OSX Questions--
Malcolm:
It is gratifying to see a clear bull vs. bear debate on oil developing here, along with a mini foodfight on the old thread. The most useful thing, imho, would be to try to set out as clearly as possible the arguments, pro and con, for the nearterm and midterm future of OSX stocks. Not the price of oil, not the profits of the big integrated companies or the refiners, and not the future fortunes and debacles of the E&P companies. Let's keep it simple, and try to get most of the cards out on the table concerning oil drilling stocks.
For starters, the bull argument would say:
1) the memory of 1998 is still too fresh in OPEC and NOPEC's collective minds for them to go down that path again (so sooooon);
2) we don't have the inventory problem and the production problem now, in 2001/2002 that we had in 1997/1998;
3) investors are not as stupid as they were in 1997/1998 when they collectively gave up on the OSX group and threw out several babies with oil @$10/barrel bathwater;
4) Russia is simply playing mind games with the Saudis on cuts meanwhile it is cutting deals with the U.S. which it is unlikely to keep. Russia will cut production since energy earnings are key to its economic good health. Recall that what some pundits believe really brought down the old USSR was Reagan's oil play, nada mas.
Again, for starters, the bear market scenario goes something like this:
1) This is simply a rerun of 1998, OPEC and NOPEC squabbling, Saudi more than willing to play a game of chicken with the new problem kids, Russia and Mexico;
2) The world is in serious recession, something which all the rate cuts in all the major currencies in the world are not going to be able to cure in short order. Demand will continue to fall as inventories rise;
3) We are on the downslide side of the cycle, and there has been no capitulation in these stocks (If you buy on the downslide you condemn yourself to watching a $200K investment in one of the big plungers get cut in half, or even worse before recovering, to wit, UTI from $13 to $6, PTEN from $8 to 2 7/8, etc.);
4) You have to ask yourself a question: if the world's economy is in worse shape now than it was in 1997 with the Asian contagion (then recession was limited, now it's unlimited), and if the war premium for energy disappears (as appears to be happening with the amazing success, so far, in Afghanistan), and there truly is a production spat among the producers, then why wouldn't this particularly energy bottom look even worse than 1998's???
If we see a repeat of another massive OSX bottom, will we see the same order of bottoming and recovery? If I recall correctly (and stated before) it went something like: land drillers, shallow drillers, deep drillers, construction, pipe and seismic (seismic only sort of, as I recall--JimP can you confirm?).
Anyway, I'm sure there are a number of other issues, refinements and corrections to this initial foray, but this was my Sunday morning, back of the envelope start on the subject. My personal feeling is that we will see an OSX of 45 or even lower (lower because once we hit 45 people will declare it the bottom and start to trade it which, of course, means it wasn't the bottom after all--in February of 1999 nobody wanted to buy PTEN at 2 7/8, well, almost nobody--it turned out to be the bottom because there was absolutely no one left to sell).
Feel free to cut and paste this set and add/subtract/comment with your own commentary.
Kb |
