Croc / Oil Price Recovery
Bottom line is supply and demand. Worldwide demand has been estimated at 76.0 Mil bbls/d in 1999. That's 2% over 1998. Supply of non-OPEC crude and natural liquids is estimated at 48.9 Mil bbls/d. Target area of OPEC crude appears to be in the 26.9 Mil bbls/d area which factors 2.5 Mil from Iraq. Based upon these stat's, excess inventory levels of today will be carried forward another 12 months. Inventory liquidation is suppose to set in around the fourth quarter of 1999 and through the first quarter of 2000. This is based upon OPEC continuing to hold exports as estimated. Another cutback would speed up the cycle.
Let me go on and cover natural gas with some fast comments. As we all know, weather has effected prices. To be concerned? Yes, but not overly done. The many companies that have forward sold contracts have done so in the $2.50 area. I do expect gas prices to increase from current levels and if so, companies will be okay from an operating and financial viewpoint.
Where does that put us in relation to investment into oil and gas companies. I guess that depends in the companies one may be interested in -- meaning the production/reserve mix of a company.
Shares of prominent gas producers will probably drift lower until the first real sign of consistent low temperatures. When this occurs, expect a good solid upward bounce. Longer term, the outlook is good.
As far as shares in prominent oil producers are concerned, I believe we are near the bottom with further slight risk to the downside. I think I mentioned that accumulation of oil shares from Christmas forward would not be a bad idea. My opinion hasn't changed. You've got to believe oil prices will improve dramatically over the next 24 month period. So, longer term investing objectives are the key here.
I'm staying away from commenting on heavy oil. I haven't liked this commodity, don't like this commodity and never will like this commodity.
Which next brings me to the happy medium. That's the 50/50 producer of light sweet oil and natural gas. One may desire to search for companies of this mix which just may turn out to be the flavor of the month, the next month and etc.
The bottom line thinking here is longer term investing objectives. Do you believe we will see $10 dollar oil forever. I, for one don't think so. This is a cyclical industry and we are near the lower part of the cycle currently.
What I have presented here relates just to oil and gas pricing. One most also be fortunate to select the companies based upon putting emphasis in the correct areas.
One last comment before I close this message. Expect better financial reporting for the third and fourth quarters for the oil producers. Cash flow may not increase significantly, but bottom lines (earnings) should improve. I foresee an increase in late 1999 drilling activity which will show up in cash flow in the first half of year 2000.
As always, just one person's opinion -- this time it was mine.
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