about how when the euro came out they did a lot of research and settled at a price of $1.19. Then it dramatically decreased to .85$. Since then we have seen it rise. But, most people compare the.85$ to the 1.50$ or whatever it is now. His analysis says that he thinks they did tried to do a very good job in setting what it opened at, and that something much closer to what it opened at is realistic for the longer term.

Then he went on another tangent about how much the oil policies and specs differ between states. States have different grades and specs, something that he believes cuts down on liquidity of the entire market, he thinks it would be better to have all states have the same specs.

-Any validity to the Memorial Day theory.... price of oil will peak around Memorial Day? Is this something we have seen in the past or something similar. Would it make more sense to expect a peak closer to the middle of the summer when driving is at its busiest?

Says he has not heard too much on this actually. He said it could make sense. In March/April most refineries start changing their refinery ratios. This should show an effect about May 31st. He says that is also when the busiest driving season is, so he was kinda unsure on that theory. Said if there was something to it he thought it probably had to do with the refinery ratios.

-Thoughts on what happened this morning with the loss of reserves and increase in prices. What effect will the announcement have on the near future? Looked like the some airlines took immediate action. Will we see this more and more, will this lead to a slow down soon or even a reversal? Where do you expect the price to somewhat settle?

he expected reserves to increase this AM, and he was out to breakfast all morning, so he had not really had time to look at what was released. He started talking about the problems with refineries: no new ones, not running at capacity, and higher maintenance costs then ever before. He did say the one bright spot is that they are patching these refineries with new and better technology increasing capacity. He thinks this will turn around, as I said he thought reserves would increase not decrease. He thinks there is tons of oil out there and technology is not far away from huge leaps. I get the picture he thinks at some point soon the price of oil will fall and fall fast.

I'll continue to post these...

[Bluemyboy]

-What are the biggest differences between the candidates in terms of oil policy? Would any of the candidates seriously consider drilling offshore?

He is not too happy with any of the presidents when it comes to what they have said on energy issues. If he had to say one of them it would be McCain, but he thinks even McCain is not looking hard enough into filling the void domestically. He really did not talk to much on politics in terms of how it would effect the future on energy and oil.

-I know we talked about this a little in class, but if there is anything more you have to say on the record profits/CEO pays vs the record high prices. Is this all just due to an increase in demand or is there something else that should be inferred?

He talked about the size of the oil companies and how they are basically the biggest companies around. If they were smaller their profits would not look so big, but because of their size and world demand now their profits are very great. But, he said that it is not the oil companies benefiting off of these high oil prices. In fact one could make a good argument of quite the opposite. The oil companies are investing a ton in alternatives and being socially responsible.

He then went on a tangent about what a black eye the industry had from how it handled things in the past, such as just hanging a pipe out into the ocean. In his opinion while we now see that it was a huge problem, it was just the way things were done. He started talking about some examples like Georgia Pacific who has invested hundreds of millions into cleaning up areas. He claimed that the dirty oil companies were no longer located here in the US, but rather look to the developing countries such as Russia, China, and India where regulations are much more lax on Environmental Issues. In his opinion the oil industry has actually become one of the more socially responsible industries out there. In talking with a financial analyst who came to talk with our class he also backed this opinion up based on his research into companies for investment purposes.

-Are their less Oil companies now then in the past? How has this affected the prices in your opinion?

He did not really answer this. Basically said yes this is true, a few companies merged togeather. But, he felt that it had no or little effect on any prices, based on economies of scale one could make an argument that it would be more efficient for production.

-Is there any evidence of price manipulation by oil companies at any level in your opinion? Or is it all just media driven and people looking for a scapegoat?

He kinda scoffed and said that in his opinion the oil companies do not set the prices for crude or at the pump. He said the picture of all the old CEOs is not the case any more, by in large the companies are owned by millions of retirees or soon to be retirees who have their retirement funds tied up in oil companies. With regulation where it is today he does not believe any truth to the fact oil companies are purposefully holding a high price. Like I said above they are not necessarily helped by a higher price.

