Most of the petrol we consume today comes from oil fields where crude oil can be cheaply converted into petrol. The largest is in Saudi Arabia. However, there are plenty of oil fields containing e.g. shale oil where crude oil can be extracted and made into petrol if high enough petrol prices justify it.
Furthermore, a company called Sosal in South Africa has the technology to convert coal into petroleum. Using this technology, the amount of coal in America alone can provide for that country's consumption needs for the next 250 years.
All this makes me wonder why so many are going around yelling about peak oil. It is a well know sales trick to make buyers believe that their product is scarce. It creates a sense of urgency and the perceived scarcity allows the seller to charge higher prices and make fatter profits. The Saudis and the oil companies would love to convince everyone that oil is scarce.
Showing posts with label petrol. Show all posts
Showing posts with label petrol. Show all posts
17 August 2008
23 July 2008
We Wasted $100 Today!
One-hundred dollars is gone! A series of unfortunate events caused it. Firstly, I have a bank account with the Commonwealth Bank (ASX: CBA). CBA has treated me well ever since I was a little boy. My dad started up an account at this bank for me. The main problem with these accounts is that they charge $5 per month in fees. Since I was a university student these fees are waived. However, since my days as a student are numbered, these $5 will come back soon. Therefore, I tried to fix the problem by signing up for a cash management account from CommSec. I figured I might as well sign up and check it out since everything is free and there is no monthly fee for the cash management account. I was asked to transfer some money from my old CBA account to my CommSec cash management account, so I elected to transfer $10. When I did this I had about $60 in my bank account, so everything seemed fine. However, it took ages for CBA to get everything working and by the time everything was ready there was only $8 in my bank account, which meant that I was overdrawn by $2 and therefore the Commonwealth Bank will charge me $30 this Thursday after I get my pay. I'm pretty annoyed because I spent all this time trying to avoid fees and then in the process of trying to avoid fees I overdraw and get slammed with fees anyway. My brother blames me for not being organized with my cash and my dad blames me for not keeping enough cash in my bank account just in case. However, I have always believed that cash is not king and that holding money in the form of currency is a bad idea not only because of loss of investment opportunity but also because of inflation. This is why I always try to get rid of cash as soon as I get it. I wouldn't mind putting my money into the Commonwealth Bank's mutual funds (those managed by Colonial First State) but the problem is that many of them seem to have high fees. As a rule of thumb, do not invest in any managed fund or mutual fund that has MERs greater then 1 per cent.
My family lost another $70 because this week my mom got a second-hand car. It's a 7-year-old car. In order to get the car we have to trade in my mom's old car. However, my mom accidentally filled the car up with petrol and now we are going to give the car to the used car people with a free tank of petrol. One tank of petrol is worth about $70. We tried to siphon the petrol out but the car we have seems to have some mechanism that prevents that.
What surprises me is just how much pain my family and I feel when we see for ourselves the fact that we have lost money. However, both my parents and I have assets in the form of mutual funds and property that fluctuate in value wildly, and yet because all this is relatively invisible we don't feel any loss aversion or emotion.
Update 25 July 2008:
I have been paid from my employer and it seems as if the Commonwealth Bank hasn't charged me any overdraft fees yet. This is slightly strange, but maybe it's because the money transferred didn't actually go out of CBA since it was transferred between NetBank and Commsec, which are both owned by CBA.
Commsec looks interesting. They give cheap trades ($20) but I am a little bit wary about trading. I remember last year when I lost some money buying and selling on the ASX. I might dip my toes in later when I feel more comfortable.
My family lost another $70 because this week my mom got a second-hand car. It's a 7-year-old car. In order to get the car we have to trade in my mom's old car. However, my mom accidentally filled the car up with petrol and now we are going to give the car to the used car people with a free tank of petrol. One tank of petrol is worth about $70. We tried to siphon the petrol out but the car we have seems to have some mechanism that prevents that.
