These are a few snippets from another forum...

Any thoughts R.C., Dick Moody, Downstreamer etc. ???

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@GOLDFINGER

(uponroof) Dec 12, 17:04

GOLDFINGER, If I may ask,

It seems you are positioned in the near future (feb, march), do you see this playing out that fast?

Would mid year calls be too far out for Y2K related price surges? Assuming your theory is correct and there are interruptions, how long do you estimate before necessary equipment is back on line and costs lowered.

For some reason I believe this may drag on, due to interconnected domino failures and restarts for quite awhile. In essense I'm thinking if there are problems it's gonna be one big long extrapilated nightmare. How do you see it?

If gasoline is at the end of the line, so to say, would not gasoline and heating oil be safer calls? Do suppliers have enough of these "refined products" stockpiled to avert spikes. Your pointing this out as a possible scenario is eye opening. Is there any additional info you have regarding Y2K and possible "refined petroleum" pitfalls.

It seems you are very knowledgable in oil industry workings. To come out and position yourself against the popular opinion (NO WORRIES) is indeed courageous.

If you are reluctant to answer any of the above I understand. You've already given quite a bit, thanks.

Whatever the outcome, I do appreciate your willingness to take a stand.

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@uponroof Re: More Y2K & Oil

(GOLDFINGER) Dec 12, 17:57

Uponroof,

Yes, I think gasoline is perhaps a safer bet. However, I understand the upstream (i.e. crude oil) game better than than the downstream (heating oil, gasoline) game. In addition, I have noticed there tends to be a time lag between the price of crude increasing verses the price of gasoline (i.e. crude prices lead gasoline prices). One never know for how long a panic will last so better to be in the game early and get out early (best chance of making a good profit).

Ultimately I invested in crude because of Y2K concerns, not for inflationary concerns. Longer term, I think we will see higher crude prices due to inflation. This will probably not happen until the stock market crashes (1973/74 was a very good example).

In my opinion, if we are going to see Y2K problems related to oil it will be in the first couple of months of the New Year. Also, OPEC is suppose to meet again in March........who knows what they will decide upon at that time.

I strongly urge you to read the following article by Harry Schultz (believe he is know as Mr. 87% because of his rate of success, also he is the world's highest paid financial advisor for the past 20 years......check out the Guinness Book of World Records). Crude oil Calls/Futures (not oil stocks) has been his #1 investment pick/recommendation to investors. He is known for researching his information very well.

http://www.gold-eagle.com/gold_digest_99/schultz120899.html

I may be completely wrong about my position/statements, but I have learned one thing about investing: most so called Investors are actually Speculators. The thing that Speculators fear the most is uncertainty. Right now Y2K is a real Wild Card and Wild Cards spell uncertainty.

Good Luck on whatever you try.

Goldfinger

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Goldfinger-------------crude open interest

(richard640) Dec 12, 18:35

In trading circles and in industry circle news travels almost instantaneously--for instance: if the Y2K problems for crude materialize that were just mentioned on this forum, users will scramble for coverage and bid up the closest month-via orders to the floor of the worlds oil exchanges. It won't matter if they have existing inventory for a few weeks or a month--As you say ,the panic could be brief and even unwarranted--If crude gets near $50 a barrel, I'll be gone--If the price actually surges in that area, I would expect trading to get very volatile, with $10 to $20 ranges perhaps weekly until the situation becomes clear and the price settles into a less volatile, narrower, range.Lastly, when you see some silly CNN special on oil, then you know all the money's been made--not that the crisis is over--but you never want to trade on these type of stories-especially Wall St. Journal stories. Crude open interest for puts and calls is very well balanced--the weekly numbers from Barrons--call o.i.=1,600,110--puts=1,674,021========gold weekly put/call VOLUME (not o.i.)-calls=44,319-puts=10,716---for crude the sentiment is evenly balanced between bulls and bears--to me it means, no one is sure--ladies and gentlemen, les jeux sont faits!!

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"Earl"y bird gets the worm

(uponroof) Dec 12, 18:47

@GOLDFINGER- Thanks much for the clarification.

@All- Does anyone know the date of the March OPEC meeting as it may relate to the April option expiration date?

@All- At close on Friday Feb crude calls:

Feb. 35sp @ $20. (expire Jan. 14)

Mar. 35sp @ $100.

April 35sp @ $130.

May 35sp @ $140.

June 35sp @ $150.

This is not investment advice/for amusement purposes only

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The Great Commodity Bull Market

(noula) Dec 12, 22:39

"A commodity in hand is infinitely more valuable than a promise to deliver." - Y2K Mantra

Reading the discussion here concerning the future relative value of oil and oil distallates in Y2K, I would point out that the computer design flaw is incredibly bullish for all commodities. A disruption of crude oil production and the resultant shortage of petrolium products will severly effect both national and world economic production.

