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

To: Sharp_End_Of_Drill who wrote (81924)	12/16/2000 9:59:36 PM
From: Tomas	Respond to of 95453

Oil stocks still look good despite slowing economy The Globe & Mail, Saturday, December 16 By Jeffrey Rubin What does a slowing global economy mean for energy prices? Little if anything for natural gas prices, which have emerged from crude's shadow to steal the spotlight. Up roughly 250 per cent in the past year, spot prices are soaring to record highs. Sure, a cold winter is partly to blame, with Americans complaining about a "polar pig" sweeping down from the north. But, as Canadians know, this isn't the first winter that the weather's been cold. It is however the first winter that spot gas prices have soared through $9 (U.S.) per 1,000 cubic feet. How high natural gas prices will peak this year may still lie with the vagaries of weather, but the tightness of the market leaves little room for Mother Nature to be cruel. Extended cold spells could see spot prices easily reach, and possibly linger, in double-digit territory. Weather aside, what we do know is that with more and more gas-fired electrical capacity coming on stream, the market is poised to get a lot tighter over time. While industrial demand for gas will slacken in response to recent price spikes and a slowing economy , electrical generation demand will continue to grow. This year alone it's up 12 per cent, and next year supply must cope with a nearly 50-per-cent increase in new gas-generated electrical capacity. Oil, on the other hand, is far more susceptible to the changing rhythms of global growth. First, oil is a global market, not a continental one. Second, oil demand is much more closely aligned to global industrial production. That said, it remains to be seen how much of the recent slippage in oil prices reflects a downgrade in the market's outlook for world growth, and how much is the fleeting impact of the recent one-time release of 30 million barrels of crude from the U.S. Strategic Petroleum Reserves. However temporary the recent softening in crude prices, there is no denying that the greatest risk to oil prices is world growth, or more precisely the lack thereof. A global supply wall of around 80 million barrels a day spells steadily rising prices if demand is growing, but it provides little support for spot prices if demand is shrinking. Case in point: Oil prices crumbled after the 1980 oil shock in the wake of as much as 3-per-cent annual contraction in global oil demand. But before you sell all your oil stocks recognize that that scale of contraction in energy demand only comes with huge global recessions. Even the most pessimistic forecasts of global growth next year don't envisage that hard a landing. Nevertheless, how bullish you are on oil prices does, in part, depend on how bullish you are about growth. My call for $40 oil next year is based on the assumption that global growth decelerates from a clearly unsustainable 4.8-per-cent pace this year to a more moderate 3.8-per-cent advance. Lower that global outlook another half a percentage point, and the same model of energy prices predicts $32 to $35 a barrel. Take world growth down to 1998's stunted 2.6-per-cent pace (a recession by recent global growth standards), and oil prices fall to $25 a barrel, assuming of course the Organization of Petroleum Exporting Countries continues to maintain elevated production levels. At some point oil prices become their own worst enemy by killing the economy that sustains them. Have we yet reached that point? We may already be in a mild recession as far as North American manufacturing is concerned, but broad-based gross domestic product declines of the type we saw in 1974 or 1980 just don't seem to be in the cards. A much slower global economy may mean that the upside for crude prices next year may be more like the mid-$30s than $40 a barrel, but that is still way more than oil stock valuations are predicting. And as more and more gas-fired generators come on stream, utility demand will continue to buttress natural gas prices. Prospects for the oil and gas sector may not be as glittering with the world growth now slowing, but all in all, the energy sector still looks like a good place to be. Jeffrey Rubin is chief economist and managing director of CIBC World Markets. globeandmail.com

To: Sharp_End_Of_Drill who wrote (81924)	12/16/2000 10:56:34 PM
From: Tommaso	Respond to of 95453

I am just sitting on a short position on DIA, the Dow. The Dow really has never gone into a bear market yet. But otherwise I have everything we have got (almost) into some kind of gas or oil play. Some years ago I was badly hurt on a single silver contract, so I just won't do futures, but someone may make a ton of money buying contracts for 2002 at about $4. I am taking a very heavy postion in the gas royalty trusts such as HGT and SJT. I also have a long time position in PBT that I was thinking of selling in january but may well just keep holding. The only call play I have found on natural gas is OXY 2003 (or 2002) calls. That neglected stock could easily double in the next two years. Making calls worth 5-10 times and more whatthey now sell for. It's such a no-mover that there's not much volatility premium.