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

To: isopatch who wrote (74368)	9/23/2000 3:39:57 PM
From: jim_p	Read Replies (2) \| Respond to of 95453

Some comments dated 9/22/00 from a well respected oil analyst who consults for several of the major oil companies on the movement of oil prices. If you don't have time to read the entire post, you should read the last paragraph. "In the early 1970’s, the beginning of a major bull market in Equities, Oil was 24% of GNP (now GDP) in the US. Recent reports give a high side of 6% and a low side of 4% of Oil as a percentage of GDP in the US. Taking the high estimates of 6%, this would imply that a quadrupling of Oil prices would be required to affect the US economy in a similar fashion as to what happened in the 1970's. Considering current levels approaching $40, we could see some big numbers. The sustained monthly and quarterly trending in oil and the yearly work below the low for next year dicates at least another big up in gas season. Dated Brent to Tapis buy signals will continue to be a major trade issue through 2003 until refiners make the capital improvements to take advantage of the Sour Crudes. The US Clean air act will continue to add a premium to the Sweet Barrel as evidenced by the recent new record spreads in Sweet to Sour differentials. It appears that the additional global refining capacity is in the Far East as we are now finally hearing of run increases after the fact. The record low Crack margin in the mid 90’s has now seen record highs in product Cracks on a global basis. The only logical assumptions are that consumer demand is on the rise. US environmental constraints on refiners have now put the US into the highest dependency on foreign oil since the 70’s. Far East demand will be a driving force for the next 3-5 years or at least until refining capacity dramatically increases. Consider that the 1998 Far East currency crisis is over and that the Far East is beginning a major growth stage of historical proportions. China and the likely unification of Korea stand to be lead issues. Recent examples are that the 09/2000 US West Coast spike in Gasoline appear to have been due to reduced Far east exports and West Coast refiner problems. This is further evidence of what is apparently perceived as a product short condition. So the question is how high is high as far as Oil prices go? We now have an idea of what the Europeans think. It looks like a tax cut is inevitable for several reasons. The Euro currency continues to be a sell since it’s inception and a major change in interest rate increases or a big tax break like Oil taxes, will be what finally stops the Euro currency slide. The September lows in the December Currency Futures (ECZ) will be a major issue to setting a low in this currency. Major highs and lows in markets are usually the cause of a major blowup of a trader or a company. The Europeans Oil tax revolts will likely result in one now. US taxes on gasoline are around 38% at current levels, while European levels are 75-80%. Should the Europeans cut taxes to the demands of the strikers, the long-term effect could be what finally jump-starts the European currency. Crisis for one is opportunity for another. Interest rates are also an issue. Japan and Germany have raised rates in Q3 2000 and anticipate additional interest rate increases globally in the 4Q 2000 or early Q1 2001. The Q2 US Bond special commentary is still an issue as the US 30 Year Bond has now set up a Monthly and Quarterly key resistance decision. A weekly trending decision down will be made at the low of the week of 09/22/2000 and the US 30 Year Bond will have big implications. Current daily positions are short December Bond futures (BDZ) over 100-08 and managed with the DAV. The initial stages of rising interest rates will cause funds to buy Oil as inflation hedges until there is a confirmed equity bear market. Interest rates breaking down to confirm higher rates will affect the Stock Market. US rates made lows in the Long Term Capital crisis in 11/98. The typical lead-time for interest rates to lead a top in equities is 12-18 months. The high in US Equities was 16 months from the low in US Interest Rates in 10/98. Recent reports that 43% of the US Interest Rates are now foreign held has not been seen since the early 1980’s when it was 25% or so. So the point is that if this was recently acquired length, the recent 2 first of month (FOM) buys in the Japanese Yen and the basing in the Yen warrants special attention. The US Dollar is set up to identify a major top in October. Copper achieved its minimum 90-cent objective from the 72- ent Q2 2000 buy signal. US grains are now in a major basing phase and Q1 2001 is the timing to look for a major up move to develop. Soft commodities and industrial metals trading higher as expected is a clue to the beginning of a general inflation bias. This will add fuel to the bull market in Oil until Equities become a widely accepted bull market. A monthly close below the current 2000 lows in Equities will be a problem. A key to WTI targets in 2001 will be interest rates. Interest Rates adding to the inflation view will drive funds to hedge in Oil and Soft Commodities and target $55-$62 WTI in 2001. We now have 10 years highs in Oil without a supply problem. The end of this bull move in 2002-2003 ill likely end in an Oil Crisis, not a Product Crisis. US interest rates over 8% and an Oil supply problem focus on the major extension targets of $120-$144 WTI as the outside target for a brief spike." Jim