Given the reduced capability of producing additional stocks, current inventories of all commodities will greatly appreciate in value. Remember the Y2K Mantra!

The CRB chart speaks (to me) of an imminent large rally into the 230 range by the last week of January. Possibly now is the time to buy long-dated out of the money call options on a basket of commodities - grains, foodstuffs, oil complex, precious metals complex, base metals, etc.

If this comes to pass, just imagine where bond yields are going? 10%, 15%.....?? Will the Y2K date flaw cause settlement problems with the government? Inability to service debt due to computer problems?

The great rush for liquidity.

And what goes up when bonds go down?

Gold

abu dahhab

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That's all folks.

If you want to risk any moola on these speculative commodity calls you had better be quick - and only do this if you can afford to lose some green toilet paper and you already have you and yours physically prepped to the gills. Remember if things get ugly you may never collect on your bet - luck to ya, Andy.

-- Andy (2000EOD@prodigy.net), December 13, 1999

Answers

@Richard640, Andy, Dickmoody Re: Y2K & Oil

(GOLDFINGER) Dec 12, 15:55

First of all I am neither an Electrical, Systems or Process Engineer. As a Petroleum Engineer my experence has been primarily confined to Drilling, Production, and Reservoir Engineering aspects of the Industry.

The areas of the industry I am anticipating to be the most vulnerable to Y2K are as follows (in decreasing priority):

1. refining and offshore production platforms (process intensive).

2. heavily electrified onshore oilfields

3. pipelines

4. shipping

5. drilling

All of the above links are involved some where along the line for importing oil to the U.S. Obviously a failure of any one of the above links (with the exeption of #5) could potentially paralyze part or all of the system.

In my opinion, the most immediate areas of concern are centers of production (Gulf of Mexico, North Sea, Venezuela, Nigeria, Iraq and Iran)followed by worldwide refining refining (Venezuela, Saudi and Iraq/Iran in particular) since they are both process intensive and are electrified. I do not have a concern with respect to the drilling sector, regardless if there is one or 10 billion imbedded chips. Simply stated, drilling is on the bottom of the food chain. Just because drilling stops does not mean production will stop (take any slump in drilling activity for example).

Now, with respect to those downhole imbedded chips in producing wells.....never heard of such a creature. 99% of all downhole pumping equipment, with the exception of electrical submersible pumps, are mechanical and NOT electrical in nature. However, almost all surface facilities use some electrical power, thus probaly have any number of imbedded chips.

I am most concerned about electrical grid systems....can they deliver power? From my experence in Venezuela, power outages were common under the best of circumstances......sometimes for days. There are 10s of thousands of well in Venezuela that require artifical lift, many of them from electrical submersible pumps.

I believe the U.S. is most likily to experience the first signs of Y2K from the Gulf of Mexico. Platform production processes can be very complicated (yes, many imbedded chips). I remember well when we were commissioning a new gas production platform in the Persian Gulf 5 years ago. Alot of vendors, software, computers and problems to get started up. Brown outs lasting several days were not unusual. The North Sea is another likily area to experience the first signs of Y2K problems. Can you imagine if several platforms go down around the world about the same time........Vendors would be swamped. Something I learned in the Persian Gulf.....it's Vendors that keep platforms running. Venezuelan refining is also probably very susceptible.

Here is an interesting point to consider: If Y2K primarily impacts refining (i.e. shut-downs) we may actually see crude prices collapse as feed stocks increase. In this scenario or if refining is not a problem.....distillates (gasoline, etc.) prices would increase regardless of the scenario.

As for mobilizing the National Strategic Reserves, this would not happen over night or in a week. Mobilizing is not going to help if refining is down. In any event, I do not think the government would mobilize it except for a military emergency.

So, to make a long story short. I am more inclined to anticipate crude oil delivery problems to the U.S. and Europe than to anticipate U.S. & European refining problems. I believe Venezuela could be the weak link in the chain. As a result of these potential problems, I am anticipating higher crude price and have bought 10 Calls of Feb. 2000 and 20 Calls of Mar. 2000 crude with a Strike Price of $35/bbl.

In any event, all the guessing games are about to come to an end. As Murphy's Law states "if something can go wrong, it will".

Good Luck to All.

Goldfinger

-- Andy (2000EOD@prodigy.net), December 13, 1999.

Hey Andy,

Thanks for the update. Very Interesting. Sounds like this fellow has been around. Too bad he doesn't have expertise in the embedded systems field, or in refining. He's just a drilling engineer. I wonder if that means he's primarily involved in geology more than general systems and equipment. It sounded that way. Still, he's just back from S. America and seems to know a bit about Saudi Arabia and the Gulf of Mexico. I just hope the markets let him and you get your money on the options activities.

