BP is set to try a top kill tomorrow on the MC252 well in the Gulf.

Effectively, a top kill consists of injecting heavy fluids under high pressure down into the well bore. The weight of those fluids (i.e. the “head”) counters the pressure of the oil and gas coming up the well bore, and the end result is a “kill”.

Then, BP can come back in with cement and permanently plug the well.

The key is that the fluid you’re injecting needs to be very heavy. Drilling fluid is typically used; it’s used on the drilling process for the exact same purpose, to contain fluids in the well bore.

The other requirement is that you must be able to inject that heavy fluid under enough pressure to initially overcome (or overpower, if you will) the opposing pressure of the oil and gas condensate coming the pipe.

Good luck BP. I’m excited to see if this works. It’s never been done in deep water.

The Obama Administration is now saying that it will push BP off cleanup duty and take over if they determine that BP isn’t taking all the appropriate actions.

Great. Call in the experts.

The administration also accuses BP of “missing deadline after deadline”.

If that isn’t the kettle talking…

BP will try a top kill on Tuesday, and if that doesn’t go well I suspect they’ll try a junk shot. I don’t have much faith in junk shots.

If there is one ratio in the commodities market that completely out of whack, it has to be the price of crude ($wtic: chart) to natural gas ($natgas: chart).

From 2000 to the end of 2005 the ratio of the crude oil price in $/bbl to the price of natural gas in $/MMBtu was around 7:1.

Today, that ratio is a little over 18:1.

The price of crude oil started its ascent towards record highs in 2006, and natural gas supplies started creeping upwards, also to record highs about that same time.

If one were thinking about the ratio alone, you’d surmise that either crude prices need to fall or natural gas prices need to rise to trend back towards that 7:1 ratio.  The problem with this logic is that crude and natural gas now contend for markets with drastically different scopes.

Crude is truly a global commodity as evidenced by the geography of the crude reserves and the intercontinental demand for the black gold from the Middle East.  Natural gas on the other hand is very localized, and this is due primarily to the transportation and infrastructure differences between the two energy resources.

Natural gas is relegated to pipeline transportation (with the exception of limited LNG movement via ships) whereas crude oil is fit for pipelines, freighters, tankers, rail…

So you can start to see the conundrum.

The holy 6:1 ratio (based purely on energy content) is not so holy any more, and natural gas and crude have devolved into completely unrelated markets.

For now.

I suspect that if we continue to see natural gas supply levels stay up, and prices stay low, that more and more industries will shift to natural gas for purely economic reasons.

I predict that natural gas draws will start increasing this winter, and the price will reflect that.

As for the ratio, I suspect it will start to moderate, but not because crude oil prices start retreating.

Last week I started buying Cree (CREE: chart, web, Y!), and in typical fashion the stock dropped (along with just about every other equity) $2 after my order filled.

So, what’s a guy to do but buy more?

Fundamentally nothing changed with the company, although they are well positioned to take advantage of whatever bogus “green” legislation the Obama Administration may conjure up (i.e. trying to make light bulbs sexy again).

A technical trader may suggest that I should have waited for the pending drop in the chart, but that’s really not my style.

I’ve started adding shares in increments of 10 to set a good average price, and will continue to watch the company develop and their products mature.

The adage; “never waste a good crisis” continues to be more and more transparent as people start opening their eyes to what the government is saying versus what the government is actually doing. If you listen to what the Obama administration says, and compare it to what they do, you’ll certainly see a disconnect. Obama wants to create jobs, but also wants to increase taxes on those with the most money. I would like to think that he understands it takes capital to create jobs, and if you reduce capital, you reduce the incentive to create jobs. So does he really want to create jobs, or just continue to line the pockets of special interest groups and politicians alike under the guise of creating jobs?

I’ve always said that if you follow the money, you’ll find the incentive.

A prime example of this is Al Gore and his efforts to combat climate change. Ask yourself, why would an ex-politician go to such great lengths to promote such a controversial theory? And why would he spend so much money in his efforts? Follow the money.

Gore is Chairman of Generation Investment Management, LLP (GIM) that focuses on investing for the long term based off the idea that “sustainability factors—economic, environmental, social and governance criteria—will drive a company’s returns over the long term”. (If you have any idea what that really means, let me know.)

