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Strategies & Market Trends : Natural Resource Stocks

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To: isopatch who wrote (26854)	7/31/2005 8:25:23 AM
From: Arik T.G.	Read Replies (3) of 108786

Strategic view on Oil This is a LT overview and should not be looked upon as a timing tool. Oil is a commodity much influenced by prospects of supply and demand. IMO the 7 years rise in Crude from just over $10 to over $60 is driven chiefly by two concerns On the demand side the growth in Chinese demand was underestimated until last year. On the supply side two factors of different character were in play One is the Iraqi situation - IMO there was an expectations for Iraqi production to grow substantially after the fall of Saddam and the orchestrated shift to so called Democracy. The other is the deep problem of the world firmly approaching Hubbert's peak. It seems to me that the Chinese demand growth has ceased to be underestimated around August-October 2004 and Crude between $40-$50. I think we can discard that as an influence on future trends. Expectations for Iraqi production to vastly increase and fill the occasional gap between supply and demand were diminishing in the past two years. IMO the change in Iraqi production will be the most influential factor in the next year or two. Hubbert's Peak is a bit like the y2k bug - when it's a decade away nobody (except some experts and some policy planners) cares and the experts waving their hands are treated by the media as eccentric, while policy planners quitely make their moves (like invading Iraq). when it's next month the media feasts on it and scares the public. But in Oil's case whenever there's a big rally (driven by fear) there will always be attention to more fear inducing problems like Hubbert's peak. I expect Hubbert's Peak to start playing greater role in two-three years' time. So what do I frecast for the next 24 months ? I expect once the current rally makes it's peak ($72 nice target, but could be just a marginal high) that all the bad news will be already discounted. Then there should be a long down correction encouraged by more optimism on Iraq. This could take two years of choppy downward trend, or a struggling trend down. It should bottom somewhere in 2007 between $40-45. Then a new leg up driven by fear of CONSTANT shortage brought by approaching Hubbert's peak in 2008 Ironically, the bigger the increase in Iraqi output, the closer Hubbert's Peak will be.

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