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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Tomas who wrote (23624)	6/10/2003 9:38:08 PM
From: aerosappy	Read Replies (2) \| Respond to of 206110

Normally I just read robry on Yahoo!, but this one really caught my eye -- Number grinding & short-termitis by: denintex 06/10/03 01:17 pm Msg: 10060 of 10118 Today's ng investor has a significant amount of angst built into the weekly injection number. Thus there are number-grinding exercises regarding weekly injection rates, "back-out" numbers, fuel-switching estimates and head-scratching y/y comparisons of all the foregoing. A high injection number -- sell; a low number -- buy. In fact I believe this is badly misfocused and that the opposite may be true. In the past, the energies topped out once there was evidence of rapidly accelerating production and rig counts. Today, we see just the opposite. The Gulf rig count is below last year, and the land rig count is more than 100 below that needed to stem the decline in production, much less add to it, and this bullish scenario is not changing. High injection numbers mask these indicators by having investors believe that because of a "backing out" of demand, the supply situation is flush and thus ng investment has become bearish, so it's time to sell. However, current high injection numbers are due mainly to two factors that are temporal in nature: 1) the weather; and, 2) fuel-switching. The weather is obviously temporal. With respect to fuel-switching, users switch from gas to another fuel, if they can, because of low inventories and high prices of ng. However, a high injection number caused by "backing out" is actually long-term bullish, I believe. Why? Because if you raise supply by "backing out" demand, this 1) creates a false sense of security of flush supply, even though the true indicator of supply, production, is still in steep decline, and because, 2) to the extent that this "flush supply" lowers ng prices, it also lowers rig counts and accelerates production declines, meaning that once the user wants to return to ng, he will find that the supply situation and prices are worse than before. The focus should not be on the very short-term nature of next week's injection number but on the big picture of production and drilling. It is when these indicators are bullish that the energy sector has topped out, but these indicators are pointing to a multi-year upswing for ng investors. "Backing out" also begs the question, for demand for a most desired fuel can only be backed out so much without hampering economic growth, a bad formula in an election year. Also, fuel-switching alternatives are less than opportune with oil at $31 and oil and distillate inventories at close to record lows and coal with politically sensitive emission problems. Conservation can certainly "back out" demand but again not without consequences to economic growth. But more importantly, "backing out" begs the question, which is that the true disease for s/d imbalance is being caused by a rapidly increasing reduction in production for both oil and gas, and that for that disease to be cured, producers need to increase capital expenditures for ep with prices consistently high enough to support that activity. The past weeks reaction to the bearish injection numbers may be an indicator that the market is seeing the big-term picture better than the average investor, who knee-jerks in and out of ng in reaction to a weekly injection number. This applies to Nov. 1, too: Would a 3.2tcf inventory in Nov be bullish? Well, how did we get there, by "backing out demand," creating a false sense of flush ng supply, driving down ng prices artificially, and therefore putting a further dampening on drilling and a more rapid decrease in already steep production declines? If so, this is "short-termitis" because with those fundamentals the ng situation will actually be worse by winter's-end '04. I believe that because of this, ng is now locked into a $6+ range for a multi-year period, because anything that acts to reduce the price from that level will accelerate our ng inventory problems. I believe that the ng picture is multi-year, not next week, and that substantial rewards lie ahead for the investor who recognizes that fact. post.messages.yahoo.com