One major area that GIM tries to take advantage of is the “regulatory developments in climate policy and carbon markets, and the attitude shifts that are occurring among consumers, leading businesses and investors.”

Climate change is an urgent challenge that affects long-term corporate profitability, and therefore must be systematically integrated into investment analysis. The pace of climate change is accelerating and will have material effects on equity markets in the short, medium, and long term. -Source

Al Gore also founded and chairs the Alliance for Climate Protection whose mission is as follows:

Our mission is to persuade the American people—and people elsewhere in the world—of the importance and urgency of adopting and implementing effective and comprehensive solutions for the climate crisis.

The Alliance for Climate Protection is undertaking an unprecedented mass persuasion exercise based on scientific facts. Through a new combination of non–partisan alliances with Americans from all walks of life and innovative and far–reaching communication techniques the Alliance will focus on presenting the facts about climate change and its solutions to the general public in an accurate, clear and compelling manner.

Americans have always risen to meet the most important challenges to our nation’s and the world’s future. Together, we can address the climate challenge domestically and provide a robust economy for now and for our children. -Source

Based on the “Gore Connection” between these two entities, it would make sense why the Alliance for Climate Protection would want widespread emissions regulation and proactively support cap-and-trade legislation so that companies will be forced to lower their greenhouse gas emissions and buy carbon credits.

Surely they would recommend buying those carbon credits from none other than Generation Investment Management!

With this in mind, it’s not hard to see why Al Gore is so adamant about saving the planet from us dirty humans.  After all, the guy needs to make money somehow, and what better way than to scare those humans into giving him money for the greater good of the planet?

Actually, there would be a better way, and that would be if the government got involved and mandated that those dirty humans give him money for the greater good of the planet!

The Ties That Bind

Last week Gore came out and tried to push critics into a corner by suggesting that it’s silly to question the science (see the video below).

Rubbish.  You always question science, because there’s no such thing as a consensus in the scientific community.

It’s interesting that T. Boone Pickens appears in this discussion, as he’s in the same boat as Gore.  Pickens continued to push his “Pickens Plan” (which I wrote about in a skeptical post last year) to America in an effort to reduce the dependence on foreign oil and invest heavily in natural gas and wind energy.  Both efforts in which he already has billions of his own money at stake.

Can it be more “transparent”?

Follow the money, and you will find the incentive.

Over the past several months I’ve ready many articles with various opinions on a “reasonable price for crude oil”.  Regardless of the source, or the magnitude of “reasonableness”, I often wonder: what’s so special about that number?

For instance, yesterday OPEC’s secretary general Abdalla el-Badri opined that “$70 to $90 per barrel is reasonable, as that range will support investment in new production”.

Well sure, if that new production costs less than $70 to $90 per barrel to produce.

The argument that el-Badri made was that OPEC controlled as much as 80 percent of the world petroleum reserves, and that they needed to develop that reserve “so we can have more supply to the world”.

I’m not sure that argument holds much weight.  Here’s why.

Ideally you want to have your production costs as low as possible so production is insulated against large price swings.  The lower the production cost, the longer the reserve will make economic sense to produce.

If you have high lifting costs for a substantial portion of your reserves, the the higher the chance you’ll have to shut in production due to the lower than production cost market prices.

The last thing you want to do is continually shut-in wells due to market volatility alone.  The drawback to that is that once prices rise above lifting costs, it will take a substantial amount of time to get production to market.  It’s not like flipping a switch on and off.

As we’ve seen in recent months, the effect of OPEC quotas, and their reduction, is questionable.  OPEC has cut hundreds of thousands of daily production, with no net result on the price of the commodity itself.

So what’s so special about $70 to $90 per barrel?

Ultimately that range makes development of unconventional reserves look more attractive.  However, with the balance of supply and demand shifting the scales in the other direction, raising the price of the commodity just to stimulate supply when demand can’t keep up doesn’t sound like a reasonable solution.

OPEC is set to meet again on March 15, and if crude prices are still hovering around $40 per barrel, you will surely see additional cuts in production.