What surprises me is just how much pain my family and I feel when we see for ourselves the fact that we have lost money. However, both my parents and I have assets in the form of mutual funds and property that fluctuate in value wildly, and yet because all this is relatively invisible we don't feel any loss aversion or emotion.
Update 25 July 2008:
I have been paid from my employer and it seems as if the Commonwealth Bank hasn't charged me any overdraft fees yet. This is slightly strange, but maybe it's because the money transferred didn't actually go out of CBA since it was transferred between NetBank and Commsec, which are both owned by CBA.
Commsec looks interesting. They give cheap trades ($20) but I am a little bit wary about trading. I remember last year when I lost some money buying and selling on the ASX. I might dip my toes in later when I feel more comfortable.
16 July 2008
Australian Energy Companies Boom As Oil Rises
Last Thursday on 10 July 2008 I invested $703 when the All Ords was 5000. Today, Wednesday 16 July 2008, the All Ords has fallen to 4815. The market seems to be going down and down.
A closer look reveals that the problem comes mainly from financials and banks such as the Commonwealth Bank and NAB. Investors may be spooked by problems in America with Fannie May and Freddie Mac.
Energy companies listed on the ASX however seem to be fine. Based on my records, I have done 14,956 kilometers of driving since 17 February 2007. Since today is 15 July 2008 then that means that I drive on average about 10,000 kilometers per year. Since I have driven my car 14,956 kilometers and since my car's fuel economy is 11 liters per 100 kilometers, then it means I've used 1645 liters of petrol so far. Based on my records, petrol during 17 February 2008 cost $1.14 per liter and now on 15 July 2008 costs $1.61 per liter. That is a 41.22% increase. Because petrol has increased by this much, I have spent $773 extra on petrol. This means that if petrol prices continue to go up by this same amount and I do the same amount of driving as I have already done, I will pay an extra $500 per year. That is actually not that much. That is approximately how much is costs to sponsor a child from World Vision for one year.
Here is the the interesting thing. Since 17 February last year petrol has gone up by 41.22% but the stock price of Woodside Petroleum has gone up by 66.9%, the stock price of Oil Search has gone up by 57.7%, and the stock price if Santos has gone up by 86.4% These are all Australian energy companies. It seems as if these energy companies are doing very well under conditions of high petrol and oil prices.
So then what if I buy shares in energy companies as a hedge against fuel inflation? If I assume that share prices move exactly like petrol prices (which is unrealistic) then how much will I need to hold to fully hedge against any rise in petrol? After some number crunching, the answer is $1154. Not much. If I buy $1154 worth of shares in energy companies and if these energy companies' shares go up by the same amount as petrol prices, then I will be fully hedged. If petrol prices rise, I lose more at the pump but I am compensated by capital gains. If petrol prices drop, I make a capital loss but I am compensated by lower fuel expenditure.
Any Australian can buy shares from the ASX by signing up for Commsec. It just so happens that I have about $22,000 invested in a mutual fund. This mutual fund invests about 44% in Australian shares. That means $9680 is invested in Australian shares. Since this is an index fund, it tracks the ASX300 index. I know for a fact that 9% of the ASX300 is made up of energy companies. This means that I have already $871.20 in Australian energy companies. Therefore, I may already have a partial hedge.
A closer look reveals that the problem comes mainly from financials and banks such as the Commonwealth Bank and NAB. Investors may be spooked by problems in America with Fannie May and Freddie Mac.
Energy companies listed on the ASX however seem to be fine. Based on my records, I have done 14,956 kilometers of driving since 17 February 2007. Since today is 15 July 2008 then that means that I drive on average about 10,000 kilometers per year. Since I have driven my car 14,956 kilometers and since my car's fuel economy is 11 liters per 100 kilometers, then it means I've used 1645 liters of petrol so far. Based on my records, petrol during 17 February 2008 cost $1.14 per liter and now on 15 July 2008 costs $1.61 per liter. That is a 41.22% increase. Because petrol has increased by this much, I have spent $773 extra on petrol. This means that if petrol prices continue to go up by this same amount and I do the same amount of driving as I have already done, I will pay an extra $500 per year. That is actually not that much. That is approximately how much is costs to sponsor a child from World Vision for one year.
