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.

Energy, Oil & Gas commodities, crude oil, OPEC

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.

Energy, Investing commodities, futures trading, oil, speculation

Last Wednesday, Provident Energy (PVX: chart, web, Y!) came out with their 2007 year-end and Q407 report, and also provided an update on reserves.

All around a positive report, and I’m curious as to why the stock dropped almost a dollar in two days on a fairly bullish report. The only thing I can think of is that crude oil ($wtic: chart) dropped $6 and natural gas ($natgas: chart) prices waned almost a dollar in those same two days will a lot of money fleeing commodities.

A few highlights from the report:

• The payout ratio in the fourth quarter of 2007 was strong at 57 percent, down from 64 percent in the fourth quarter of 2006. Full year payout ratio in 2007 was 77 percent, up from 67 percent in 2006.

• Consolidated funds flow from operations increased 8 percent to $468 million ($2.04 per unit) compared to $433 million ($2.20 per unit) in 2006. Consolidated earnings before interest, taxes, depletion, depreciation, accretion and other non-cash items (EBITDA) was $545 million in 2007, an increase of 10 percent compared to $496 million in 2006.

• Consolidated upstream proved plus probable reserve life index (RLI) increased from 12.4 years to 16.9 years, reflecting the increasing quality of the assets and the sustainability of the Trust. Provident’s Canadian proved plus probable RLI increased 24 percent to 9.7 years. Factoring in the long-life midstream assets, Provident’s economic life on a consolidated basis is now approximately 18.5 years.

• On a consolidated basis, Provident drilled 159 net wells with a 99 percent success rate while in Canada 103 net wells were drilled with a 98 percent success rate. Provident’s drilling activities in 2007 were focused primarily on crude oil.

• Consolidated proved plus probable oil and gas reserves increased 111 percent to 322 million barrels of oil equivalent (boe). Canadian proved plus probable oil and gas reserves increased 37 percent to 101 million boe.

I like the fact that Provident is actively increasing their reserves at a rate of nearly 13 times the annual production, thereby procuring the longevity of the trust. I suspect that many of the CANROYS were brought down by the sell off in oil the last few days, and this only makes PVX look more attractive.

We’re moving into the lull for natural gas consumption: the period when demand drops due to increasing temperatures, and right before demand increases due to… well, increasing temperatures. With crude still above the $100 mark, it’s more attractive to use natural gas to generate electricity. Consequently, you’re seeing the price of both the commodity and the associated stocks drop.

If PVX continues to drop below $10, it’s going to be tough to not pick up a few more shares.

Energy, Investing, Oil & Gas, Stock Thoughts commodities, crude oil, natural gas, PVX