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To: yard_man who wrote (10641)	8/13/2000 8:41:23 AM
From: re3	Read Replies (1) \| Respond to of 436258

from toronto star today : (note the last line ho ho) Watch for oil to fuel commodity stocks The industry experts are attacking my favourite market sector, the oil stocks. Last Wednesday, a strategist from a major bank was quoted as saying ``the time is approaching when investors should pull their money out of oil and gas stocks.'' On Thursday morning, a headline blasted: ``Oil surge fails to impress Bay St.' On Friday morning, a portfolio manager appeared as a guest on an e-business TV show and claimed that the oil stocks were ``rolling over.'' This could be good news for investors holding oil stocks. I believe, after all, that portfolio managers plug only those stocks that they already own. I can't imagine a portfolio manager contributing to a price rise on a group of stocks he or she intends to buy. Clearly the oil, gas and oil-service stocks are still underowned by portfolio managers, many of whom are still overweight in technology stocks. Many investors and stockbrokers I hear from are still non-believers in the oil sector in spite of the group's fabulous 18-month performance. They are also unmoved by U.S. inventories of both crude and refined products sitting at 25-year lows in spite of the fact that the Organization of Petroleum Exporting Countries has increased production twice this year. Many are also unmoved about the North American motorist's shift away from small, fuel-efficient cars to gas-gobbling light trucks and sport-utility vehicles, and by the fact that most world economies are growing and consuming more oil. Few notice the importance of old-economy oil when compared with new-economy fibre-optic cable. Yet the industrialized world could survive without that cable, but stumbles on oil shortages and stops dead without the commodity. I think oil stocks should be a core holding in any portfolio. It's possible that the price of oil could stabilize in the current trading range of $25 (U.S.) to $30 a barrel, but I think the oil stocks haven't risen enough to reflect these higher prices. Our chart this week shows monthly closes (and Friday's closes) for the Toronto Stock Exchange's oil and gas subgroup and for benchmark Brent North Sea crude oil. The chart, plotted on logarithmic scales to show percentage rather than absolute changes in the index and in U.S. dollars for Brent crude, spans more than eight years. Note the series of lower lows in Brent crude from 1992 to 1998. Note the series of higher lows in the oil and gas index over the same time. The oil and gas stocks were trending higher during a period of falling oil prices. The recent jump in Brent crude from the 1998 low has taken the price above the 1996 peak. The TSE oil and gas subindex also rallied, but then stopped at the 1997 peak of about 7,900. That number is important because that was the high-water mark posted during the 1981 price spike. Some analysts could argue that the oil and gas group has now posted a triple top, creating a sell signal for the gas stocks. I don't think so. I think the index will soon break above the 1997 peak, and in the process force many portfolio managers to increase their holdings in the energy sector. I think this upside breakout will occur because the energy sector is emerging from a long down-trend that began after the sharp, fast spike in oil prices in 1981. I think we'll get confirmation of a new, long-term up-trend if the oil and gas subindex does move above the 7,900 range. Remember that a long-term up-trend can last for years, even span generations. Here is the real shocker. Oil should be the leader of any new, long-term advance in commodities in this new century; that is, a move by the oil and gas group above the 7,900 mark could set the entire commodity sector on fire. The inflationary implications could set off a buying panic in any commodity-related stock. This is serious stuff. Even the gold stocks could rally. --------------------------------------------------------------------------------