Here is the the interesting thing. Since 17 February last year petrol has gone up by 41.22% but the stock price of Woodside Petroleum has gone up by 66.9%, the stock price of Oil Search has gone up by 57.7%, and the stock price if Santos has gone up by 86.4% These are all Australian energy companies. It seems as if these energy companies are doing very well under conditions of high petrol and oil prices.
So then what if I buy shares in energy companies as a hedge against fuel inflation? If I assume that share prices move exactly like petrol prices (which is unrealistic) then how much will I need to hold to fully hedge against any rise in petrol? After some number crunching, the answer is $1154. Not much. If I buy $1154 worth of shares in energy companies and if these energy companies' shares go up by the same amount as petrol prices, then I will be fully hedged. If petrol prices rise, I lose more at the pump but I am compensated by capital gains. If petrol prices drop, I make a capital loss but I am compensated by lower fuel expenditure.
Any Australian can buy shares from the ASX by signing up for Commsec. It just so happens that I have about $22,000 invested in a mutual fund. This mutual fund invests about 44% in Australian shares. That means $9680 is invested in Australian shares. Since this is an index fund, it tracks the ASX300 index. I know for a fact that 9% of the ASX300 is made up of energy companies. This means that I have already $871.20 in Australian energy companies. Therefore, I may already have a partial hedge.
08 July 2008
Petrol From Coal: Energy Crisis Solved
As oil heads to US$140 per barrel, many are looking towards alternative energy. One alternative source of energy is coal. Coal is often used to run turbines that generate electricity, but coal can also be used to produce petrol that runs our cars. The technology for generating liquid fuel from coal has been around for a long time. South African company Sasol can generate petrol from coal at a cost of US$45 per barrel, which gives a hefty profit in today's market. It is estimated that there is enough coal in America to produce petrol to last another 250 years. There is much talk about peak oil and limited supply, but this news deflates all those fears. There can be no doubt now that $140 oil is overpriced. What is needed for a price drop is for this technology to be available for the public. Once this is achieved, and assuming no collusion, competition among suppliers will drive the price of petrol down.
25 May 2008
Using Index Funds to Hedge Against Rising Petrol Prices
The rising price of petrol is making news here in Australia where petrol is reaching unprecedented highs of $1.60 per liter. I drive to work and to the train station to go to university. I also drive my grandma around sometimes. I fill up approximately every fortnight. I pay approximately $70 each time I fill up. Since my parents fully subsidize my food and accommodation costs, just about all my spare money goes to petrol. It is by far my biggest expense. Crude oil futures on the New York Mercantile Exchange is about $130 per barrel now.
If I lived in the United States it would be easy for me to buy oil ETFs (AMEX:USO) that would go up in value as oil goes up in value. It'd be as if I'm buying barrels of oil on the stock exchange. But alas I live in Australia so access to American investments are complex and costly. Investing in American crude oil is not a perfect hedge against rising petrol prices in Australia because crude oil and refined petrol are different products. Exchange rates between the Australian dollar and US dollar would also add another layer of complexity.
How then can I hedge against the rising costs of petrol? One of my friends jokingly told me to buy a bike. With the distances I have to travel this is just not practical. Plus I'm scared of loud trucks. Hopefully with higher petrol prices these loud trucks will go out of business.
