BigBull,
I dug up an oil post made last spring. Looks like I missed the gasoline shortages (unless you count the high prices we had in the mid west), but the rest still looks OK.
To: John Q Public who wrote (65471)
From: jim_p Friday, April 28, 2000 5:26 PM ET
Reply # of 69906
For what it's worth, I've been on the financial side in the oil patch for more than 25 years and here is my take on where we are in the oil and gas sector today.
1. Historically, the average recovery cycle in the oil patch lasts three years and the average down cycle lasts two years. We have just finished the first year of the current recovery cycle. For lots of reasons, I believe this up cycle may last up to 4-5 years instead of the historical three year average, but I would not bet on it.
2. For whatever reason, the oil sector historical performs best between the months of March and September.
3. We do not have enough rigs or the people to run them to stop NG from reaching $4-5.00 this summer, and will most likely see $10.00 spikes at the city gates in NYC this coming winter. Given time the markets will eventfully correct to the historical $2.00 to $2.50 price range, but that will take several years, oil will be in short supply by then, and I will be long gone.
4. We will most likely have gasoline shortages this summer in some parts of the country.
5. We are for the first time that I can remember (and that is longer than I wish admit) going to see demand exceed supply for oil within the next two years. If China and it's surrounding region of the world continues to grow at it's present rate, that could be a lot sooner.
6. People a lot smarter than I am, are starting to plan for work on major multi billion dollar NG projects that will take years to complete and that are not economical without sustainable NG prices of $4-5.00.
7. For the first time since the 70's, the middle east is commencing plans for major capital investments to try to offset the current rate of depletion of their oil fields. Most OPEC countries have over estimated their capacity to produce oil for obvious reasons.
8. Historically, oil and gas stocks do well in bear markets and during periods of higher inflation. We are just now beginning to see the first signs of inflation, which will be higher than most people are projecting and will bring on higher interest rates than most people are predicting.
9. I don't believe we have seen the worst of the NASDAQ correction, which will further benefit the oil sector when it comes.
10. We will continue to see capital budgets increased throughout the year as balance sheets are repaired and stock prices improve. Do you think companies like EOG is going to buy it's own stock at $24.50?
In summary, we are in the early stage of what I believe will be one of the longer recovery cycles in the patch. Towards the end of the cycle, we will see cash flow evaluations expand from 4-6 times cash flow to 6-8 times cash flow. Most of the OSX stocks will reach there prior highs of the last cycle, and many companies which took advantage of the down cycle by expanding will exceed there old highs. (RIG, WTF, BJS, KEG, PTEN, etc.)
I could very well be wrong, but I am invested 100% in oil and gas and service stocks, and intend to stay that way at least through the fall of this year.
Good luck to all, and have a good weekend.
Jim |
