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Energy Source with Sharon Epperson

  Monday, 13 Jun 2011 | 10:44 AM ET

Are You Energy Smart?

Posted By: CNBC.com
What do you know about energy? Take our quiz and find out. »Read more
  Friday, 25 Feb 2011 | 2:00 PM ET

Inflation-Hedging Plays: Companies Poised For Profit

Posted By: Jessica Golden and Brian A. Shactman
Gregor Schuster | Getty Images

Just because prices are going up doesn't mean your portfolio has to suffer.

An inflationary environment may be difficult for a lot of companies, but there are some names that appear poised to profit.

With oil at elevated levels , the assumption is that energy companies are solid investments. Dig a little deeper, and it,s oil services that might outperform the most, says Phil Weiss of Argus Research.

"The upstream business is more willing to increase capital expenditures and spend money on exploration, development and to slow down the depletion of the fields," Weiss said.

His best pick is Halliburton . The company has a proven track record with shale drilling for natural gas. Weiss says those methods might soon be used beyond natural gas.

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  Thursday, 7 Aug 2008 | 8:55 AM ET

Why Aren't Gasoline Prices Falling Faster?

Posted By: Sharon Epperson

Oil prices are back up over $120. But that's a sharp decline from July's all-time high over $145. Many drivers watching plummeting oil prices the last few weeks are asking: Why aren't gas prices falling as much?

Here's the answer: It often takes 3-4 weeks to see the move in oil prices impact prices at the pump. It's true that while we have seen oil prices fall over $25 since July 11th, we haven't seen the same kind of dramatic move in gas prices ....yet.

The national average for unleaded gasoline hit a high of $4.11 a gallon back on July 17. Today pump prices are down to $3.85 on average--that's a 6% drop compared to a 17% plunge in oil prices.

Oil hit a fresh three-month low yesterday. The last time oil prices were at $118 in early May, retail gasoline prices were around $3.60 a gallon. Some states, including Oklahoma and Missouri, are there already. While the national average for gas prices may get there eventually, refiners and retail gas station owners have made purchases at much higher prices so they may not be able to bring down their price right away.

But in some regions, gas prices could get down to $3.50 fairly soon. (Barring any major geopolitical or weather event, of course.) Drivers may notice some big variations, though. Even within the same neighborhood, you may see a 20 cent difference in prices depending on what that retailer paid back when wholesale gasoline prices were higher.

So what's the best case scenario - by fall how low can we expect prices to go?

It's always difficult to predict especially since we are in the middle of hurricane season. But by November and December when demand traditionally drops off, the experts I talk to say we can probably expect to see gasoline in the low $3 range.

Questions? Comments? energysource@cnbc.com

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  Thursday, 31 Jul 2008 | 3:59 PM ET

Energy Independence Made Easy?

Posted By: Kenneth Stier

You got to admire the American ‘Can-Do’ spirit, which is on full throttle display since we woke up to our energy predicament.

Oil sheiks got over us a barrel? Not for long! Definitely not when we really put our collective Yank minds to the problem – as we are finally beginning to do. Part of that means remembering who we are - a continental power with vast resources – and tapping into our natural endowments.

By now, everyone knows we were naturally christened as the ‘Saudi Arabia of coal’ – with hundreds of years of supply.

And most of us caught Boone Pickens (see video) recently making his pitch for turning the American Great Plains into a vast wind farm, making good on our God-given wind resources to become the ‘Saudi Arabia of wind.’

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  Wednesday, 16 Jul 2008 | 2:32 PM ET

Oil Fever Breaking?

Posted By: Sharon Epperson

I think it's WAY too early to say "oil fever is breaking" or call a top here for oil prices.

Yes, oil futures dropped sharply again today, gold has followed ,and the grains (corn, wheat, soybean futures) are also down. The dollar is only marginally higher, but we could still see more weakness in energy futures going into today's close and tomorrow ahead of August crude options.

Oil is trading in the lower end of the range that it was stuck in much of June ($131-$139) and the level of buyers and sellers circling around $130-$135 strike price in options is significant.

On the geopolitical front, U.S. involvement in talks this weekend over Iran's nuclear program could eventually take a great deal of the risk premium out of the market. Yet the State Department today maintained U.S. Undersecretary of State William Burns is just going to Geneva to "listen", not negotiate. The focus for this top-ranking diplomat may be "on making diplomacy work", but whole process could take awhile.

