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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Brent Hogenson who wrote (39115)3/6/1999 6:28:00 PM
From: Rob Shilling  Read Replies (1) of 95453
 
The economist article seems off base.

It ignores the fact that there is a necessary return on investment for all money making enterprises. Oil prices are already so low that non-OPEC investment in oil projects is drying up. OPEC is also falling behind on investment in their oil infrastructure. The fact that oil can be pulled out of ground in various places around the world at costs below the current price of oil is only a short term threat to oil prices. And, I think we may have already seen the worst of that. The lack of investment is the indicator to the longer term oil price direction. The price needs to get back to where oil capital investments provide an adequate return on investment.
As Slider has posted before, the OPEC countries have cheap oil, but the oil price they need to invest in more production is much higher than one would think because they have huge welfare economies (thus the reason why they are behind on oil production investment)
Whether OPEC cuts on March 23rd or not is not much of an issue long term. I think it is just a decision on how much more short term pain OPEC wants to burden as low oil prices shut off high cost production.
Remember Richard Rainwater had pointed out last year that excess supply in the world is down to 4-6 mbpd from something like 15 mbpd in 1990. He originally thought that the world would start feeling the tighter supplies in terms of higher oil prices by 2000. The international financial crisis (resulting in slower demand) has pushed his estimate into the future a bit. But, the ultra low oil prices we are experiencing will tend to self correct his assumptions by shutting off high cost production oil production at a much higher rate than originally anticipated.
As far as Cramer goes. He was bullish on drillers around September, except he was worried about year end tax selling. I have watched Cramer in action and I tend to believe that sometimes depending on his trading position he may actually say the OPPOSITE of what he thinks. Think about it. If he is accumulating drillers (the evidence is piling up that now is a good time to do this), it is directly to his benefit to talk the drillers down! Is it legal, who knows, ethical? definitely not. But remember Vinick at Fidelity. He was caught talking up Micron Technology when he was selling it. Talking stocks down while you are buying is just the opposite play.
This kind of thinking makes one wonder a little. George Soros recently said the Brazilian real is "undervalued". It makes one think that he wants to convince the Brazilian central bank into propping up the currency while he shorts it!
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