George; it's a self fullfilling situation here imho...
If crude would loom around $10 nearterm, the 40% capex cuts would be the least of the worlds problems... Also, I do not think that the economic reserve replacement models could allow 40% cuts or anywhere near that imho.
The new coordinated and inter-related International Financial Markets & Economies can NOT and most importantly will NOT allow $10 crude. It is as much a threat to political and economic stability as major Military actions, and certainly would cause International intervention to a degree greater than was shown of late with the reaction to LTC, Brazil, and the recent International Rate cuts and liquidity stimulation packages.
Quite simply some countries would most definitely collapse, the US Banking system would have a greater threat than LTC or Brazil posed and political instability would run rampant world wide... it will NOT be allowed to happen - period.
However; the emotional ''fear'' of this worst case scenario IS all ready priced into todays prices; giving opporunity to buy, in light of the confluence and multitude of potentially positive events for the oilpatch. The fewer that see the light - the more rewarding it is...
We are not going to ''just'' see a suckers rally; what we are seeing is the bottom in the pain tolerance of the players who CAN change things... We will see action in Iraq, we will see further OPEC cuts, we will NOT see Clinton impeached, we will see the sell off of the over all market due to weakened earnings expectations and coorespnding sector rotation, I further believe that the IEA API numbers controversy and their relevance and accuracy/inaccuracy will ultimately be a major story here. With actual demand going up slightly, and production being shut in world wide and with good OPEC compliance - the numbers simply do NOT add up... Crude has been severely artificially depressed by traders; which has set up an almost assurred rubber-band snap back scenario imho. Rainwater, Hicks Muse et al have not been lost on this scenario...
Also; why hasn't anyone asked this question ? If the future for crude was sooooo bleak nearterm - why aren't the major Intnl Oils selling off to historic lows ? Don't give me the merger premium answer, because there are too few players and too little premium being awarded here... ? |
