Nissan executive Shiga dismissed claims they would be ready to launch their own hybrid engine by 2010. Nissan is developing components used in hybrid engines, but has no near-term plans to develop a whole engine (Source: Steve McGrath: Dow Jones Newswire). This is the first indication that Nissan won’t have its own hybrid engine by 2010, as promised back in September.

Nissan recently unveiled the Nissan Altima Hybrid, due to be sold early in 2007. The Altima Hybrid is built on Toyotas hybrid synergy technology. Nissan has decided to sell the hybrid Altima exclusively in the eight states that have adopted California emission standards; California, New York, Massachusetts, Connecticut, Vermont, Rhode Island, Maine and New Jersey.

Nissan CEO Ghosn has been pessimistic about hybrids from the beginning. Reluctant to sell cars at a loss, Nissan has fallen behind in developing new tech in general, and sales have been falling. Ghosn has promised a better future, with seven new models coming out in the next eighteen months.

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According to the heraldglobe, Ford will be offering 0% financing or $1000 back on the Ford Escape Hybrid. This is in limited areas and for only a short period of time.

Ford is responsding to Toyota’s financing offers and it’s slow sales the past couple of months. Ford has also had a real problem in distributing the hybrid SUV.

Ford Offers 0% Financing On Hybrids In ‘Critical’ Markets

Ford Offers 0% Financing On Hybrids In ‘Critical’ Markets

03-16-06 10:33 AM EST

DETROIT -(Dow Jones)- Ford Motor Co. (F) said Thursday that it will offer 0% financing over the next three weeks on its Escape Hybrid SUV in California and Washington, D.C., in an effort to spur sales in two markets that traditionally embrace hybrid vehicles.

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Gold continues to be buffeted by speculative liquidation, some disillusionment in the wake of its anemic reaction to turmoil in paper assets, and by improving geopolitical conditions,” said Jon Nadler, an analyst at Kitco Bullion Dealers.

On Wednesday, gold ended at a one-week low of $672.50 an ounce, down 2.1% or $14.70. Still, the contract ended the month of February with a gain of $14.60, or 2.2%.
“Despite the fact that we are long-term bulls of gold, we find it disconcerting that spot gold has seemingly badly failed in the past two or three days to push upward through $685 to $690,” said Dennis Gartman, publisher of the Gartman Letter.

It’s important that gold has failed to advance under circumstances that might otherwise have been considered quite bullish, Gartman said.

“Collapsing share prices would seem to be a positive for gold to many, but from our perspective, for the moment it is bearish instead,” he said. “If Chinese shares continue under pressure, then Chinese buyers shall be reticent about buying gold, and may have little choice but to sell gold to raise cash and capital where needed.”

On Thursday, the Dow Jones Industrial Average recovered from an early steep fall, as news that the manufacturing sector grew in February helped offset nervousness about Asian markets, distressed lenders and the housing market, which had all rekindled the heavy selling pressure seen two days ago.

“Depending on the magnitude of the decline we get in the Dow and the urgency of the rush for the liquidity exit doors again, gold may have a knee-jerk reaction once more to fears that money will not seek it, but perhaps bonds or Treasuries again,” Nadler said.

“Today may just be a continuing link in the chain of volatility that could be with us for the next month or so.”

Overnight, major Asian stock markets, including China, Japan and Hong Kong, ended lower. Investors focused on developments in Shanghai, where shares gave back about two-thirds of their gains from the previous day.

On the currency markets, Japan’s yen resumed its rally against most major currencies Thursday, touching a 2 1/2-month high versus the dollar, on continued talk of carry-trade unwinding and worries about the outlook for the U.S. economy and global stock markets. The dollar rose against the euro after the manufacturing data.

Aluminium producer Alcoa Inc. reports earnings for the fourth quarter on Tuesday, Jan. 9. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Pittsburgh-based Alcoa is the first of the Dow Jones Industrials to report results. The release of Alcoa’s quarterly financial report traditionally marks the start of earnings season.

Alcoa announced a plan in November to cut 6,700 jobs to streamline its cost structure. Although the restructuring plan is ultimately expected to save the company $125 million annually before taxes, Alcoa expects to book charges of $375 million to $425 million in the fourth quarter related to the program.

The job cuts represent about 5 percent of Alcoa’s 129,000 employees in 44 countries.

In the aluminium spot market, prices averaged $1.18 a pound in the fourth quarter, according to Morgan Stanley analyst Mark Liinamaa – an increase from the $1.13 average price in the third quarter.

However, the price of alumina – the raw material used to make aluminium – fell sharply during the quarter. Alcoa is a major producer of alumina.

