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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (123709)	9/11/2000 4:27:20 PM
From: tejek	Read Replies (1) \| Respond to of 1570077

Jim You sound as if these countries are mired in poverty. Nothing could be further from the truth. Now who are you calling rich? Indonesia or Nigeria or maybe Iraq? Maybe you are thinking of top of the heap Venezuela who has a president that thinks Cuba/Castro is the best thing since Haagen-Dazs, or back from religious froth Iran! From where I am sitting, the only truly wealthy members are the Saudis, Kuwaitis and the Qatis. Fortunately they also happen to be the ones closest to the USA and the western countries. Last May they said they were cuttting production to lower crude prices. How low did the lower prices last? Truth is that they are still at or near the highs. That's true....although it may not be OPEC's fault. The general sentiment was that shippings were higher but there were refining problems and demand increased. As far as cheating...there has always been cheating. Maybe they don't want world recession, heck, this is part of Clintons pathetic "begg 'em" rhetoric. OTOH...they are all for the high crude prices they are getting. Who wouldn't be...? I agree with that theory to a point. However they do remember that the last time they raised oil prices too high, it took 20 years for prices to come back into to alignment with production. ted

To: Jim McMannis who wrote (123709)	9/11/2000 4:33:45 PM
From: tejek	Respond to of 1570077

thestreet.com Oil's Rise Has Economists Worrying About Demand By Justin Lahart Associate Editor 9/11/00 2:28 PM ET From Saudi Arabia, from Qatar, from Venezuela, the OPEC ministers came. They drank steaming cups of coffee, they lingered over their strudel long into the night, they postured and haggled and, in the end, decided to increase oil production to the tune of 800,000 barrels a day. But this weekend's Vienna agreement did nothing to stanch the rising cost of oil -- lately it was trading $1.75 higher at $35.38 a barrel. That has set off a new round of worrying on Wall Street, about demand in the economy. The Here and Now The persistently high price of oil (it is more than triple its lows of late 1998) is already cutting into third-quarter corporate profits. Analysts have been steadily bringing down their estimates on the most energy-dependent industries. Last month they lowered numbers on transportation companies by 5.5%, according to I/B/E/S. The forecast for basic industrials came down 1.8%. For utility companies, 2.2.% And with the advent of preannouncement season, the period when companies whose numbers won't be up to snuff confess to the Street, we have seen that in some cases the analysts haven't cut the numbers fast enough. Last week, chemical giant DuPont (DD:NYSE - news) said it would not meet analysts' estimates for the rest of the year because of "substantially higher-than-forecast increases in energy and raw materials costs." DuPont's warning sent analysts rushing to cut estimates on a raft of chemical companies. It's not entirely the stock analysts' fault that they've been behind the ball on this one: They're dependent on their firms' oil forecast, and oil analysts have been wrongly thinking all year that oil would be heading lower. OPEC itself has been saying for months that it would like oil to be in the $25 range. It isn't there yet. "I've been thinking that oil prices would stay higher than the consensus, and I keep raising my forecasts," says Morgan Stanley Dean Witter chief U.S. economist Richard Berner. Not Just Supply The problem with oil, explains Berner, is not merely a matter of supply. The low oil prices of two years ago, and the lack of demand in a world economy hampered by crisis, led to a shortage of capacity: It simply was not worth it to build tankers, improve refineries or put new money into exploration. As a result, the rise in prices did not, as it should, lead to an increase in supply. Berner worries that there is a risk that his firm's forecast of $30-a-barrel oil this year and $27-a-barrel oil next could fall short. That would put a crimp on profits that Wall Street is not prepared for. "Rising oil prices are good for 23 companies in the S&P 500 and bad for the other 477," says Tom McManus, equity portfolio strategist at Banc of America Securities. "This is the few selling a crucial product to the many. Whether you use energy to heat your sand into fiber-optic cable, or you use energy to fly millions of people across the country, or if you use energy to heat the stores where you sell frozen vegetables, these costs are rising." For most companies, however, it is not the increased cost of energy that hurts so much as the way higher energy costs affect demand. The Good and the Bad "The message that DuPont delivered is potentially a pretty ugly one," says Doug Cliggott, equity strategist at J.P. Morgan. "Costs are up, demand's softer -- we're getting squeezed. In a modest sense, that might be the message of a lot of American households in the next couple of quarters: Costs are up, our income isn't growing like it used to -- we're getting squeezed." Berner agrees that it is this macro effect on the economy that's important. He estimates that each $5 rise in the per barrel cost of oil takes about 3% off Gross Domestic Product growth. Economywide, Berner expects after-tax earnings growth to decelerate to 5.2% next year from 14.8% this year. Whether the energy hit will do any lasting damage to the stock market is an open question. There are reasons that it might not. Slower economic growth brings lower interest rates, and lower interest rates have historically been more important to the stock market than higher profits. SUVs aside, the U.S. is more fuel-efficient these days, and that may limit the overall effect of higher fuel prices on the economy. Finally, technology is one of the least energy-dependent of all sectors, and the U.S. stock market has a very heavy technology weighting these days. For now, though, such pleasant thoughts may not matter. It is September and investors are thinking about earnings, and they are remembering October and its demons. They see the rising price of oil and they have found something to worry about. -------------------------------------------------------------------------------- Send letters to the editor to letters@thestreet.com. Read our conflicts and disclosure policy. Order reprints of TSC articles. Top RELATED STORIES