Slider,
There are some major differences between 97-98 and the current cycle.
In the prior cycle which ended in Oct 97, oil prices had already declined from $24 to $18.00 per barrel before the OSX started it's decline? In the current cycle, oil prices are near there peak.
eia.doe.gov
bigcharts.com
In the prior cycle, oil supply was 5-6 million barrels per day greater than supply. In the current cycle, excess oil supply is approaching zero.
In the prior cycle, NG future prices peaked in April of 1997 at $2.70 per Mcf and never exceed $2.35 per Mcf through October of 1997 at which time it began a decline to below $2.00. The projected high winter prices never materialized in the winter of 97-98 due to a warm winter and adequate storage.
In the current cycle, NG storage is now at the lowest level since record keeping began, winter is starting out to be not so mild, and prices are still sky rocketing with shortages already beginning in December before winter even starts.
There is no question that money is leaving our very small sector in droves.
My take on why is because so many investors lost there butt in 97-98, that they are not willing to take any chances this go around. Despite the differences today vs 97-98, investors began to exit as soon as we reached the old OSX high in 1997? Too many investors got burned in 1997 for us to continue higher without substantially less risk of falling commodity prices.
As soon as the market perception changed from a soft landing to a hard landing, money started leaving the sector on fears of a 97-98 repeat of collapsing oil prices due to a world recession.
The risk as I see it is more of an overall market risk in the short term. The OSX is over sold and should have a rebound to the 115-120 range before we continue south as it did in 1998. The risk is if that will happen before the overall market tanks?
The risk is a very hard one to evaluate?
In light of where the market is and where the economy is headed, I agree that it is best to be in cash.
For those who have not sold, I would get out at OSX 115 (if we see it before the market tanks) and wait on the sidelines. I would not re-enter until we can better predict future oil prices with more certainty.
Too much stock market, economic recession and commodity uncertainty to be fully invested in the patch for me.
Rule #1, don't fight the flow of money.
Best luck to all,
Jim |