Bernanke has highlighted the stresses on the U.S. economy very well over the past two days. The outlook from GM may have done an even better job in spooking traders about the negative impact high prices are having on gasoline demand.

But there are still several reasons oil prices could keep rising. Worldwide distillate inventories remain tight and there are no real signs of easing demand. Plus on the supply side, U.S. refiners are woefully under-producing heating oil ahead of the winter. Northeast heating oil stocks (the biggest heating oil market in the world) are 50% below the five year average. That would result in higher oil prices and much higher heating fuel costs for consumers this winter.

That said, $131 remains a key level to watch. If oil prices settle below that level, the downdraft could intensify in the short-run.

Questions? Comments? energysource@cnbc.com

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  Tuesday, 15 Jul 2008 | 4:53 PM ET

Oil Sell-Off: Don't Blame Bernanke, It's The Banks

Posted By: Sharon Epperson

Ben Bernanke talking about "significant" risks to economic growth in front of the Senate committee definitely spooked some traders here at the Nymex. But today's sell-off in oil wasn't all due to Big Ben. Blame the banks.

Oil posted its second biggest dollar decline in history--down over $6 after after declining nearly $9 lower earlier today--as banks around the globe looked to shore up their balance sheets by raising cash.

A rash of liquidation--rumors of some heaving commodities selling at one major firm in particular--contributed to the oil price plunge to just over $138/barrel. And when the selling started, it took hold and spread across the energy complex.

Merrill Lynch sector strategist Brian Belski's comments may have overshadowed Bernanke's testimony in some traders' minds. In a research note this morning, he called for a possible end to the commodities cycle (stocks, not futures) after such a strong first half of the year. Why should big banks hold onto these stellar performers if the winds could soon change? Time to take profits off the table and raise liquidity.

Traders have also been skittish for weeks with all of the "regulation talk" in Washington. The CEOS of NYMEX, ICE, CME as well as federal regulators and commodities execs from top investment firms gathered together for the first meeting of the CFTC Global Markets Advisory committee this afternoon. Verbal "speculation" swirled on the NYMEX floor about whether increased regulation of futures markets could come later this week.

With all of those concerns, it's no wonder investors want to keep their money in cash, or maybe gold, as safe haven against financial market distress. Maybe it shouldn't come as as a surprise that banks were looking sell some winners in any asset class. Oil was up nearly 50%, natural gas up 80% in first six months of the year. For those taking some profits now--when winners are so hard to come by--I don't blame ya.

Questions? Comments? energysource@cnbc.com

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  Monday, 14 Jul 2008 | 4:17 PM ET

Off-Shore Drilling: Could Both Sides Be "Right" On The Issue?

Posted By: Kenneth Stier

Rather than parsing the predictable Democrat vs. Republican dueling over wider offshore drilling, as President Bush opted for today , it’s worth noting just how the ineffectual Washington’s feuding is in solving our multiple energy problems.

The good thing, obscured by all the partisan obfuscation, is both sides’ have some merit.

Better yet are the outside the Beltway suggestions, such as that contained in this op-ed piece that ran in the Houston Chronicle from Kenneth Medlock , an energy expert at Houston’s Rice University.

Taking on the charge that more drilling merely extends our ‘oil addiction’ Medlock proposes we earmark all future royalities from new offshore drilling for researching and developing alternative energy, which we currently grossly underfund.

That way, he says, “these domestic resources would indeed serve only as a bridge to a new energy future.” In recent years these royalities average about $6 billion a year - $142 from 1982.

This seems critical because for all the recent bloviating about reducing our dependence on foreign oil, we are actually on a pretty clear course for increased dependence.

We currently import 60 percent but that is set to rise to 68 percent by 2025 when our demand will have soared to 27.9 million barrels per day, up from 20 million in 2003. See this useful taxpayer-fund primer.

Natural gas, which we depend on foreigners for just 15 percent off current needs is set to increase dramatically.

Properly handled it’s possible for newly expanded offshore areas to yield an additional million barrels per day of oil – on top of the 2.25 million to be pumped out per day by 2011 - which could slash our import dependence on Persian Gulf crude oil by about 40 percent, according to Medlock’s reckoning.

Now if that can be accomplished with the zero platform spills (well, nothing greater than 1,00 barrels) over the last 15 years (a far better record than tankers), as documented by a National Academy of Sciences study – well, why not? Maybe energy firms would even be willing to pay more if they don't stick to this impressive record.