To what effect will be interesting to see.

Almost like clockwork, Chesapeake Energy (CHK: chart, web, Y!) offered up $1 billion worth of new shares after the markets closed on Wednesday.  The stock is sitting down 21% this morning after shareholders absorb their latest dose of dilution.

I can’t say I’m surprised, as Chesapeake has been forced to come up with cash anyway the company can.  It really all started when CEO Aubrey McClendon was forced to liquidate his entire portfolio of Chesapeake shares after a brutal margin call.  The $1.6 billion paper loss due to hedged oil and gas that was below market prices in the second quarter didn’t help either.

This is a company that is on thin ice financially, and in this writers opinion, it’s due to poor management of debt and over extension of credit.  Sound familiar?

That’s not to say Chesapeake will go under, and it would look like a decent takeover candidate if it weren’t for the debt structure.

I see the company continuing to sell off nonproductive assets through 2009, and depending on how the energy markets play out over the next 8 months, the company will flounder to stagnation by the beginning of 2010.

Last week Provident Energy Trust (PVX: chart, web, Y!) announced that while they had successfully closed the sale of their U.S. oil and gas business, they would also be cutting the monthly dividend to $0.09 Canadian, or about $0.07 USD.

Although that certainly smarts, I can’t say that I’m surprised.

Provident has traditionally been a very conservatively managed trust.  They look to increase their reserves with the smallest amount of risk (i.e. expanding production through infield drilling and acquiring proven reserves), and they really don’t take off any more than they can manage, and manage well.  A case in point was the divestiture of its equity interest in BreitBurn Energy Company L.P for a total sale of about $305 million USD.

Provident has been beaten down lately with the rest of the markets, commodities in particular.  As fast as oil prices rose, they fell even faster.  I suspect that the price action from most Canadian trusts came as a result of big money fleeing the market to increase liquidity, and money was pulled from even the most attractive places.  No stock is/was safe.

The good news behind all this is that fundamentally the trust looks fairly robust.  Funds flow from operations in Q3 were up 44% from the same quarter of last year.  Production from the Canadian side of the O&G business was up just slightly (~1%) from the same quarter year over year.

Interestingly, the payout ratio was down to 61% for the third quarter, as compared to 89% from Q3 last year.  For the nine months ended September 30, the POR was just 53% compared to 88% for the same period last year.

So why the dividend cut?

Just like any business in this economic climate, PVX is facing the same pressure economically as the mid-majors in the U.S.  The forecast for oil prices in the next 6 to 12 months is anyone’s guess, and while things were looking up as of the end of the third quarter, they aren’t so bright going into Q4, and I suspect the results from this quarter, reported next year, will be less than palatable.

Provident believes that capital spending must be aligned with prevailing economic conditions. To this end, the Board of Directors has adopted a conservative capital budget of $165 million. Provident has an extensive inventory of quality opportunities available for additional investment. Provident will review its capital program throughout 2009 to determine whether any combination of work program results, commodity prices, equity and debt market conditions or other material factors merit changes to the capital budget. -Source

It’s clear that Provident is getting a head start on the budgetary aspects of this downturn in the oil and gas industry, however I believe that they are savvy enough to capitalize on these bad times. In a lot of respects, they already have.

The company has a new development they’re calling the Pekisko play in Northwest Alberta, consisting of a 100% working interest in about 54,000 acres of undeveloped land.  What’s interesting about this is that that acreage is right next to existing company operations.  So they know the geology and they know the local reserves.

In fact, they drilled two horizontal exploratory wells that production tested more than 250 bpd.  Not bad, even for $50 oil.  In all, the reserves are estimated at 2 million barrels of proved plus probable oil based on these two offset wells.  In all the company has about 300 drilling locations in the play, so they’ll be busy for a while.

In all, I’m not really worried about my stake in PVX, sure the distribution cut is a bummer, but again I’m not surprised.  The potential that keeps presenting itself to the company is still attractive, and the fact that they capitalize on their opportunities is a sign of a well-run oil and gas company, regardless of the market or industry conditions.

I look for oil prices to hover between $40 and $60 for about the next six months or so, and then go up as the economic conditions strengthen.

