To all,
Some musings I put out on Yahoo thread for HEC. Would appreciate some comments. Agree? Disagree? Why? Thanks for your time.
By the way, oil up strong again today.
The biggest single factor affecting the share price of HEC has been the price of oil. Every oil company has seen their share price come down very hard over the last year in spite of what some have had to say about bad management at HEC, the disappointment over the Islero, bad weather, etc. By the way, we were warned by Oilseeker not to put too much faith in the outcome of the Islero as it was a wildcat. It wouldn't have made a bit of difference in the share price if they had found oil as has been pointed out many times on this and the SI thread, this company already has a big winner in the Bolivar. The market did not reward us with higher share prices on the Bolivar which was executed with precision and skill.
So we're back to oil prices. When are they going to turn around? The honest answer is I don't know, but that's not going to stop me from indulging in a little speculation, which is always fun.
Two factors affect the price of any commodity, supply and demand. On the supply side, organizations run like a business, are cutting back. Countries, run as political entities with no regard for economics or
return on investment, are pumping it out as quickly as they can. Supporting social, political, or power mania ends preclude any other choice. The overall net effect here has been somewhat of a drop in
worldwide production. Is it enough? Not so far, as everyone cheats where they can. That's why I don't believe the bombing of an oil pipeline in Iraq is having a material effect on oil supplies. Others would just view it as an opportunity to do their own cheating by turning up the spigot a little. Of course it could be having a psychological effect, but the US has been bombing Iraq for weeks now and it hardly earns a mention with Dan Rather. We've all become acclimated to bombings in Iraq.
Now the demand side. What caused a lot of the problems here was the Asian flu. It caused that little downdraft last summer in the overall market and absolutely killed the oil patch. Why was this such a bad flu? Because it was not only the inevitable revenge of the business cycle on people spending more than could be justified by their economic output, but it came at the time many believed in the Global Economy. The basic premise of this view of the economy is all countries and societies are interlocked in such a close knit fashion, anything affecting say, India, is going to affect me here in Denver. So when everyone saw the Asian tigers going down, it was telling us everyone was going down. So down came everything depending on vibrant economies. Stocks and commodities, including our favorite, oil, all coming down.
Is this view of the world valid?
Certainly, the US economy is roaring right along. No sign of contagion there. Europe, growing slower, but growing. Don't know about Latin America. But the biggest surprise to believers in the global economy has been Asia. Korea, Thailand, and the Philippines are definitely on the upswing. China and Hong Kong, not so well, but not spiraling down either. Indonesia, total basket case as they are flying apart as a country. Malaysia is trying to cut themselves off from world markets and who knows, it might even work. Japan? Not clear. The guys over at theStreet.com are definitely down on Japan. My favorite guy Stephen Leebs, thinks otherwise. He bases his conclusions on the TA of long term interest rates over the long term as well as an analysis of the diffusion index. I do know Sony, a good proxy for Japan, Inc., is flashing some long term buying signals. This from two people I know are good at TA. So I'm inclined to believe we may have seen Japan at least start to turn around.
But the big point here is, each country is behaving differently because each is pursuing a different economic policies. The nation state model of economics is still valid. The global economic village concept is not.
So what does this have to do with oil prices? Since one of the big underlying premises of a spreading economic slowdown worldwide is proven to be false, it therefor follows the accepted outcome of such a downturn is also false. The psychological premise however, is still with us. Oil has been irrationally beaten down. When the mood shifts, it will be snap back to the average, which is about $19 per barrel, the nine or ten year average price of oil. But we'll overshoot it as is usual with such things. Maybe $22? That's after people realize the balance between production and consumption is really much closer than widely believed.
When will these paradisiacal conditions prevail? Again, one of my TA experts said oil prices bottomed out in December. February was scary as there was another attempt at punching those support levels. We are definitely above those prices, some 20-25% above. In only two months. If we have a similar rise over the next four months, we'll be looking at $15. Stephen Leebs thinks we could actually see $20 plus at the end of the year.
If HEC stock price is connected with oil, we should see our prices go up as well.
Regards,
Jack |
