Strictly: Drilling and oil-field services Message Board

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Gold/Mining/Energy : Strictly: Drilling and oil-field services

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To: P.Prazeres who wrote (50047)	8/30/1999 11:29:00 AM
From: SliderOnTheBlack	Read Replies (2) of 95453

< I'm not too sure about much more of a price increase> Paulo; I think it's a ''catch-22' situation. While OPEC doesn't want higher prices - which will lead to competitors stepping up production & their losing market share.... OPEC simply can not increase production here - they HAVE TO maintain present quotas - they have no choice - period. The Markets still are not completely sold that the supply glut globally has been evaporated. OPEC can simply not afford to take the risk of easing here - they have no way to guage the markets reaction here. The market could spin production & supply #'s leading to a crash in prices back to the $14-$15 range that the Oil Majors are budgeting for here... The Oilpatch Bears have not disappeared - they are still out there - and they are just waiting for OPEC to screw up here. OPEC wants $20 Brent here - definitely not $15. If they cheat, or ease quotas here - they will get hammered by the Bears and will lose all credibility in the future if they ever need to reinstitute production constraints again. OPEC has been backed into a can't win corner - which I think is going to guarantee a drop in supply levels via their maintenace of present quotas that will absolutely lead to a ''temporary'' speculative bubble in crude prices. Again; that is entirely why they are floating the ''trial balloon'' of instituting ''Price Bands'' - which will work - within the concept of a band, or a range in say $4 or so... I also think that the mere maintaining of the present production cuts by OPEC is going to drop Global supply and specifically the US domestic supply #'s to levels that will surprise everyone - and will have to trigger a speculative run up in crude. If US supply levels drop below 300 M boe - look out.... high $20's could be supported. The other half of the equation which BULL has been pounding the table on - Demand; will also continue to surprise to the upside. If these hit simultaneously.... ???? No one expected OPEC to comply - half of the market is factoring in cheating in the near future. Also, I think the Price Bands will work - within the concept of a ''band''. A $4 swing in Brent from $18-$22 is potentially manageable from a supply standpoint. Bottomline - they are ''trial balooning'' the concept of ''Price Bands'' here as both a signal to other potential producers, the Oil Majors and to the market. I think one of the main reasons they are also doing so - is to prepare the market to ''ease'' crude down when they ultimately have to step up production, in reaction to prices exceeding their bands - which WILL be in response to a speculative crude bubble; which I still say is envitable if they stick to present quota's - which I think they will...because they have too ! They have no choice... and they know they will create a temporary speculative bubble - but it is the lessor of the 2 evils... If they ease now - they get killed pricewise - back to $15 and lose future credibility; if they don't ease - they know they are going to create a speculative bubble. One they can manage - one they obviously can not - what choice do they really have here ? They have to maintain cuts - period. OEI XTO RRC and EEX (nice blocks of 20, 30K on the buyside this am) & MEXP looking very, very cheap.... Off of the news of the key OPEC players being commited to maintaining present cuts - and we continue to have a retracement here to buy into - pre Q3 earnings release ?!?! ... this may prove to be the ''sweetspot'' of the entire E&P cycle in which to buy. I think that the reporting of Q3 #'s - post the official Sept. OPEC meeting will trigger the next major leg in the E&P run - and also the OSX stocks will move as well - just not to the same degree imho. Also, the Oil Majors & Integrated Oils will exceed analyst estimates as well - most analysts expecting 20% upside from present analyst estimates. Simply too many analyst models based on $17 crude & $2.20 gas here.... they are unwilling to believe the sustainability of present crude, or gas prices. This doubting of the ''Sustainability'' of present prices is setting the stage for some dramatic appreciation in the producers. ... time will tell. Rory; - ''Microsoft'' ? ... who needs Mr. Softee any more ? These small cap E&P's have vastly outperformed that 'ole dinosaur of late (VBG). Who needs hi tech when good ole black goo & gaaaaas are so profitable ?

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