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In recent
interviews, Pres. Bush has said he favors expanding energy sources but not consumption
taxes or reductions in energy company kickbacks. In fact, thanks to the
Bush-Cheney administration, oil and gas companies are paying less in federal
fees than ever before and are able to buy public lands at cut rate prices, for
drilling, while making record profits. This is
unwarranted corporate welfare at the public’s expense. Expect that in
his SoU speech Pres. Bush will recommend ethanol and hybrid cars, both good for
business but neither as effective as a national conservation effort. At a time
when he needs to mend fences, this alone would deflate much of the growing
exasperation directed at him for failed policies everywhere else when he did
not heed expert advice. But I’m not holding my breath that he will, not with
his record. kwc Ready for $262/barrel oil? Two of the world's
most successful investors say oil will be in short supply in the coming months. By Nelson Schwartz,
FORTUNE senior writer, January 27, 2006: 4:40 PM EST DAVOS, Switzerland -
Be afraid. Be very afraid. That's
the message from two of the world's most successful investors on the topic of
high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined
six scenarios that could take oil up to a downright terrifying $262 a barrel. The other, billionaire
investor George Soros, wouldn't make any specific predictions about prices. But
as a legendary commodities player, it's worth paying heed to the words of the
man who once took on the Bank of England - and won. "I'm very worried
about the supply-demand balance, which is very tight," Soros says. "U.S. power and
influence has declined precipitously because of Iraq and the war on terror and
that creates an incentive for anyone who wants to make trouble to go ahead and
make it." As an example, Soros pointed to the regime in Iran, which is
heading towards a confrontation with the West over its nuclear power program
and doesn't show any signs of compromising. "Iran is on a collision course
and I have a difficulty seeing how such a collision can be avoided," he
says. Another emboldened
troublemaker is Russian president Vladimir Putin, Soros said, citing Putin's
recent decision to briefly shut the supply of natural gas to Ukraine. The only
bit of optimism Soros could offer was that the next 12 months would be most
dangerous in terms of any price shocks, because beginning in 2007 he predicts new oil supplies
will come online. Hermitage's Bill
Browder doesn't yet have the stature of George Soros. But his $4 billion
Moscow-based Hermitage fund rose 81.5 percent last year and is up a whopping
1780 percent since its inception a decade ago. A veteran of Salomon Bros. and
Boston Consulting Group, the 41-year old Browder has been especially successful
because of his contrarian take; for example, he continued to invest in Russia
when others fled following the Kremlin's assault on Yukos. Doomsdays 1 through 6 To come up with some likely scenarios in the event
of an international crisis, his team performed what's known as a regression analysis, extrapolating the numbers from past oil shocks and
then using them to calculate what might happen when the supply from an
oil-producing country was cut off in six different situations. The fall of the House of
Saud seems the most far-fetched
of the six possibilities, and it's the one that generates that $262 a barrel.
More realistic - and therefore more chilling - would be the
scenario where Iran
declares an oil embargo a la OPEC in 1973, which Browder thinks could cause oil to double
to $131 a barrel. Other outcomes include an embargo by Venezuelan strongman
Hugo Chavez ($111 a barrel), civil war in Nigeria ($98 a barrel), unrest and
violence in Algeria ($79 a barrel) and major attacks on infrastructure by the
insurgency in Iraq ($88 a barrel). Regressions analysis
may be mathematical but it's an art, not a science. And some of these scenarios
are quite dubious, like Venezuela shutting the spigot. (For more on Chavez and
Venezuela, click here.) Energy chiefs at the
World Economic Forum in Davos downplayed the likelihood of a serious oil
shortage. In a statement Friday, Shell's CEO Jeroen Van der Veer declared,
"There is no reason for pessimism." OPEC Acting Secretary General
Mohammed Barkindo said "OPEC will step in at any time there is a shortage
in the market." But then no one in the industry, including Van der Veer,
foresaw an extended run of $65 oil - or even $55 oil - like we've been having. It's clear that there
is very, very little wiggle room, and that most consumers, including those in
the United States, have acceded so far to the new reality of $60 or even $70
oil. And as Soros points out, the White House has its hands full in Iraq and
elsewhere. Although there are
long-term answers like ethanol, what's needed is a crash conservation effort in the United States. This doesn't have
to be command-and-control style. Moral suasion counts for a lot, and if the
president suggested staying home with family every other Sunday or otherwise
cutting back on unnecessary drives, he could please the family values crowd
while also changing the psychology of the oil market by showing that the U.S.
government is serious about easing any potential bottlenecks. Similarly, he could
finally get the government to tighten fuel-efficiency standards and encourage
both Detroit and drivers to end decades of steadily increasing gas consumption.
These kinds of steps would create a little headroom until new supplies do
become available or threats like Iran's current leadership or the Iraqi
insurgency fade. It's been done it
before. For all the cracks about Jimmy Carter in a cardigan and his malaise
speech, America did reduce its use of oil following the price shocks of the
1970s, and laid the groundwork for low energy prices in the 1980s and 1990s.
But it would require spending political
capital,
and offending traditional White House allies, and that's something this
president doesn't seem to want to do. http://money.cnn.com/2006/01/27/news/international/pluggedin_fortune/index.htm |
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