Last Friday OPEC announced a cut of 1.5 million barrels of daily crude oil production as part of an effort to stabilize crude oil prices.  Evidently the commodity did not react as expected, shedding more than 7% more after the news.

It seems that the stability of the global economy is trumping anything OPEC can do to prop up the price of crude.  There is still a lot of money leaving the energy markets, either by force or lack of confidence.

Unfortunately, with every down day in the crude market, the foresight of alternative energy comes more into question. Everyone with a vested interest in developing alternative energy is starting to question the security of the decision to steer to wind, solar and other alternative energy sources.

As the price of gasoline slides, efforts from the likes of GM with the Chevy Volt seem to carry less of a return.

I think in the long run crude oil prices will start moving up again.  It’s just a matter of how long the alternative plays can ride out the dip.

Evidently Boone is about as good at gambling in the market as Tom Kivisto, and it seems that there is no one out there who is willing to question his decisions.

Three years ago Pickens donated $165 million to Oklahoma State’s athletic department in an effort to buy OSU’s way back into contention in the Big 12 Conference. Brand new indoor practice facilities for every sport on campus, a revamped football stadium, press facilities, etc. It was all worth doing, and Pickens was going to foot the bill to do it.

Just to make sure everyone knew he was serious, he allowed the school to take out a $10 million life insurance policy, you know, just in case.

But what’s striking about all this is that Pickens didn’t just donate the money to the school.  He took the money and plunked it down in BP Capital Management, a hedge fund controlled by none other than Pickens himself.

It turns out, BP Capital Management isn’t immune to the current market forces, and has had nearly all of the $165 million in “donation” wiped out by margin calls.

So now the University is stuck with an ongoing project (that has now been put on hold) with no way to fund current development, much less see the project through to completion.  The football stadium expansion was funded with loans backed by what was a $300 million chunk of collateral in BP Capital.  That was when times were good and oil was expensive.

Oh how the times have changed.

The initial gift kept growing and growing as it sat in BP Capital, thanks to the increasing oil prices after the hurricane action in the gulf gave an instantaneous jolt to the oil markets.  But what goes up must come down.

As oil prices started to fall, BP found itself “on the wrong side of the market” so to speak.

So now the stadium project (named after Pickens, naturally) generates over $1 million in interest payments per month.

Hopefully this will serve as a lesson to major institutions that there is no substitute for cold hard cash.

May the common investor take note.

Sometimes you have to go with your gut, and when your gut ends up being right, you get this warm and fuzzy feeling that you may actually know a thing or two.

Frequent readers of The Corner Office Blog know that I’ve been bearish of Chesapeake Energy (CHK: chart, web, Y!) due to their huge amount of debt (and the pilfering of shareholders to pay off that debt by diluting the stock) when commodity prices were at record highs.

I’ve owned CHK before and have made money off the stock, but when credit started tightening over the last year to 18 months, I knew CHK would end up with a target on its back just due to the debt alone.

Well, it seems the debt has come back to haunt Chesapeake, along with an in-house trading philosophy that ended up costing the company $1.6 billion on paper, and forced CEO Aubrey McClendon to sell all of his own companies shares involuntarily.

Here’s how it all went down.

Chesapeake was making money hand over fist when commodity prices were high, just like any other player in the field.  Then, their trading operations made the gamble that the run on oil and gas wouldn’t continue.  So the company bought options and other financial vehicles to lock in the current rates (around $120/bbl for oil at the time) to protect from what they saw as an expensive downside risk (also known as hedging).

So what happened?  Oil continued to rise to a high of just over $145/bbl in July of this year.  That’s actually a good thing for Chesapeake, right?  Not necessarily.  Since Chesapeake hedged their oil at $120, they were only getting paid $120 for every barrel they pumped, not $145 that was the current market price.  Again, they’re still making boo-coo bucks at $120 oil, but they could have been making more.

The fact that they could have been making more shows up as a loss on the balance sheet.  All in all, Chesapeake could have made as much as $1.6 billion more if they had not hedged their oil and gas at lower prices.  So this goes as a loss on the books for the second quarter.

What effect does the debt have?

