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Gold/Mining/Energy : Oil & Gas Price Economics -- Ignore unavailable to you. Want to Upgrade?

To: rajaggs who wrote (260)	9/11/2000 11:45:02 PM
From: CIMA	Respond to of 350

Thought you might find this interesting: Mexico to Abandon OPEC Deal? stratfor.com _________________________________________ Summary Mexico's Zedillo government appears to be concerned that oil prices have climbed too high, threatening Mexico's commercial and political interests in the United States. With the U.S. elections only two months away, Mexico may increase its oil exports as much as possible in order to score political points with Democrats and Republicans in Washington, D.C. - where soaring domestic gasoline prices are a hot political issue. The Zedillo government may also be seeking to shore up the peso against potential speculative attacks in the early weeks of the incoming Fox Administration. Analysis Mexican Energy Sub-Secretary Andres Antonius announced at the recent OPEC meeting in Vienna that Mexico "could increase" its oil exports by 200,000 barrels per day "if current market conditions do not change," reported Reuters on Sept. 11. Mexico's interests within OPEC are now clashing with a significantly more vital Mexican interest outside OPEC: its relationship with the U.S. through the North American Free Trade Agreement (NAFTA). Two years ago, Mexico aligned itself with The United States' top oil suppliers, OPEC members Venezuela and Saudi Arabia, catalyzing the three-fold increase in world oil prices; OPEC could not undertake serious production cuts until these three countries agreed to stop competing over U.S. market share. The oil windfall has been an important factor in Mexico's robust economic growth during the past year. The future growth and stability of Mexico depend heavily upon a strong U.S. economy. The United States is Mexico's largest trading partner, while Mexico is America's second-largest trading partner - after Canada and ahead of Japan. High oil prices barely threaten the U.S. economy, which uses a great deal less petroleum per GDP dollar than in previous years. Yet, the Zedillo government is concerned that excessively high oil prices - more than $25-28 a barrel - over a sustained period of time could eventually slow the U.S. economy and affect Mexico, which ships about 80 percent of its total exports to U.S. markets. U.S. presidential elections are only two months away, and the Mexican government does not want to offend either Democrats or Republicans in Washington, D.C. Mexican President-elect Vicente Fox would prefer a victory in November by Texas Governor George W. Bush, a staunch supporter of NAFTA who, unlike Democratic Vice President Al Gore, is not beholden to organized labor and environmentalists. However, regardless of who wins in November, raising oil exports beforehand would be a good start for the Fox administration's relations with the next U.S. government. Raising oil exports by 200,000 bpd now would also be a prudent financial move for Mexico. For the first time in more than 20 years, Mexico expects to achieve a transfer of presidential power in December without suffering a financial crisis and devaluation of the peso. However, the increased revenue stream would provide Mexico's Central Bank a cushion to defend the peso against potential attacks by currency speculators. The PRI still controls oil policy in Mexico and would not ordinarily do anything to aid an opposition government, but President Ernesto Zedillo has placed the country's economic and political stability ahead of his party's partisan interests. ________________________________________________________________ Promote global intelligence. Forward this newsletter to your colleagues and friends! __________________________________________________________________ OPEC's approval of an 800,000 bpd increase in production may fail to reduce and stabilize oil prices. Mexico's stated willingness to increase its oil exports in light of the decision also indicates a divergence of interests with Venezuela, which favors tight production controls and smaller increases in output. Mexico wants to maximize its oil export revenues without pushing the major consumer countries into a recession. Venezuela has taken the position that oil prices are currently at "fair" levels and that consumer countries should cut their internal energy taxes to achieve cheaper domestic pump prices rather than pressure crude producers to increase supply. Although Mexico has stated that it will consult with OPEC and non-OPEC producers before making any decision, such consultations would be mere diplomatic formalities. Mexico will soon boost its oil exports, and ship most or all of that increase to the U.S., raising its oil revenues, expanding its market share in the U.S., and winning the approval of key Democratic and Republican leaders in Washington, D.C. _____________________________________________________________ For more on the Mexico, see: stratfor.com _____________________________________________________________ (c) 2000 Stratfor, Inc. _______________________________________________ SUBSCRIBE to the free, daily Global Intelligence Update. Click on stratfor.com UNSUBSCRIBE by clicking on stratfor.com _______________________________________________ Stratfor.com 504 Lavaca, Suite 1100 Austin, TX 78701 Phone: 512-583-5000 Fax: 512-583-5025 Internet: stratfor.com Email: info@stratfor.com

To: rajaggs who wrote (260)	9/12/2000 12:03:32 AM
From: Mark Adams	Read Replies (1) \| Respond to of 350