Questions? Comments? energysource@cnbc.com

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  Monday, 7 Jul 2008 | 11:15 AM ET

The Politics Behind Iraq's Kurdish Oil

Posted By: Kenneth Stier

From CNBC.com features writer Ken Stier ...

A Congressional oversight committee wants to know why the heck the Bush Administration is apparently promoting US oil investment in the Kurdish region of Iraq ?

That’s a fair question especially since it contradicts US policy and risks sabotaging the project of leaving behind a unified Iraq - for which the US has spilt so much blood and treasure. There's an added political wrinkle. The firm behind the Kurdish investment, Hunt Oil, is a Texas company with ties to President Bush.

Administration officials claim they have been caught off guard by Hunt's move. The committee's Democratic leadership says it has documents showing otherwise.

The argument has ramifications beyond the usual political finger-pointing. How to share revenues from oil-rich northern Kurdish area with the central government is one of the country’s most explosive issues.

It’s a fissure so fraught that the parliament has been haggling over a draft oil bill for more than a year already; passage of the bill is a key Administration benchmark of Iraqi progress.

Actively encouraging investment before this issue is settled is inflammatory.

Indeed, news of foreign oil deals signed by the regional Kurdish authorities with foreign firms has infuriated Baghdad officials. Iraqi Oil Minister Hussein al-Shahrastani denounced them as “illegal.”

However much solidarity the US wants to show with the Kurds (and surely they deserve the real deal, not Kissinger’s false embrace) encouraging oil investment before there is a national consensus on sharing revenues is risky – maybe even reckless.

It could make sense if you’ve have concluded that Iraq will eventually break up into three separate entities (Sunni, Shiite, and Kurdish), as diplomat Peter Galbraith has argued we should accept sooner than later and work to facilitate.

But that’s not US policy. The danger is that pressing ahead with oil production now could help trigger Iraq’s implosion, which may not be necessary. Breaking up would surely be risky and bloody – perhaps mostly because of Turkey.

How this plays out depends on how adroitly Kurds play this. From their point of view they have every reason to press ahead developing their oil resources –- whether or not the end-game plan is full independence.

With some 22 reported petroleum contracts already, some observers suggest the Kurds want to create a fait accompli that the central government will not be able to overturn.

It’s encouraging that not all the deals are going to Americans. A publicly traded Canadian firm, Heritage Oil Corp., has signed, as has Perenco, S.A. a private French firm, and Norway’s DNO has a stake as well.

But Americans may prove the biggest players; a firm linked to the family of Ross Perot has signed for three concession areas, according to one CNBC source.

Companies already drilling have reported impressive flow rates, encouraging others to join in (bonus signings alone have reportedly netted close to $1 billion).

The Kurds have generations’ worth of grievances against their Sunni compatriots (whose region is almost oil-less) but their future may depend in good part on just how magnanimously they are willing to share their natural bounty.

They have made an impressive gesture in that direction; a regional oil law, adopted last August, promises Baghdad a 83 percent share.

“If we intended to ‘go it alone,’ why would we ever consider passing a law which requires us to give 83 percent of the revenues to the rest of Iraq?,” asked the Kurdish Prime Minister Nechirvan Barzani .

But little is as it seems in this part of the world.

As for Hunt Oil, which seems to have been encouraged to do the Kurdish deal by various State and Commerce officials, this latest venture is another chapter for a company that likes to say it “spans much of the oil industry's colorful history .”

Hunt Oil’s CEO and chairman, Ray L. Hunt has long been major supporter of the Texas Republican Party that has served as a power base for the Bush family. He is a member of the President's Intelligence Advisory Board and is a contributor to President Bush’s presidential library project at Southern Methodist University in Dallas.

Questions? Comments? energysource@cnbc.com

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  Thursday, 3 Jul 2008 | 7:19 AM ET

Ways to Save Energy Costs

Posted By: Sharon Epperson

Even if you don't see a super-spike in electricity prices in your town or neighborhood this summer, Edison Electric Institute - the largest trade association for the nation's utilities - says the cost for delivering and making electricity is going to keep going up. The average household will spend $2,350 this year on home energy costs, according to newly updated figures from the Alliance To Save Energy, and it will run families about $6,300 on average (when you factor in what they're paying for gasoline).

