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Strategies & Market Trends : Waiting for the big Kahuna

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To: xstuckey who wrote (1614)	6/28/1997 10:58:00 AM
From: Death Sphincter	of 94695

Regarding Tim's page on the 87 crash. Nicely done, but, perhaps a bit simplistic. In particular, I disagree with his assessment of the Oil markets affect. Having been directly involved in exploration at the time I have a different take of the situation. Rising demand and tight supplies had led the price of oil to the mid $30 several years before. Spot prices were $38-$40 at 1 point, speculation of $70 oil was hyping the industry. Domestic production rose significantly thru an unbelievable flurry of drilling and subsequent production of reserves which would be economically unfeasible to produce at -$20 oil. Investment Tax Credits, reduced Windfall Taxes on stripper production and improved recovery techniques also made prviously uneconomical reserves profitable. Foreign (OPEC) supply ramped up spurred by greed of higher prices and demand faltered because of the high price and PRESTO! a glut...the BIG KAHUNA for oil..prices fell thru the bottom..many highly leveraged independent producers defaulted taking Continental Illinois and Penn Central Banks with them. Cash rich companies(Big Independents and some Majors) bought up these reserves at fire sale prices. Hundreds of thousands of people in the industry were literally thrown into the street. Stock prices for oil companies were completely trashed. When oil prices bounced off the bottom and settled back to a reasonable price around $20 it became obvious that many oil stocks were available at near cash value. It is my opinion thatwith rising valuations in the market that these stocks were the only "cheap" ones available and the bargain hunters jumped into these stocks . They were not run-up because of inflation fears as Tim suggested. Just my opinion. CH Ps. I could bore you all to death on this subject, as I was beating my head against the wall trying to convince capital groups from New York to California to raise the cash to buy reserves at $.10 on the dollar...they looked at me as if I were insane. "The oil business is DEAD,CARL" With consumption at 16 Million Barrels/Day in the USA the business was anything but dead, but noone would listen. At the price those proven reserves could have been purchased (below $3) they were worth 6x to 10X more in a matter of months, guess I was a lousy salesman.

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