Creditors typically want to see that their their loans are safe, and as such they write in certain conditions that if met, they reserve the right to call the note.  Sort of like having a margin call if you can’t maintain the margin requirements.

So I suspect that the $1.6 billion loss on Q2 earnings triggered such an event.  Since banks would like nothing else than to have cash right now, they probably capitalized on the opportunity to call Chesapeake on a loan, and I suspect it was a big one.  So now Chesapeake has to scramble to come up with a boat load of money to pay off the note.

As a result, there is a fire sale going on right now in the oil patch in Oklahoma and Texas.  I suspect Chesapeake is selling everything they can, from surplus oilfield equipment to leases, just to raise money.

But what about the CEO’s shares?

Chesapeake CEO Aubrey McClendon was so sure of the prosperity of his own company that he bought shares… on margin.

When the second quarter results showed a multi-billion dollar loss, the shares couldn’t have headed for the deep end fast enough.  Due to insider trading rules, McClendon couldn’t unload shares prior to the news, so he had to ride it out.  By the time the smoke cleared, the brokerage called him on failure to maintain margin requirements and sold his shares for him.  All of them.

So what does all this mean?

It means that there are a ton of CHK stock holders out there that are stark raging mad.  And rightfully so, but it appears for now that they really don’t have a stick to shake.  Chesapeake gambled and hedged oil and gas and got burned.  End of story.

It also means there are going to be opportunities to capitalize on Chesapeake’s misfortune.  There will be some leases available at rock bottom prices since the price of oil is falling, and some weak hands are being flushed out of the patch.

Corner Office Comments

Debt isn’t always a bad thing, and can be used as leverage in some cases.  However, when you hold a lot of debt in an industry that’s making record profits, you’d be wise to get rid of the debt as soon as possible.  If and when the credit industry tightens, those with the most debt will be the first to be denied.

According to a report out on Bloomberg today, China is continuing its curb on vehicles put in place on July 20th to help with the pollution problem ahead of the Beijing Olympics, which apparently was quite effective.  The air quality is better now than it has been in over a decade, and in fact, pollutant levels dropped by as much as 50% during the Olympics.

The city will “seal off” 30 percent of government and Communist Party-registered vehicles Oct. 1, the Beijing government said on its Web site today. It will also limit the time the remaining government vehicles, as well as company- registered and private cars will be allowed on the roads, it said. -Source

The city of Beijing also put a stop to building work and shut down factories during that same time frame.

The effort is actually quite elaborate.  For instance, the last number of a license plate of each car will determine which days that car will be disallowed from the roads in Beijing. Social organizations and various businesses are shifting work schedules to stagger the traffic flow.

Unfortunately, this means that I won’t be able to gauge what effect this curtailment has on oil prices.  A while back, I mentioned that around the same time China took the cars off the road and shut in manufacturing facilities, the price of crude oil started dropping.

Now that Beijing is going to keep the curb in place, it will be tough to tell if this was all simply coincidence or if China’s demand for crude is actually a measurable quantity in this regard.

Crude oil is down $30 since the curb went into effect.

An Iranian OPEC official on Saturday mentioned that OPEC members are trying to decide whether to cut output to “shore up” market prices for crude oil.

“The market is oversupplied by at least 1 million barrels a day. If OPEC would like to remove this additional oil out of the market, then OPEC has to cut some production,” OPEC governor Mohammad Ali Khatibi told Dow Jones in a telephone interview. -Source

Oversupplied by only 1 million bbls per day?  Is that all?

Perhaps they should wait to see what demand looks like after China restarts manufacturing operations after the closing of the Olympics.  As I mentioned in a previous post, China had shut down manufacturing in an effort to reduce pollution in preparation for the games back at the beginning of July.  Right about the time crude prices started to slide.

For the last couple weeks I’ve been sitting on the sidelines trying to figure out how to play my hand in the market. There appears to be some semblance of rationality forming, but I think there are going to be new fundamentals arise that continue to beat back the bulls.

Crude oil ($wtic: chart) prices continue to drop, closing out the week under $114 per barrel, and natural gas ($natgas: chart) is maintaining ground just above $8 per MCF. Oil prices have dropped based on waning global demand, and natural gas prices have moderated for the same reason, just on a National scale.

