Because of the news in the oil markets today I thought it would be timely if I publicly post the editorial comments in our weekly Journal.
April 8, 2001 From the Desk of the Editor:
This week the Producer Price Index is expected to show a sharp climb, attributed to the rise in oil prices. The question being discussed is whether or not this is something to concerned about in the coming months?
Regardless of the instability of the Middle East, which is a chronic problem, there are a few factors that limit, mitigate or negate the effects which have caused the cost of oil to truly affect the economy. Recognition that hurting their customers is not in the best interest of OPEC, the decrease in OPEC's share of the worlds oil supply and the current oil inventory are among those factors.
During the past oil shocks the economic damage to the capitalist world caused the OPEC nations as much, if not more, damage. Since many of those countries have their entire economy build around the selling of oil, and much of populous lives in a socialist type system, with oil revenue trickling down to the masses. Hurting their oil revenue will only further aggravate the unrest the Middle East is now having.
OPEC's share has fallen from over 50% of the worlds oil production to somewhere around 28%. Other nations, including Russia, stand to gain market share if OPEC fails to deliver.
Lastly, as we have mentioned in the daily commentary, the crude oil inventory is close to its high, which should limit price increases. The graph below shows 5 years of oil inventory data.
(Unable to post graph)
I don't see much of a concern that we will have another oil shock. As far as oil/oil service company stocks go, they will trade on perception of supply problems, valuation (most stocks remain fairly valued to undervalued), and demand, (we are entering a seasonally high demand period.)
Have a good week,
Sam
Sam@savvy-trader.com |
