Oil Analysis and Uses of Beta

8/2/2019 Oil Analysis and Uses of Beta

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Oct 21, 2006


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Supply and Demand for Oil September, 2005


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If we implement all the technological innovations we can dream up, andinsist on all the conservation measures we can think of, this will simplyreduce the price of energy from "ridiculously expensive" to "tolerablyexpensive" over the next decade or so. We will not get back to "cheap"for quite a long time. The demand curve is set to leave the supply curve inthe dust. The only way we see cheap fossil fuel for any real length of timeis in conjunction with a global recession or depression. And when globalgrowth picks back up, so does the energy bill. Don't hope for cheap oilany time soon. We might need a repeat of the 1930s to get it.

COUNTERPOINTBy Justice Litle

October 5, 2005


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According to the PIW (Petroleum Intelligence Weekly) report, the officialpublic Kuwaiti figures do not distinguish between what are known as"proven," "probable" and "possible" reserves. The PIW report stated thatthe Kuwaiti data indicate that, of the current remaining 48 billion barrels ofproven and nonproven reserves, only about 24 billion barrels are so farfully proven (That is, slightly more reserves than in the States).

So let's review. Kuwait's oil reserves are being downgraded by 51 billionbarrels (from 99 billion barrels). Detroit is building muscle cars. Few U.S.politicians even have a clue about the problem, and apparently Peak Oil simplydoes not fit into any of their standard political paradigms. It is just crazy...Do you really believe that, as the notion goes, "technology will save us"? (OK,technology will help, but you had better get out in front of it.) Or do you believe that"the politicians will do something"? (Wow. Call your doctor. Get that closed-head injuryexamined.) Or do you subscribe to the "abiotic theory" of oil formation? (I call it"abiotic snake oil." It offers nothing but utterly false hope.)

Whiskey and Gunpowder - Byron W. KingThings Just got Worse Jan. 26, 2006


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As Ben Wattenberg of the American Enterprise Instituteexplained in his brilliant tribute to Simon in the Wall StreetJournal, "Simons central point was that natural resourcesare not finite in any serious way; they are created by theintellect of man, an always renewable resource."The ultimate embarrassment for the Malthusians was whenPaul Ehrlich bet Simon $1,000 in 1980 that five resources(of Ehrlichs choosing) would be more expensive in 10years. Ehrlich lost: 10 years later every one of the resourceshad declined in price by an average of 40 percent.

Cycles Research Early Warning Service

August 1, 2005

Bill Meridian


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"Oil reserves have fallen so far to the point that annual U.S. oil consumptionis now equivalent to about 1/4 of total proven reserves," writes the HubbertPeak of Oil Production ."This means that, if the U.S. had to supply its own oil, and no newdiscoveries occurred, its oil would be gone in four years! By importing 55percent of its oil, the inevitable is being postponed. But for how long can thiscontinue?"

AMERICA'S OIL CRUNCH

By John Myers

November 10, 2003


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Six months ago, an analyst group made up of former top-level U.S.government officials calculated a global oil scenario beginning RIGHTNOW, December of 2005...In this extremely likely scenario, just 3 minor disruptions in the already-strained world oil supply chain cause:

$150-a-barrel crude pricesA $5.32 pump price for gasMore than 2 million jobs lostA 28% drop in the S&P 500

The End of the "Woild" as We Know It?December 5, 2005


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April 10, 2006


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Analysis of Risk

Systemic Risk- common to whole market

- non-diversifiable

- (e.g. applies to whole economy

Nonsystemic Risk- unique

- firm-specific

- diversifiable


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Expected Return and Capital Asset Pricing ModelCAPM

rf = Risk free Returns

E(rd ) = Expected Return of a Security

E(rm) = Expected Market Return

(d) = Beta of a Security

E(rd )= rf + (d) [ E(rm) - rf ]

Notice that this is a variation on algebraic equation

y = a + b(x)


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Expected Return and Capital Asset Pricing Model

(CAPM) - Extended

= + (d) [ E(rm)- rf ]rfri -

.

i+ ei

In this equation is that predicted over and

above the CAPM and ei is a firm-specific risk

which leads the investor to expect more. Notice

that the net result only refers to the excess returnabove the risk-free return

Single-index regression equation.


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= + (d) [ E(rm)- rf ]rfri - + ei

.

i

. i = unique risk (difference betweenfair and actual price

= nonsystemic risk (diversifiable)ei= firm-specific risk

In other words -


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rp

rf

_ _

p


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rp

rfp

_ _


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= + (p) [ rm- rf ]rp-

.

p--

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Oil Analysis and Uses of Beta