“The drop in the spot market can be attributed to the ramp up of alumina production in China, leading to reduced spot demand throughout the world market,” said Bank of America analyst Kuni M. Chen, in a report. Lower alumina prices could hurt Alcoa’s earnings, he said.

Meanwhile, the U.S. dollar lost ground against other major currencies in the fourth quarter and suffered a particularly sharp decline against the euro. Alcoa produces its products globally, and a weaker dollar made local costs in Europe and Australia more expensive for the company

BY THE NUMBERS: On average, analysts polled by Thomson Financial forecast earnings of 65 cents per share on sales of $7.63 billion.

ANALYST TAKE: Morgan Stanley’s Liinamaa cut his fourth-quarter earnings estimate for the company, despite stronger-than-expected aluminium prices, citing the dollar’s weakness during the period and a strike at an engineered products plant. Liinamaa also said the automotive sector in North America continued its downward spiral faster than expected, which could hurt Alcoa’s earnings.

Whoa! The analysts missed this one by a mile. Here were the predictions, prior to the release of the report:

Analysts surveyed by Dow Jones Newswires on average predict crude inventories rose 300,000 barrels during the week ended Oct. 19, and Vienna’s PVM Oil Associates also noted that “expectations for this week’s U.S. oil inventory data are for a rise in crude oil stocks.”

However, some analysts predict a decrease of up to 2 million barrels. Analysts also predict the EIA report will show refinery utilization rose 0.3 percentage point; gasoline supplies, still near record lows, rose 1.1 million barrels; and distillate stockpiles, which include heating oil and diesel, rose 200,000 barrels.

Here’s what they got:

U.S. commercial crude oil inventories fell by 5.3 million barrels compared to the previous week. At 316.6 million barrels, U.S. crude oil inventories are near the upper end of the average range for this time of year. Total motor gasoline inventories decreased by 2.0 million barrels last week, and are at the lower end of the average range.

Both finished gasoline inventories and gasoline blending components fell last week. Distillate fuel inventories decreased by 1.8 million barrels, and are at the upper limit of the average range for this time of year. Propane/propylene inventories increased 0.6 million barrels last week. Total commercial petroleum inventories decreased by 7.9 million barrels last week, but are in the upper half of the average range for this time of year.

I suspect crude will be off to the races again. I had called a (short-term) top on front-month WTI a week ago at $89, and in fact oil was down almost every day since then. But this inventory report will provide a lot of fuel for the bulls for another week.

Here is the rest of the report:

U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending October 19, down 183,000 barrels per day from the previous week’s average. Refineries operated at 87.1 percent of their operable capacity last week. Gasoline production rose compared to the previous week, averaging nearly 9.0 million barrels per day. Distillate fuel production fell last week, averaging 3.9 million barrels per day.

U.S. crude oil imports averaged 9.1 million barrels per day last week, down 1,305,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 9.9 million barrels per day, or 414,000 barrels per day less than averaged over the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 838,000 barrels per day. Distillate fuel imports averaged 235,000 barrels per day last week.

Total products supplied over the last four-week period has averaged nearly 20.8 million barrels per day, up by 0.4 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.2 million barrels per day, or 0.2 percent below the same period last year. Distillate fuel demand has averaged nearly 4.3 million barrels per day over the last four weeks, up 1.0 percent compared to the same period last year. Jet fuel demand is down 3.3 percent over the last four weeks compared to the same four-week period last year.

It is going to be a close call on the $1,000 bet. I do believe the fundamentals for higher oil prices are generally worse now than they were 3 months ago. Peak driving season has passed, OPEC is already pumping more crude, and prices have had a dramatic run-up. On the other hand crude inventories, while still high, have been pulled down, and gasoline inventories continue to hover near record-low levels. But, the sentiment has certainly turned in favor of higher oil prices. And the sentiment of the market can move it quite a bit in a short period of time. You can see some of the analysts on CNBC – after having missed out on most of the run-up – have now moved their clients into oil and so are talking up the price.

But the recent fast run-up in prices, followed by OPEC’s decision to pump more crude, would make me very cautious about buying oil at this level. You might make some money, but it is a much bigger risk than it was earlier in the year when the fundamentals for higher oil prices looked better (at least to me). Of course over the long haul, I am bullish on oil prices and have been for 5 years. I thought $100 oil in 2008 was likely, but a move from $60.77 (the crude price the first week of January) to $100 in a single year would be unprecedented.

