Strictly: Drilling and oil-field services Message Board

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Gold/Mining/Energy : Strictly: Drilling and oil-field services

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To: BigBull who wrote (41665)	4/6/1999 9:35:00 AM
From: JungleInvestor	Read Replies (1) of 95453

BigBull, this article explains why Bloomberg TV showed Brent up 26 cents this morning and NYM Access shows crude down 14 cents - Brent is playing catchup to yesterday's crude rise here since the UK markets were closed. It seems to me that this rise in oil price is based on much more than "future expectations" for OPEC cuts and a "bubble" due to some closed refineries. The current reality is that energy traders are buying oil on the open market and need to deal with actual supply cuts that were implemented last Thursday. For example, Saudi Arabia, Venezuela, Mexico and other suppliers allocated cuts to the US market and importers need to find alternative sources. The US has reduced domestic supply due to the capex cuts (historically low number of drilling rigs) and huge number of shut-ins. US demand is growing due to greater than expected gasoline usage and a manufacturing sector that is picking up. Energy traders are bidding up the price of oil to get the imports needed to meet this demand. Of course some of the price rise can probably be attributed to the pendulum swinging a little too far in the other direction. However IMO the bulk of the price rise is due to current supply/demand fundamentals, so we don't have to wait until June API/DOE reports showing OPEC cut impacts on oil inventories to sustain the current higher price of oil. My guess is that Oil Patch stocks will resume their rally as investors see that the oil price rise is for real Supply/demand is one of two factors that will propel oil stocks higher. The second factor is the money supply. In the second half of the year expect that growing global money supply (due to the many worldwide interest rate cuts in 4th quarter '98) will increase inflation and increase the price of commodities such as oil. Gold and the CRB are two good indicators of when this is occurring. Low current price of gold reflects the very low current inflation rate. When price of gold rises significantly, watch for oil to rise in tandem. I'm in the camp of greater than $20/bbl oil by the end of the year and would not be surprised to see it reach $30/bbl as suggested in a recent article posted here. If this does occur, watch for a large stock market correction since current historical high PE is based on very low inflation.

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