-- Dick Moody (dickmoody@yahoo.com), December 13, 1999.

Latest from Goldfinger...

@Dickmoody, Richard640 Re: Oil & Y2K (GOLDFINGER) Dec 13, 10:08 Gents,

First of all I am NOT attempting to scare people about the potential impact of Y2K on worldwide oil production. I have put my money where my mouth is because I believe Y2K is a real Wild Card. As Richard640 point out there is a split in Calls and Puts for Crude Oil Options (i.e. people are undecided).

As for the downhole embedded chips in Baker Hughe's Cenrtilift equipment........these are the electric submersible pumps (ESP)that I have referred to in earlier postings. Reda also produces ESP. I don't think these are ijnstalled downhole (due to well temperatures), but I am sure they exist on surface.

Now, as for "inaccessable" chips. This certainly implies the chips are an integral part of some piece of equipment (such as micro- processors). The chip can not simply be replaced, the entire piece of equipment would need replacing to correct the problem.

As for the West Texas crowd: I would say this is a combination of apathy, denial, and correct assertions. Most of these folks will not be systems or computing engineers. I have never been to West Texas, but I would suspect these fields are electrified. This will be the weak point. However, if the entire West texas went "down" is would not seriously (in my opinion) impact overall production in the bigger scheme of things. The ones the U.S. need to be concerned about are the Gulf of Mexico, North Sea, Venezuela and Saudi. These are the major producing centers of the world.

As for capping a well (and having to drill a new one) because it goes down......utter nonsense. This will only involve replacing surface equipment.

As for you and your buddy monitoring the Persian Gulf: I agree, chances are the move in oil price is going to be shortly after the clocks roll over to Y2K. However, keep in mind the last day of trading will be a Friday (Dec. 31st) followed by a long weekend (Jan 3. will be a holiday, no). So, 3 days for Y2K to potentially wreck havoc. I would suspect traders may get a little nervous as we approach Dec. 31st. Better off to be prepared and have your Calls Purchased before the clock rolls over.

Saudi: I don4t doubt they will have problems. However, I am inclined to believe they should be able to conduct some of their business manually. The problem is Saudi has some of the biggest refineries in the world. The logistics are enormous to keep them running efficiently. Water and gas need to be seperated and the crude oil treated before it is even loaded on to tankers. A very complicated process.

Here is something to think about: Last night I was speaking with a cousin of mine in Canada. He told me B.C. Hydro conducted a Y2K test by moving the clocks forward T minus 40 hours before the clock rolled over to 2000. They were predicting no problems. Well they were wrong! They had all sorts of problems. The media had a hay-day with them. My point here is this: Hydro electric logistics are considerably simplier than refinery logistics. Think about all the refinery fires in the past year under "normal operating" conditions. As Murphy would say "if something can go wrong, it will".

As I have mentioned before, I may be totally out to lunch on my predictions. In any event, I am not trying to prove anything to anyone nor trying to scare anyone. I just know from past experience the more intricate a system is the more room there is for something to go wrong.

Goldfinger

-- Andy (2000EOD@prodigy.net), December 13, 1999.

I'll concur with Goldfinger on concerns with trying to trade rollover expectations in the oil sector because of the long NYMEX weekend.

The prudent play might be take positions in anticipation of the hoarding and uncertainty that will unfold in late Dec and then take profits and move to the sidelines for the actual rollover with the exception of some cheap calls. That's gonna be my game plan.

One pertinent perspective when trading any markets- Whats my competitive advantage relative to everyone else in the market? If you don't have one- you're in trouble. Its the ol'If you don't know who the pigeon is at the card table its prob you. Objectively, I think I'll be at a real competitive disadvantage on key information over the rollover. If oil companies are gonna do some rollover shutdowns and not announce 'em, they sure aren't gonna telegraph post y2k probs. Many oil company traders are gonna know a lot more than we will. I'm gonna predominately move to the sideline and get a wire transfer the last week of the month. Then I'll reenter in early 2000 if its warranted and possible. Don't get greedy.

Anyone have any ideas how we can monitor oil infrastructure probs over the rollover?

I've said for months the best analogy to this oil market is the old pre Desert Storm - Jan 15th deadline. Don't forget that one. Everyone thought oil was going to $50 and it dropped $12 barrel -$12,000 a NYMEX contract- overnight. We'll see a nice price run up between now and the end of the year. Take some profits or move to the sidelines in late Dec. If its a 6+ you aren't gonna want to count on your broker and the financial system anyway.

-- Downstreamer (downstream@bigfoot.com), December 13, 1999.