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Gold/Mining/Energy : RON STRUTHERS: BEST STOCK PICKER -- Ignore unavailable to you. Want to Upgrade?

To: Ron Struthers who wrote (91)	8/15/2000 2:41:21 PM
From: Ron Struthers	Read Replies (1) \| Respond to of 151

RSA on Oil and Gas prices Oil My past comments on the oil and gas sector is that we are actually in a major energy crisis, but with elections looming, politicians and the media have been down playing the situation. In early August, shocking numbers from the American Petroleum Institute showed domestic crude oil reserves fell by 9 million barrels the previous week, going against expectations of increasing supply. Then again, on Aug. 9 the American Petroleum Institute report showed U.S. inventories fell unexpectedly once more and reaching the lowest level in 24 years. <p> Supplies dropped 2.1 million barrels to 282.6 million, as a 17 percent rise in imports couldn't offset near-record demand from refiners. Distillate fuel inventories also fell, with heating oil supplies now 39 percent below year-ago levels just a few months before the start of the heating season. <p> ``The decline in distillate is very scary because this is when you build inventory for winter,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. ``If you don't get caught up by the middle of September, you usually don't get caught up.'' <p> The U.S. Department of Energy released its own inventory estimates, pegging crude oil supplies slightly higher, up 1.3 million barrels to 285.4 million. <p> Distillate supplies fell 500,000 barrels to 110.2 million, the DOE said, an even lower figure than the API's estimate of 111.35 million barrels. <p> Most analysts had expected crude oil inventories to rebound, after dropping 9 million barrels a week earlier. Analysts surveyed by Bloomberg before the report said supplies probably would increase between 2 million and 2.9 million barrels. <p> The markets have been incorrectly discounting a rapid decline in oil prices and there is many excellent buys in the energy sector. Energy, The Crisis Past oil shocks % increase in crude<ul> 73/75 - 213% 79/80 - 140% 98/present - 200% Everyone looks to OPEC to fail or loose grip and oil prices tumble. However, the last oil shock was relieved when non OPEC producers went on an exploration and oil field development spree. This is no where in sight yet. I don't think OPEC will loose its grip until prices remain high enough and long enough to induce a surge in non OPEC source. It appears the markets and main stream analysts believe supply is the problem, when in fact it is demand. Gas prices have recently hit record levels, this has nothing to do with OPEC oil. California has gone through rotating brown outs. There is simply not enough energy to keep air conditioners running. Growing economies and 3rd worlds becoming more industrialized has increased demand steadily to the point of absorbing all supply. Most OPEC nations are already pumping at or near full capacity. They have more reserves but they need $billions in capital to turn this into production. $10 oil in 1998 has put them behind the eight ball. We are just starting to pay the price. <P> A decade of low oil prices has hampered new oil field development. The other important factor is most oil fields outside of OPEC have reached the point of decay. Once an oil field becomes half empty, the flow rate slows and the remaining oil becomes more expensive to produce, especially if you try to maintain flow rates. Non OPEC producers not only have to maintain flow rates but will now be required to increase them. Technology has helped but in no means is, or will be enough. The oil sector has been out of favor and this has also meant more difficulty in requiring capital to build infrastructure and production. <p> Oil stocks are still way under valued, the market and goldilocks economy, does just not want to believe that high energy prices will stick around. This is only wishful thinking. Oil stocks on a cash flow basis are still selling based on an oil price of about $22 a barrel. <p> At the same time as the market is discounting oil prices it is discounting the effect on the market and economy. The last 2 oil shocks led to deep recessions in the U.S. While the economy is not as dependent on oil as it use to be, the effect will soon be felt. Inflation will continue higher and so will interest rates. We have nothing more now than a short term reprieve. <p> Labor costs are rising, but still be very lenient towards high gas prices. How much longer will labor go without demanding compensation for high prices. <P> OPEC increased quotas by about 3% or 700,000 barrels and oil prices rose farther. OPEC definitely wants high prices to remain and is lagging. Many OPEC nations are against higher quotas because they do not gain. They are already at capacity. It took a lot of persuading by Saudi this time to get the increase of 700,000. Future increase will be hard to come by and any drop in prices would likely see quick action by OPEC. <p> "Canadian Natural Gas: Review of 1999 & Outlook to 2010" at nrcan.gc.ca <p> North American gas demand was 24,039 Bcf (billion cubic feet) for 1999, a 1% increase from 1998 but still below the 1997 peak due to a string of mild winters. North American gas supply rose 1.1% in 1999, wholly due to increases in Mexico and Canada. Total Canadian exports to the United States reached 3,349 Bcf, an increase of 8%, and represented 56% of Canadian Production. <p> North American gas demand is forecasted to reach 31,500 Bcf by 2010, or 31% over current levels. Most of the required increase in supply is required from Canada and the Gulf Coast. For Gulf Coast production to reach required levels, reserves would have to be boosted from 78 Tcf (trillion cubic feet) to 95 Tcf. Unfortunately, reserves have been falling in recent years and dropped 2.6 Tcf in 1998 alone. <p> I expect this winter, we will see soaring natural gas prices, probably breaking recent record prices. We definitely want some exposure to gas stocks and is why Velvet Energy is still on the RSA list, Ultra Petroleum and I have whined numerous times what a great buy Berkley is at $9 and less. I expect all these stocks to be much higher this winter. I have been on the search for another gas stock and believe I have the perfect play for this time and at a bargain price.................