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Politics : Idea Of The Day
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To: IQBAL LATIF who wrote (16986)2/15/1998 11:02:00 AM
From: Area51  Read Replies (1) of 50167
 
<<The Brent has declined from last 4 months from $21 to $14.85, I think we'll see it moving up to resistance of $17 and falling back to $12-13 level. .... freeing them from the clutches of Saddam, and in this scenario of mine, you will see pumping out 4-5 million barrels, that would really bring prices down to $12>>.

Thanks for your big picture insights on the price of oil. I'm in the process of building a position in the drillers because I want some protection against future inflation, and also because I thought that the increasing worldwide demand (and the relatively constrained capacity of drilling rigs) provides a compelling investment story in it's own right.

My understanding (mostly from Baird Soule on the strictly drilling thread) is that current OPEC output is about 28.4 million barrels per day (mbpd), and that the Iraqi infrastructure is in such disrepair that its probably several years to restore Iraqi capacity toward 4 mbpd and by that time increased world demand may have absorbed the excess supply. (I don't have current world demand # but US demand was 18.6 mbpd in January). Another factor which impacts is what is the current black market supply from Iraq which some have alleged is probably a significant portion of their current capacity. Therefore this from Lehman analyst Paul Chambers (2/12)made sense to me:

Thinks perhaps 10-15% downside risk could still exist for oil service stocks over the next 3-5 months. He notes that since 1983 WTI oil prices have remained below $17 only 15% of the time, adding he believes that will remain true over the next 15 years as well. Earnings for the land drilling companies are the most exposed over the next six months followed by the integrated oil service companies, shallow-water drilling companies and companies tied to domestic E&P expenditures."

Regards,
Garry
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