I wasn't so much interested in the actual numbers the report provided, but the macro impacts. The report is based on a Carbon tax increasing the price of energy. What we have now is a situation where other events have created the same effect, although as you point out the price increases are more dramatic than the report considered. The same macro changes should result, if the models are decent. Based on that, we should expect an up blip in inflation, and without fiscal stimulus we should see the consumers pulling back. After that, the inflationary impact dwindles, and a potential deflationary period could occur if recession results. If we get fiscal stimulus, retailers would be a good place to be. Steel Mfgs, Chemicals etc probably best avoided. I happen to have some exposure to Steel currently, and was considering chemicals as a contrarian play. Maybe not such a good idea. One macro trend was the shifting of energy intensive activities overseas. The report suggest that high energy activities would tend to migrate to areas with less restrictive carbon limits- I would imagine Korea might be a natural candidate. Given no carbon restrictions in place currently, this may not be as applicable. Still, high energy activities like the mfg of Steel might relocate to areas rich in local energy sources, ie Indonesia. Much of the American Steel industry is already on the edge- higher energy costs could shutdown some local capacity. Like yourself, I've not quite digested the info entirely. But I'm begining to think of $30 oil to a 7% tax increase, after reviewing the historical prices for the past decade. I don't even like to think of what $35 or higher would mean, if sustained.

To: rajaggs who wrote (260)	9/14/2000 12:37:27 AM
From: jackie	Read Replies (1) \| Respond to of 350

If you follow Matt Simmons on Simmons International, you will see how one of the major contributors to the price collapse of a couple of years ago was the EIA's invention of the 'missing barrels' hypothesis. This was devised by the EIA to explain away the disparities between their math models of oil production and consumption. Rather than admit their calculations of oil production were flawed, the analysts at EIA said there were hundreds of millions of barrels of oil, 'out there' somewhere, that would soon arrive at the consuming nation's ports, completing destroying the market for oil. Meanwhile, traders at NYMEX were bidding down the price of oil on their screens, after reading these bearish reports. EIA would then see the price movement down and see this as confirmation of their earlier 'missing barrel' theory. They would then restate the 'missing barrel' theory, adding more barrels to the sum. Traders at NYMEX, reading the latest reports from the 'experts' at EIA then would trade down the price of oil. Why? Because there were millions of barrels of oil yet to arrive and we would then be swamped with unwanted oil. Soon, we had a pretty vicious negative feedback loop going on. During the height of all of the forgoing, The Economist prints the cover page of infamy, predicting $5 to $6 oil. Panic now seizes the marketplace. The dealers in real oil, the oil and gas guys are almost wiped out. The best and brightest in this business break even at $16 oil. They had to retrench. They had to cut back. They had to merge, simply to survive. No one is drilling. No one is building equipment for the drillers. No one is insane enough to go into the oil business from college. Why? Because the real bucks were to be made in building electronic castles on the web. One oil man, the head of Rowan I believe, recently stated joining the oil industry from college was a proof of a diminished mental faculty. My next door neighbor's brother was laid off from his job as an oil engineer. He had successfully brought in 50 horizontal wells in the chalk beds of the North Sea. He was now unemployed. Just last month he did find a job, but not a good one. Where are we going to find people like that now that we need them? Don't forget the reaction of the oil producing nations. Do you seriously think they were spending enough money to maintain their facilities at $10 oil? It was mentioned earlier they have huge social commitments on their oil revenues. They do not have the $100 billion it is going to take to expand their production. Read the book "The Color of Oil" for an analysis of where the world's greatest producer of oil stands with regard to production and the capacity to expand same. Now with delayed maintenance coming home to roost, I would be very surprised if there is the 2-3 million barrels per day remaining capacity anywhere in the world. Meanwhile, a word no one in the media has grasped yet, and few in the O&G industry continues to have its way with us. That word is depletion. Just what is the gross depletion rate in the world today? Does anyone know? Is it 5%? Or is it 20%? If it is the lower of the two, it means we must replace the entire oil producing capacity in the world every twenty years just to stay even with current demand, let alone growth. Yet, in spite of the importance of this concept, no one knows the correct answer. I believe for our newer, and therefor smaller, reservoirs, it is closer to 20%. It is only our new enhancement techniques keeping our heads above water. Our net depletion rates, thanks to the aforementioned technology, is probably closer to 5%. Folks, I think we're in a lot of trouble. If a lot of effort is poured into exploration and development over the next two years, and we moderate our world growth in energy demand, we might come through this with minimum damage. But the oil industry is disinclined to invest those kinds of dollars because of the instability of prices brought about by that unholy alliance of government bureaucrats ('missing barrels') and speculators ('paper barrels') and a lack of accurate, reliable figures for consumption, production, production capacity, and real depletion rates. Sorry for the long post, but every time I hear about numbers from the EIA, I just gets me. Regards, Jack Simmons