DBum, The simple problem here is the level we are currently on the products, as well as the fact the OSX was pumped up above 85 and went to 110 AREA SIMPLY BASED ON A FALSE PREMIS.( last year )
Higher crude and products does not equate to higher drilling profits. Most drillers need a stable market of pricing in the product to allow some leeway with the majors. The second issue is that of Demand. We have has several instances in the past when supplies became constrained but we had good demand on good economic growth.
We now have Higher products, hurting demand, and lower supply. The normal thought here is OSX is on its way to 130 think suppiles are so tight they must drill. That simply is not true in the drilling industry.
the majors have deciced since the crash in 98, they they prefer to have 16-26 crude on stability, and a nice demand picture before they commit to higher contract rates. Today we have a World economic slowdown ( except china), tight supply, and Ceiling high products.
This looks like a recipe for disaster if you add to the picture Caracas coming back on line, Russia and OPEC in dog fight for market share and IRAQ finally becoming stable.
The outlook 6-9 months out has OSX below 65, Crude below 26, and the NG around 4-6.
Your research left out the most important ingredient, that is ECONOMIC RECOVERY. The demand side will dictate in the near term, but by next winter-early spring OSX maybe the place to be as low commodity prices spur a nice rally in out markets which will spur economic growth...ie expanding multiples.
I am not rally a MEGABEAR but actually a BULL in the osx, just not here and not yet. 2004-2005 should finally help osx bottom out and getout the excess very much like what our markets are doing now.
Look at the current fundamentals and forward P/E's of stocks like PTEN and then tell me why anyone would think we are not at or very close to a top. |