Another idea is to invest in the resources, energy, or materials sector. One of the best performing and one of the most popular managed funds in Australia today is the Colonial First State Global Resources Fund. In the past year it has given investors a return of 27 per cent. In the past five years the average annual return is 30 per cent. Looking at this fund's top ten holdings, I notice that there are many familiar Australian faces like Rio Tinto, BHP Billiton, Xstrata, and Lihir Gold. There are also some Canadian companies in there like the Potash Corporation and Nexen. Instead of investing in the high-cost actively managed CFS Global Resources Fund, why not invest in an index fund that tracks the top Australian companies? This may work since Australia's top companies are heavily biased towards the resources and financial sectors. The financial sector is the largest sector in the MSCI Australia Index, making up approximately 40 per cent of the index. However, together the energy and materials sector make up 35 per cent of the index, which is quite a lot. Simply by investing in, say, the Vanguard Index Australian Shares Fund or the SPDR ASX200 ETF, you can probably get good exposure to Australian companies that deal with commodities.
Why just look at Australia? The MSCI Emerging Markets Index is very heavy with commodity companies, many of which are state-owned. The energy sector makes up 17.04 per cent of the MSCI EM Index while the materials sector makes up 12.99 per cent of the index. The energy sector and materials sector make up 11.39 per cent and 8 per cent of the MSCI World Index respectively, which is relatively low. This suggests that if you want exposure to resources companies, go to the emerging countries and Australia.
It is not that simple. Just because you invest in companies that deal with commodities, it doesn't mean you've hedged yourself against rising commodity prices. The cost of mining and transport might be higher, which may affect profitability. Even though commodity prices go up you may simply be investing in a bad company with bad managers and bad workers. Furthermore, many of these resource companies may specialize in gold, silver, and materials like iron ore. These may have little if not anything to do with oil or petroleum.
If I lived in the United States it would be easy for me to buy oil ETFs (AMEX:USO) that would go up in value as oil goes up in value. It'd be as if I'm buying barrels of oil on the stock exchange. But alas I live in Australia so access to American investments are complex and costly. Investing in American crude oil is not a perfect hedge against rising petrol prices in Australia because crude oil and refined petrol are different products. Exchange rates between the Australian dollar and US dollar would also add another layer of complexity.
How then can I hedge against the rising costs of petrol? One of my friends jokingly told me to buy a bike. With the distances I have to travel this is just not practical. Plus I'm scared of loud trucks. Hopefully with higher petrol prices these loud trucks will go out of business.
Another idea is to invest in the resources, energy, or materials sector. One of the best performing and one of the most popular managed funds in Australia today is the Colonial First State Global Resources Fund. In the past year it has given investors a return of 27 per cent. In the past five years the average annual return is 30 per cent. Looking at this fund's top ten holdings, I notice that there are many familiar Australian faces like Rio Tinto, BHP Billiton, Xstrata, and Lihir Gold. There are also some Canadian companies in there like the Potash Corporation and Nexen. Instead of investing in the high-cost actively managed CFS Global Resources Fund, why not invest in an index fund that tracks the top Australian companies? This may work since Australia's top companies are heavily biased towards the resources and financial sectors. The financial sector is the largest sector in the MSCI Australia Index, making up approximately 40 per cent of the index. However, together the energy and materials sector make up 35 per cent of the index, which is quite a lot. Simply by investing in, say, the Vanguard Index Australian Shares Fund or the SPDR ASX200 ETF, you can probably get good exposure to Australian companies that deal with commodities.
Why just look at Australia? The MSCI Emerging Markets Index is very heavy with commodity companies, many of which are state-owned. The energy sector makes up 17.04 per cent of the MSCI EM Index while the materials sector makes up 12.99 per cent of the index. The energy sector and materials sector make up 11.39 per cent and 8 per cent of the MSCI World Index respectively, which is relatively low. This suggests that if you want exposure to resources companies, go to the emerging countries and Australia.
It is not that simple. Just because you invest in companies that deal with commodities, it doesn't mean you've hedged yourself against rising commodity prices. The cost of mining and transport might be higher, which may affect profitability. Even though commodity prices go up you may simply be investing in a bad company with bad managers and bad workers. Furthermore, many of these resource companies may specialize in gold, silver, and materials like iron ore. These may have little if not anything to do with oil or petroleum.
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