On the topic of global demand, I have to wonder if the Chinese curtailment of demand during the 2008 Olympics has anything to do with the current oil market. Back in February, Beijing made the decision to halt manufacturing production in several locations during the Olympics in an effort to reduce pollution.

They also implemented an effort to remove 50 million cars from the roads for the same reason. According to the source, all of this was supposed to take place a month prior to the opening ceremonies in Beijing.

When did the price of crude start to retract? About 30 days prior to the opening ceremonies.

It’s just a theory right now, but I have to wonder if “global” demand will pick up after the closing ceremonies.

Time will tell.

To be honest, I’m not really sure what to think of T. Boone Picken’s “plan”.  He’s been showing up fairly frequently on T.V. as of late pushing his plan for energy independence.

A noble cause, to be sure, and I don’t think he’s too far out of line here.  At least on the surface.  But look a little bit deeper.

Mr. Pickens is a business man at heart and he’s certainly done well for himself as an oil man.  Now he’s looking to capitalize on the alternative energy push.

Why does he want you to buy into his plan?  Because he’s got a ton of his own money dumped into wind energy.  And I’m talking billions of dollars going towards wind farm development in Texas.  Then there’s drilling for water in West Texas and shipping it to Dallas via pipeline, all funded by, you guessed it, Pickens himself.  So the real incentive for Pickens plan is to make money.  Naturally.

If he can get you on board, he certainly reaps the benefits.

As I mentioned, PickensPlan (on the surface) is a good step in the right direction, and we can all certainly benefit if we gain an independence from foreign oil.  However, all you have to do is follow the money to find the true incentive behind the message.

Of course, this should all sound eerily familiar.  Remember Sir Al Gore, Nobel Prize winner?

I believe his message went something like this:  Man has caused global warming, global warming is melting the ice caps, will flood the shorelines and cause drought and famine all across the world…

And oh by the way, be sure to see my movie on this topic, buy carbon credits from my company, and try and look past the fact that I consume more energy in one month than you do in seventeen…

It’s been a while since I posted anything regarding my investment activities, mostly out of lack of information to report on. I’ve been buying more shares of PVX (PVX: chart, web, Y!) recently, but more significantly, there is some good news on Duncan Energy Partners (DEP: chart, web, Y!).

Second quarter results are out, and things are looking strong. A few snippets:

• The partnership reported a 45 percent increase in net income to $6.6 million for the second quarter of 2008, compared to net income of $4.5 million for the second quarter of 2007.
• Distributable cash flow increased 65 percent to $10.8 million in the second quarter of 2008 from $6.6 million in the second quarter of 2007.
• On July 16, 2008, the board of directors of DEP’s general partner approved an increase in the partnership’s quarterly cash distribution rate paid to partners in respect of the second quarter of 2008 to $0.42 per common unit, or $1.68 per unit on an annualized basis.
• Revenue increased 52 percent to $360.4 million for the second quarter of 2008 from $236.9 million for the second quarter of 2007.
• Gross operating margin for the second quarter of 2008 decreased to $18.7 million from $21.5 million reported in the second quarter of 2007.

Overall I think these are good results, and definitely a sign of strength.

DEP stock has been battered down due to big money fleeing income funds, primarily from the likes of Goldman Sachs.  The company is paying out a 10% return, on growing revenues.

The only down side I see to the report is margin compression, which is to be expected in today’s environment.  The cost of doing business is going up, just like everywhere else.

This is why we need to maintain high oil prices: Spur on the little guy to find more, and spur further development with alternative energy.

Gas prices are pushing our government to do something rash.  Folks who are already feeling the crunch from poor credit management to declining equity in housing to fear of job loss and wage reduction are barking for congress to “do something” about gas prices.  It’s understandable.

However, a witch hunt to blame high prices on everything from price gouging at the local level to unreasonably high profits at the national level to speculation on wall street is shaping up to do us more harm than good.

The only thing that will reign in speculation is supply outweighing demand.  If oil storage levels start to increase instead of decrease, all the speculation in the world can not keep crude prices elevated to these current levels.