I would also add just a bit on refinery utilization. Analysts had predicted utilization to come up this week. Generally, refineries are coming out of their turnarounds now, and you would expect to see utilization at a higher level at the end of October. But you have to take the current crack spreads into account. When crack spreads are at $30/bbl, as they were earlier in the year, you do everything you can to maximize your utilization rate. If that means paying overtime, or paying extra to have equipment fabricated and delivered quickly, you do it. Money is not an object; you get your refinery up and running as quickly as possible.

But when crack spreads are $5/bbl, as they are now, you don’t do those things. You still want to have your refinery up and running, but it doesn’t make economic sense to go all out to boost your utilization. That $5/bbl margin will disappear pretty quickly if you throw money around. So, utilization rates will be less robust in times of low margins. It has absolutely nothing to do with inability to secure crude – as some have suggested. It has everything to do with economics. But given where gasoline inventories are currently setting, I don’t expect margins to stay soft for long.

OK, maybe that’s an exaggeration. But they did just chip in close a billion dollars to the government coffers that are propping up AIG:

US Central Gulf Lease Sale Bids Total $703 Million

HOUSTON -(Dow Jones)- U.S. Interior Secretary Ken Salazar said the Central Gulf of Mexico Oil and Gas Lease Sale 208, held Wednesday in New Orleans, attracted more than $703 million in high bids.

The sale was conducted by Interior’s Minerals Management Service, or MMS, and had 70 companies submitting 476 bids on 348 tracts comprising over 1.9 million acres offshore Louisiana, Mississippi and Alabama.

However, that amount was lower than last year’s take (also a small fraction of the size of the AIG bailout):

The total amount of money that MMS would collect from this Central Gulf Lease sale is lower than last year, which attracted 78 companies and collected a record $3.7 billion, amid booming prices for oil and gas.

Given that we are now into AIG for $170 billion, another 242 successful auctions like the one yesterday and the AIG debt will be covered. Of course that’s assuming we aren’t soon out another $170 billion, and the oil industry hasn’t been taxed out of existence.

2nd Update:

Well, we got that big surprise, primarily because crude imports were sharply down from last week. Some excerpts:

U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending November 16, down 151,000 barrels per day from the previous week’s average. Refineries operated at 87.0 percent of their operable capacity last week.

U.S. crude oil imports averaged over 9.8 million barrels per day last week, down 667,000 barrels per day from the previous week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 1.1 million barrels compared to the previous week. At 313.6 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year.

Total motor gasoline inventories increased by 0.2 million barrels last week, and are below the lower end of the average range. Distillate fuel inventories decreased by 2.4 million barrels, but are in the middle of the average range for this time of year. Total commercial petroleum inventories decreased by 6.9 million barrels last week, and are in the upper half of the average range for this time of year.

Updated: As oil stands again at the cusp of $100, here is what analysts expect for this week’s report report:

Analysts surveyed by Dow Jones Newswires, on average, predict that crude oil inventories rose by 800,000 barrels last week, while refinery use grew by 0.4 percentage point to 88.1 percent of capacity.

Gasoline inventories likely grew by 700,000 barrels, the analysts predicted, while inventories of distillates, which include heating oil and diesel fuel, fell by 400,000 barrels.

While oil supplies likely rose last week, prices were being supported Tuesday by concerns there would be a bullish surprise in the EIA report, such as an unexpected decline in inventories.

If we see that unexpected decline, then WTI should break $100.

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Last week, I noted that even though there was a very big surprise with respect to crude inventories, the market seemed slow to react. I indicated that it may have just been an artifact, and that was in fact what it turned out to be. I get my quotes from the NYMEX site, and those quotes are delayed by 15 minutes. So, no opportunities to make money as a result of a slow-moving market. Actually, I would have been stunned if traders weren’t poised to react to a large surprise in the report, but it seemed as if they weren’t. That’s why I posed the question.

In fact, someone posted a very interesting graph that suggests that in fact the movement in price happened prior to the release of the report:

December WTI Following Last Week’s TWIP Release

I know that graph is hard to read. Here is the link for the original graphic, in case you want to see the fine details. What it looks like is that about 4 minutes prior to the release of the inventory report, the price rapidly dropped over $1/bbl, implying that contracts were being dumped. This could of course be innocent; someone could have rolled the dice and guessed that the report would be bearish. That could also be due to the resolution on that graph (i.e., what you see above may have actually happened just after the report’s release).

