OXY just got a real nice plug from the oil and gas online journal..... So maybe your timing is great...as usual....
Cosmo
Don't Give Up on Energy Stocks
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Jan 19, 2001 - Street Advisor
The International Energy Agency (IEA) said in its monthly Oil Market Report issued Friday that "high" prices resulting from the OPEC production cut on Wednesday might threaten economic growth and energy demand. Debating the price elasticity of oil and energy consumption is beyond the scope of this commentary on energy shares, but we believe it is premature to link current oil prices in the $25-$30 per barrel range and a negative outlook for energy shares .
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We continue to believe that the critical investment issues are: OPEC is focused on maintaining stable crude oil prices in the $25 area. The excess capacity to produce oil is concentrated in two countries. Cash flows from current oil and natural gas production are likely to drive a multi-year drilling cycle.
Our Buy recommendations and target prices of energy and energy service stocks are included our recent review of the weekly rig surveys. We continue to believe that the disconnect between current market prices of oil in the $25 area and of natural gas in the $7 area and the market prices of major oil and gas producers is likely to result in appreciation of the market prices of these producers. These include BP [BP: NYSE], Chevron [CHV: NYSE], and Occidental Petroleum [OXY: NYSE].
The IEA monthly report included a discussion entitled "Where do we go from here?" that related to the different viewpoints of production cuts by OPEC producers. In regard to oil prices and the global economy, it stated "...today's global economy is fragile, and high prices will have a greater impact on economic growth and energy demand. Unlike many emerging economies, developed nations have so far been able to absorb the impact of sustained high oil prices, thanks to their robust economies. This may no longer be the case..."
The IEA expects global demand to average 77.4m b/d in the first quarter and 77.3m b/d in 2001. This full-year estimate represents a downward revision of 280,000 barrels b/d since the December report and reflects the estimated global impact of the US economic slowdown. The estimate for annual demand for 2001 indicates a 2.2% increase from daily oil demand of 75.6m b/d last year.
Oil-industry inventories in member countries of the Organization of Economic Cooperation and Development (OECD) rose by 770,000 barrels daily in November, against the seasonal pattern of a decline, according to the IEA. The report noted that inventories remain below year-ago levels and must rise to maintain adequate balance with demand and to provide a cushion to production disruptions.
The IEA indicated that inventories remain low , in both absolute terms and in days-of-forward-demand cover. We believe this adds support to our thesis of oil prices, despite short-term volatility, remaining at levels that generate cash flow for producer that is likely to drive a multi-year drilling cycle.
World oil production averaged 77.7m b/d in December, a decrease of 1.3m b/d from November. Production from Iraq fell by 1.6m b/d, according to the IEA, as oil exports were interrupted for 12 days as the result of a price dispute between Iraq and the UN. It averaged 500,000 b/d for the month, compared with typical exports of 2.2m-2.3m b/d.
We believe this implied level of OPEC production points to the vulnerability of the global economy since excess crude oil production capacity is only about 3mm b/d and it resides in two countries Saudi Arabia and the United Arab Emirates (UAE). The Gulf News of Dubai recently reported that the UAE has idle capacity of 500,000 b/d above its current production quota. It could be argued that this political risk may lead to higher price/earnings ratios for energy and energy service shares. |