Futures trading is taking the rap for higher oil prices, and if our government doesn’t back off, the futures trading will move overseas where commodities regulation is nearly nonexistent.

In fact, it’s already happening.  On Tuesday the Dubai Gold and Commodities Exchange will start trading West Texas Intermediate and Brent crudes under the tickers DWTI and DBRC and they’ll trade from 8:30 a.m. to 11:30 p.m. local Dubai time.

One of the major benefits to opening this location up to crude is the proximity to vast portions of the worlds oil supply. The other is the move away from irrational government oversight bent on manipulating a world market for oil.

“Speculators create liquidity and help make efficient markets and any attempt to interrupt the free workings of a market would be dangerous as it would hinder the operation of a free market and create market inefficiencies,” says Mark O’Byrne, a director at Gold and Silver Investments Ltd. in Dublin, Ireland.

Regulators should be wary of unnecessary intervention in financial markets, including commodity markets, with increasing competition from financial markets internationally such as Shanghai and Dubai, he said.

“It would be wise not to kill the goose of an efficient market that lays the golden egg of an efficient economy,” he said. -Source

Unwise market regulation by the United States will only push trading activity further away leaving the U.S. government even less influential than they already are.

Yesterday I was able to pick up some more Provident Energy (PVX: chart, web, Y!) shares for $11.70.

Today the stock was down $0.14 to $11.77 on average volume. I suspect that Tuesdays trading (remember Monday is a holiday) will reveal another push towards $13.  Memorial Day is the official start of the driving season, and even if driving is down this summer, oil will maintain levels above $110 for the majority of the hot months.  This will leave the electrical power generation companies turning to natural gas ($natgas: chart) vs. heavy oil.

Additionally, the hurricane center predicted that this will be another active season with as many as 5 major hurricanes predicted.

The future is bright for natural gas this summer.

The government response to high gas prices is turning humorous.

Last week President Bush traveled to the Middle East to try and convince the Saudi’s, among others, to start producing more oil to help fend off even higher-yet oil prices.

Their answer: No dice.

Good for them.

President Bush knew the outcome of this little field trip to play the “whoa is we” card before he even boarded Air Force One.  After all, Bush is an oil man at heart, and a business man by trade.  Not only that, he has some very astute financial and economic gurus that know exactly what’s driving the price of oil.

But he’s also a politician.

The President is also a politician, and he’s still looking for your vote.  Not directly, but in a round about way, the Republican party.

His trip to the Mid East ended how those of us who favor capitalism and understand the basics of economic forces knew it would.  However, the end result lets the President say: “Well folks, I tried.”

Bring on the lawsuits!

It gets even better!  Today, the House voted to approve legislation to let the Justice Department sue the members of OPEC for withholding oil and conspiring to drive up oil prices.

“This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities,” said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.

Right.  Because that’s how it works. Here you have the worlds most developed economy, one that stimulates the global economy, that is forced to import oil to keep the economy liquid, and they’re going to sue the very countries that import that oil?

What’s interesting is that the White House has threatened to veto this bill.  Why?  Because they know better! It’s one thing to make a visit to ask politely to help us out of a jam.  It’s another thing to try and levy baseless financial and legal claims against other countries who control the flow rate to our oil addicted economy.

It’s the dollar, stupid!

The value of the almighty dollar (or lack thereof) is driving the value of crude.  Think about it.  If your national currency is the Euro, and the U.S. dollar is dirt cheap compared to the Euro, and crude is priced in U.S. dollars, aren’t you going to buy (or import) as much crude as you can regardless of whether you need it or not?

Don’t you think this is why China is developing their own strategic petroleum reserve, and European countries are expanding on their existing ones?  It’s not because there is a shortage of oil, it’s because the stuff is cheap because it’s traded in U.S. dollars.

These latest moves by our politicians is nothing more than a farce in an election year to say “We see you hurting out there, and we’re trying our hardest to fix this… but that stinking no good oil man in the Oval Office is working against us all, and he’s the one who’s truly hurting you!  Vote Obama!

Another example of our feel good, try hard government trying to understand and remedy a free market.