But for a suspicious person like me, I started wondering about just how many people have access to this data. It would be very lucrative to sell some advance information, so I am curious as to how the EIA safeguards the early release of the numbers. How many people know the numbers before they are released? What safeguards exist to prevent someone from selling the information? Do any of the EIA’s employees drive a Ferrari? (kidding)

I asked Doug MacIntyre, author of This Week in Petroleum, if he could comment on this. Doug wrote:

Robert,

EIA understands completely the seriousness of our data and carefully safeguard it before it gets released. We know that a lot of money can be made if the data were known prematurely, and everyone involved is very careful not to divulge ANY information to ANYONE before the release. In fact, we even go a little farther and try not to comment on the data to the press until at least 1 hour after the data are released. I am confident that the data were not, and have not been compromised.

EIA will not discuss the specific procedures we do to safeguard the data or divulge the number of people that have access to the data, as we believe that any information regarding the procedures we follow should be safeguarded as much as the data.

Thanks for explaining that, Doug.

Thanks to a reader for this story:

Cheap Natural Gas Drives Truck Alternatives

NEW YORK (Dow Jones) – If you order a beer in New York, the odds are growing that it was delivered by a truck running on natural gas.

Beer distributors are among a growing vanguard of private trucking fleets encouraged by cheap natural gas and new government funding to adopt compressed natural gas, known as CNG, as a cleaner alternative to diesel.

As I have argued before, I think it makes a lot of sense for fleet vehicles to migrate to compressed natural gas (CNG). Natural gas is historically a lot cheaper fuel than liquid fuels such as diesel or gasoline. A quick check of prices today shows natural gas for October delivery at $3.78 per million BTUs (MMBTU). By contrast, gasoline is currently trading at $1.62/gallon (spot market, no taxes included) which works out to be $14 per MMBTU. Ethanol is trading on the CBOT at $1.66/gal for October delivery, which works out to be $21.84 per MMBTU. (In 2006, Popular Mechanics put together a graphic comparing different fuel options. See The Great Alt-Fuel Rally).

But more importantly than where prices are today is where prices are going. Natural gas will have a lot of resistance trying to sustainbly break through the $7-$8/MMBTU range because shale gas starts to become economical in that range – and we have a lot of shale gas resources. So if you are planning for the future, the odds are with you over the next few years if you are betting on moderate natural gas prices. Oil prices, on the other hand, are far more uncertain in my opinion.

The caveat of course is that the conversion can be quite expensive (the reasons for that were explained in a previous essay). The article explains that lawmakers are tackling that issue as well:

Paying for CNG conversions is still a problem. Federal funds are available to cover up to $32,000, or roughly two-thirds, of the additional costs associated with purchasing a CNG truck as opposed to a diesel one.

A company that gets the full $32,000 in federal funds should be able to make back its investment in less than three years, according to Natural Gas Vehicles for America.

Lawmakers in Congress are trying to shorten the time it takes to recoup costs on a CNG vehicle. Senate Majority Leader Harry Reid, D-Nev., is among legislators backing a bill, dubbed the NAT GAS Act, that would cover 80% of the incremental cost of a natural gas vehicle and give a $100,000 property tax credit to any company that builds a CNG fueling station. The bill has yet to come up for a vote.

The price differential between CNG and diesel/gasoline/ethanol-powered vehicles is quite large (around $10K for an individual vehicle), which is why natural gas may not make sense for individuals unless they drive a great number of miles. But that’s what fleets do, so it may make more sense to convert fleets over (and the localized nature of fleets also improves the economics of putting in CNG refueling stations). It all boils down to how many miles a year you drive and your expectation for the price differential between natural gas and gasoline/diesel/ethanol over the time you will drive the vehicle.

Finally, in the spirit of my previous post, fleet conversions are one more way to reduce our dependence on imported petroleum.

Some surprises in this week’s numbers:

The Energy Department’s Energy Information Administration reported that crude inventories fell by 3.8 million barrels during the week ended Sept. 14, more than double the 1.5 million-barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected. However, crude inventories remain at the upper end of their average range for this time of year, the EIA said.

Gasoline supplies rose by 400,000 barrels, the EIA said, countering analyst predictions of a 1.3 million-barrel decline.

Refinery utilization fell by 0.9 percentage point to 89.6 percent of capacity. Analysts expected a decline of 0.5 percentage point.

Crude oil imports averaged 9.8 million barrels last week, an increase of 242,000 barrels per day. Gasoline imports averaged 1 million barrels a day, down slightly from a week earlier.

Demand for gasoline averaged nearly 9.5 million barrels a day over the last four weeks, the EIA said, 0.5 percent above the same period last year.

