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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: Elmer who wrote (5809)	7/7/2001 8:18:14 AM
From: jim_p	Read Replies (1) \| Respond to of 23153

Elmer, Excellent points. I am a bull long term. It's just getting harder to figure out when that will be? The only issue is how long will the dip last in NG and how low will NG prices go before the correction is finished. The other issue is, when will the oil cycle correction begin and how long will it last once it starts? I don't have the answers, but history would tell me at least 12 months for the NG cycle and most likely 18. We have started the correction cycle for NG, but the correction cycle for oil has not begun yet. As long as oil stays in the high 20's, excess supply will continue to build until the correction cycle begins. It's possible that the oil cycle is successfully delayed further by OPEC while we have a complete cycle correction in NG. I think the odds of that are less than 50%, but possible. Eventually the oil cycle will correct, and as we learned in the 80's, the longer OPEC is successful in delaying the correction the long and more severe the correction will be. Oil is a world commodity and in my opinion we are about to see the same type of demand response to higher oil prices that we just experienced in the domestic markets with NG. We have had cycles in the past for oil and NG where one is up and the other is down. I would expect to have several short covering rallies in NG before we go lower. I know that $27 oil and $3 NG are GREAT prices for anyone in the patch, but you will have to admit that the market pressure on oil prices over the next 12-18 months is much more likely to be down and not up and the market pressure on NG prices over the next 6-12 months will most likely be down. I believe this is more of the reason we are seeing a mass exit from the patch today when prices are historically very good. One point I want to make on depletion rates. I think there is a misconception that we are seeing a dramatic increase in depletion due to the fact that we are running out of reserves. I think we are seeing a very small increase in depletion due to a lower quality of reserves ("the lower hanging fruit") and a much larger increase in depletion due to the use of horizontal drilling and improved frac technology. JMTC, Jim