[Bluemyboy]

<table bgcolor="#ffffff" border="1" cellpadding="4" cellspacing="0" height="132"><tbody><tr><td>NYMEX Light Sweet Crude</td> <td align="right">-2.36</td> <td> $130.81
</td></tr></tbody></table>

[Bluemyboy]

Pickens Says CFTC Probe of Oil a `Waste of Time' (Update1)
By Edward Klump and Margot Habiby
http://www.bloomberg.com/apps/data?pid=avimage&iid=iuovTngKtf.I
http://images.bloomberg.com/r06/news/enlarge_details.gif (http://www.bloomberg.com/apps/news?pid=photos&sid=a_v6FZgW1WAI)

June 2 (Bloomberg) -- Billionaire hedge-fund manager Boone Pickens (http://search.bloomberg.com/search?q=Boone%0APickens&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said today that a CFTC probe of crude trading as oil rallied to a record $135.09 a barrel is a ``waste of time.''
The U.S. Commodity Futures Trading Commission said May 29 that it was investigating how much of the rise in oil prices were caused by speculators who manipulated the market instead of consumer demand.
``There's nothing to it to start with,'' Pickens said in interviews at an American Wind Energy Association conference in Houston. ``That's not what happened. You have 85 million barrels a day of oil available in the global energy market and 86.4 million barrels a day of demand. So the price of oil is going to go up until you can kill demand.''
Pickens reiterated a forecast, first made in April, that oil will reach $150 a barrel this year. Crude oil for July delivery fell 16 cents to $127.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 7:07 p.m. Oil has risen 96 percent in the past year. It touched the record $135.09 a barrel on May 22.
Pickens said the U.S. should utilize its supply of natural gas for transportation. ``You're going to have to get natural gas in competition with gasoline and diesel,'' he said. ``That's the only way out for us in this country.''
Mesa Power
He also said wind has a larger role to play. His Mesa Power LLP said last month that it ordered 667 wind turbines from General Electric Co. to begin a $10 billion wind-farm project in Texas that will be the nation's largest. When completed in 2014, the Pampa Wind Project in northern Texas will be capable of producing about 4,000 megawatts. That's enough power for about 1.2 million average U.S. homes.
The U.S. Department of Energy said in May that wind could account for 20 percent of the nation's power supplies by 2030, delaying new coal-fueled power plants and lowering emissions of greenhouse gases. Wind may provide more than 1 percent of U.S. power this year.
FPL Group Inc., the largest U.S. producer of wind power, said today that the country won't reach the 20 percent level by 2030. Pickens said ``20 percent of our power could be generated by wind in less than 20 years.'' He also said Congress needs ``to fix the transmission because it's too important to this country.''

[Bluemyboy]

Iraq's oil exports rise

21 hours ago
BAGHDAD (AP) — Iraq's oil production and exports have risen to their highest levels since the March 2003 U.S.-led invasion, the Oil Ministry said Monday.
The country's exports reached 2.11 million barrels a day in March while the total output stood at about 2.5 million barrels a day, spokesman Assem Jihad told The Associated Press.
"The figures in May showed that we have succeeded in reaching the prewar levels both in production and exports," he said.
The Energy Information Administration, part of the U.S. Energy Department, estimated Iraqi production at about 2.6 million barrels a day in early 2003. Production tapered off just before the U.S.-led invasion, then dropped to below 1.5 million barrels a day, according to the group.
Oil exports were down last month because of the fighting between government forces and militiamen loyal to radical Shiite cleric Muqtada al-Sadr in Basra province, the center of the southern oil industry.
The fighting ended with a truce brokered in Iran.
Iraq sits on the world's third-largest proven petroleum reserves, totaling more than 115 billion barrels. But the industry is plagued by a lack of modern equipment and training after decades of U.N. sanctions, war and Saddam Hussein's ruinous rule.
The country plans to boost oil output to 3 million barrels a day by the end of 2008 and 4.5 million barrels a day by end of 2013.
Iraq hopes to earn about $70 billion in oil revenues this year if crude oil prices remain high and the country maintains stability in major producing areas.

[Bluemyboy]

great info above.... btw, during this interview the guy told me he predicted 95$ crude by October and the dollar would appreciate dramatically.

Pretty spot on.