I am pretty surprised that gasoline inventories increased. Last week’s hurricane shut down some pretty big refineries, so I expected gasoline supplies to take a dip. Incidentally, I have read speculation that utilization is down because refiners can’t get oil (confirming Peak Oil Now for some). Not so. Utilization was down because of the hurricane. It is about to fall even more as fall turnaround season kicks into gear. So don’t take that as additional confirmation.

Update: Never say never. Today, the prediction I made in 2005 that WTI would never again fall below $50 has fallen. Front month WTI as of this writing has dipped to $49.75. But it will never fall below $40.

——————-

In 2005, with oil trading in the $40’s and $50’s, Goldman Sachs raised some eyebrows when they predicted that we could soon be looking at a ’super-spike’ and oil prices going as high as $105. As this scenario played out this year, the analyst who made that call – Arjun Murti – raised the ante and said that we could soon see oil at $200. The New York Times, in an article in which they dubbed him an ‘oracle of oil’, reported:

An Oracle of Oil Predicts $200-a-Barrel Crude

Arjun N. Murti remembers the pain of the oil shocks of the 1970s. But he is bracing for something far worse now: He foresees a “super spike” — a price surge that will soon drive crude oil to $200 a barrel.

Mr. Murti, 39, argues that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here and stay above $100 into 2011. Others disagree, arguing that prices could abruptly tumble if speculators in the market rush for the exits.

There are some things to be said about predictions. If a person makes enough predictions, they are going to miss some – no matter how well they know their subject matter. On the other hand, when many people are making predictions, some will inevitably get it right for the wrong reasons.

Today I spotted a story in CNN that contrasted Mr. Murti’s prediction with that of Paul Sankey at Deutsche Bank:

Deutsche Bank ‘Mega-Bear’ Stomps Goldman’s Oil ‘Super-Spike’

I have a lot of respect for Paul Sankey. In my opinion he is very knowledgeable about the fundamentals of the oil markets. I commented on his 2007 testimony to the Senate Committee on Energy and Natural Resources on oil prices previously here. So where does Sankey think things are headed?

NEW YORK -(Dow Jones)- Oil prices could fall as low as $40 a barrel next spring as an overhang of new, efficient refineries come on line, an analyst at Deutsche Bank said Wednesday.

Calling it the “mega-bear” case for oil, analyst Paul Sankey said the combination of weak demand for gasoline and other products, coupled with the start-up of 2 million barrels a day of processing capacity at a new generation of refineries in India and China and expansion projects in the U.S. will combine to depress oil prices.

Sankey’s stance, while pessimistic, still anticipates slightly higher oil prices than the bank’s commodities analysts, who on Friday said that oil futures prices could fall further to $30 a barrel under their worst-case scenario.

While I don’t discount that Sankey could be right, I don’t think his reasoning in this case is sound. Added refining capacity does nothing to help add new crude supplies. New refinery capacity would primarily put downward pressure on gasoline and diesel prices. Of course if the added capacity is designed to primarily handle cheaper crudes that are heavier and more sour, then it would lessen demand for light, sweet crude and Sankey’s scenario could come to pass.

In some cases, those who get it right can be spectacularly wrong on their reasoning and may not really understand much about the fundamentals. I am not suggesting that Mr. Sankey or Mr. Murti fall into that category, but I have run across speculators who cited their conviction that Saudi production was on a steep decline as the reason they were betting on higher prices. For a while, it was difficult to argue with these people, as they could simply point to the oil price as vindication. In the short run, smart people can get it wrong and uninformed people can get it right. But those anomalies will tend to correct themselves in the long run.

Personally, I predicted in May of 2005 that we would never see oil prices drop below $50 again. While I have been correct for the past 3.5 years, when I checked prices last night after touching down from Europe I saw that I am coming increasingly close to being wrong on that account. Oil is now trading at $52 and change, so my prediction could be falsified any day now.

For me, the important thing is to understand why that prediction is on the verge of being falsified. Have I been one of the lucky who was right, but for the wrong reason? What I foresaw was continued tightening demand that kept upward pressure on oil prices. What actually happened played out like that at first, but then we saw a huge spike that ultimately crushed demand. I think without this summer’s huge spike that today we would be trading in the $70’s or $80’s as demand continued to creep ahead. So I think that even though my prediction may be falsified, the reasoning behind it is still sound.

In the long run, I still see the same thing. I believe we will revisit $100 oil within a couple of years (in my ’steady growth’ model, I foresaw us first cracking $100 in 2009). While there will be great volatility as we are seeing now, I don’t believe we will return to years of oil prices at this level. I think that we are bottoming out, and 20 years from now we will see a whip-saw on the graph for 2008, but we will continue the same upward trend that has been in place since 2002.