Slider, Supply Trends? In the ebb and flow of cycles, it is demand that adds variability to the cycle, BUT it is supply that ultimately defines the cycle.
Natural Gas supply is still tight (anemic production growth of 1%). Prices aren't falling due to supply, they are falling because demand for natural gas is weak (due partially to fuel switching into resid and coal). When prices fall enough, quantity demanded will increase. And if prices fall enough then drilling declines and supply falls. Net net, these gas bears who've become BEARISH over the course of the last 4-5 AGA reports are about to be whipsawed. (Not including you in this lot, since you did make a great timing call)
Oil will likely stay above $20. No one has added capacity throughout this mini-cycle, and $20 > will add a floor of support to gas.
So write off global demand in 2001. Investors have already done that, and more. Looking ahead to 2002, if you think that global demand for energy will be down again, then it will be tough sleding ... BUT the cycle is not over, as you proclaim it is. <-- important point. If demand is down again in 2002, then supply will fall, setting up tightness in 2003.
But it is the very lack of supply additions in both oil and ngas that means this cycle is NOT over. Stocks are being priced as though it is over. Most likely, we will see moderate growth in global energy demand in 2002, and oil and gas prices will rise.
Start getting in, instead of patting yourself on the back. You deserve it, but that's not how you make money. (Not meant to be patronizing because you've demonstrated that you know how to make money in various different sectors - this is intended for a larger audience ... i.e. your followers and recent Oil/gas Bear converts) You make it by zigging when everyone else is zagging.
Unless of course you know something that I don't about oil and gas capacity additions. Judging from all of the 10-Q's and 10-K's I've read, company presentations I've seen, and conference calls I've listened to, E&P companies from the smallest to the largest are having a damn difficult time keeping production flat, let alone adding production. Especially the kind of production that ENDS energy cycles.
One of the reasons 1997-1998 ended is because we had seen massive amounts of capital spent in '95-'96-'97 that led to increases in Non-OPEC capacity, right as OPEC increased their own. We have not seen that capital spent. In fact we saw capacity cuts of 10% and 25% in '98 and '99... and we will see the impact of those cuts come through in flat-to-down '01-'02/'03 production. Investors ALLWAYS fight the last battle, and that was it. Investors seem to be betting things will end as they did in '97/'98, but they won't.
Cheers |
