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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Think4Yourself who wrote (52637)	10/8/1999 10:50:00 AM
From: Terry D	Respond to of 95453

RALLY ATTEMPT #1 UNDERWAY AND SOME BACKGROUND NOISE FROM FRED (who was early and right) Fred Leuffer (Bear Stearns) - Major Oil Companies Near-Term Outlook Still Bullish On Oil And Oil Stocks Oil prices have fallen $2.24/bbl (to $22.45) in the past week, and major oil stocks have been weak. We see this as a buying opportunity. What?s wrong with oil prices? 1) Many expect OPEC to raise production. 2) Oil looks bad on the charts, failing to close above ?resistance? of $25 in November futures. 3 items are being played up: 1) On Monday, the UN temporarily increased the dollar ceiling on Iraq?s oil exports for food program. But, this does not increase oil supply. Given the rise in oil prices, Iraq was up against the revenue ceiling. 2) Oil ministers from Mexico and Norway met this week. As part of the agreement to cut supply, Norway withheld 200,000 b/d from the market. In response to how long Norway will restrict output, the minister said they would make a decision at year end, a normal time to address budgetary issues. Traders interpreted this to mean that Norway will increase production then. Not necessarily. 3) Oil ministers from Saudi Arabia, Venezuela & Mexico are meeting next month. Traders assume that a plan to raise production will be decided. Not necessarily. While we believe the easy money has been made in oil stocks, we see 15%-20% more upside in major oils. Why are we still bullish on oil? 1) Oil prices are likely to rise further. Given recent OPEC production of about 26.2 million b/d, our supply/demand model suggests an inventory draw of 3 million b/d in Q4 ?? a rate of decline not seen in more than ten years. A similar sized draw is projected for Q1. 2) Earnings estimates are likely to be increased. Oil and natural gas prices are higher than what we have in our models for Q4 and 2000. Given further strength in prices, we believe consensus estimates will need to be raised. 3) Another merger could take place. It is clear Chevron and Texaco are interested in making an acquisition. We think Unocal is an attractive candidate. Based on our 2000 estimates, major oil stock valuations, as a group, reflect oil prices of $17-$18. Several stocks reflect oil prices considerably lower than $17 and, therefore, appear to be attractively valued based on our outlook for the commodity. Our stock picks among the major oils in order of preference are: MRO, CHV, SC, UCL, AHC, RD and P.