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  Thursday, 10 Jul 2008 | 3:05 AM ET

Western Firms' Dreams Of Iraq Oil May Prove Fleeting

Posted By: Kenneth Stier

If war in Iraq was largely over oil, as former Federal Reserve chairman Alan Greenspan essentially admitted, Western oil companies might have done better had they convinced the Bush Administration not to do them any favors.

This despite the recent news that Iraq is now prepared to offer technical support contracts for major Western firms including ExxonMobil,Shell,BP,Chevronand France’s Total, along with a few smaller firms.

The realities on the ground in Iraq nowadays, after a bitter five year occupation, are such that this may be the very best the oil companies can expect. The really big money which could be earned in production sharing agreements are probably no longer possible, if they ever were in a truly independent and intensely nationalistic Iraq.

“The chances of Exxon and Chevron getting a major field, a production sharing agreement are zil; I’ll go to my grave saying that I don’t care what (Iraqi Oil Minister Hussein) Shahrastani does,” says Robert Baer, a former CIA agent with extensive experience in the Middle East.

“There is no way the Iraqis are going to, in the long run, cede sovereignty for US bases, or oil production, it will be a killer for any government,” he said.

Some analysts insist the recent deals--which were supposed to be inked yesterday but were not--suggest Iraq has turned the corner and that by summer’s end Westerners will be upgrade rickety Iraqi oil fields. (They will be doing this remotely though, outside the country, directing Iraqi petroleum engineers, at least initially, just as oil executives met with Iraqi officials in Amman.)

But Baer insists this is an attempt by the Bush Administration to suggest Iraq’s return to normalcy and that increased oil revenues might finally start paying for America's continued presence, as Washington promised since the war’s beginning.

“You will see all kinds of agreements signed….. [to] keep the administration happy, but it is just a pure propaganda play,” insists Baer speaking by cell phone from his Colorado redoubt where he has just completed a new book about Iran. “I‘ve just spent too much time in Iraq and I know too much about the oil business there to think this will ever be sustained.”

Another factor too many miss, he insisted, is Iran’s effective veto on just about everything that happens inside Iraq. He says the Iranians have already put the kabosh on a number of oil deals, including several involving South Korean firms.

Iran already has its grip on roughly two-thirds of Iraq’s exports, which flow out of the southern port city of Basra, through its influence with the Shiite political parties that run things there. This helps Iran compensate for its shortage of refining capacity. After processing in Dubai, refined product is shipped to Iran at friendship prices that are in effect a considerable subsidy.

Some of Baer’s views about the industry come from friends working in Iraq, including for a company controlled by a prominent Texas oil family that has bought three oilfields in Kurdistan, he said.

Iraqi politicians have been haggling for more than a year over pending oil legislation that would determine how oil revenues, from the oil-rich Kurdish controlled north, and even richer southern Shiite controlled south, would be shared nationally, and the barren Sunni center.

The two-year oil support contracts are meant to rev up Iraqi oil output without having to wait until the parliament takes up the issue again in October. Iraqi oil officials want to boost oil production by another 1.5 million barrels per day within the next couple of years.

Currently production stands at 2.5 million barrels per day, up from 1.9 million bpd last year, and the country is believed to be able to produce 6 million bpd. With its proved reserves of 115 billion barrels Iraq is potentially the world's third largest oil producer, after Saudi Arabia and Iran.

But even the limited first step of support contracts has proved controversial in Iraq and not because they were no-bid deals or even thatState Department officials “played an integral part” in drawing up the contracts. It is because the moved seemed to confirm a deeply-held Iraqi perception that U.S. (and its Western allies) has hegemonic designs on the country’s oil.

To foreigners this may seem an overreaction and we can wonder how Iraqis can possibly think they will optimize oil production without big Western firm’s technology and capital. But then we are not Iraqis, whose history--like so many others blessed, and cursed, with natural resource wealth--has been a long series of foreign (and local) exploitation. It should be no surprise that they might have other priorities.

For this reason any Iraqi official trying to sign production sharing agreements will be signing the “end of their political future,” says Baer. “This is the most sensitive issue, other than military occupation, in Iraq: productions sharing contracts are considered looting the national treasure and to think we are going to sustain this without sheer military force is a fantasy.”

To do this “we are going to have to occupy the oil fields, we are going have to guard pipelines, and we are going to have troops there forever and I am not talking about 10,000 over 52 basses that [U.S. officials] are talking about--that does not cut in Iraq.”

Questions? Comments? energysource@cnbc.com

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