Re: Yamani, from today's petrodispatch by Steve King:
Saudi Arabia's Sheikh Ahmed Zaki Yamani: "Petroleum prices now
spiraling out of control"
But will it be the last hooray for OPEC? The former Saudi oil
minister is again becoming the darling of the press as the next OPEC
meeting approaches. Both the Business Recorder ..
brecorder.com and
Individual.com finance.individual.com
doc_id=RTI04a0314reuff&page=news ran stories based on a REUTERS
interview with the Sheikh. This is basically the same thing he said
before the last OPEC meeting, including the line "The Stone Age came
to an end not for a lack of stones and the oil age will end, but not
for a lack of oil." But is he right?
Well, yes and no. It depends on the time horizon. He said, "it is too
late now for OPEC to refill petroleum product tanks in the West where
inventories of heating oil are running short for the northern
hemisphere's cold months. I think prices might go a bit higher this
winter but further ahead in 2001 prices will start to come down and
longer term it is horrible for OPEC."
He also said, "Within 20 years technology will have cut deep into
demand for transport fuels. Crude will slump even more heavily than
the single-digit prices seen during the last glut, in 1998."
All of this isn't much help for the investor. Twenty years is longer
than most investors want to hold for profits from new technology
However, the knowledge of when oil prices will come down is
important. The oil and gas industry is driven by the basic commodity
factors of supply, demand, and price. Petroleum demand is fairly
stable around the world over time, growing by 1% to 3% per year. The
economic slide in Asia of 1998 was an unusual event that reduced, but
didn't stop increasing global demand for petroleum.
The supply is the real driving force behind commodity prices. Crude
oil has two main variables: 1) OPEC, with each country's individual
national policy and internal financial needs and 2) the oil and gas
producing companies making capital investments decisions in the non-
OPEC countries based on business economics and long-term
profitability. Natural gas is a regional supply/demand commodity,
only imperfectly reflecting crude prices. North American demand is
growing, but supplies seem to be limited. Therefore, prices should go
up until it is profitable to import LNG.
When the producing companies decide that commodity prices are
adequate and sustainable, they increase their drilling budgets to
find and produce more oil and/or gas. This makes the service industry
very cyclical, looking like this:
petroinvest.com Price Cycle.gif
It's up to the investor the decide where we are on this cycle and
long the cycle runs this time. My feeling is that we haven't reached
the BOOM. Natural gas prices have a way to go and the supply of crude
isn't increasing fast. In other words the supply shortage is more
real this time than political (i.e. OPEC) as in the past. And because
of these same facts the cycle will spin slower this time.
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I think I can rest easily tonight! |
