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To: RetiredNow who wrote (67755)	4/29/2005 11:01:41 AM
From: GVTucker	Read Replies (2) \| Respond to of 77400

OT economic stuff..... mindmeld, looking at your issues 1) China just announced that it will be filling its own strategic petroleum reserve and that will add another large amount to demand every day. And yet less than expected Chinese demand caused the IEA to lower expected world crude demand last week. Crude inventories in the US are at three year highs right now. 2) Oil demand according to T Boone Pickens is at 38 billion barrels a year, yet supply is only capable of producing 34 billion barrels per year. Two things to note about Mr. Pickens. First, he has never been bearish on crude prices. He has made a ton of money when energy prices have risen and he has lost a ton of money when energy prices have declined. Second, I'd take any public stances by Pickens with a ton of salt. His hedge fund is way long crude and natural gas, so he has a vested interest in trying to talk other hedge funds into taking a similar position. If the hedge funds bail on him, the price of crude declines sharply right now, because there's more than enough crude right now to provide plenty of supply. 3) In addition, there hasn't been a 1 billion barrel oil field discovery in the last 5 years, according to Pickens. Depends on your definition of "discovery". For example, look on the front page of this morning's Wall Street Journal, at the article on the Barnett Shale. That's 27.5 trillion cubic feet of natural gas (crude equivalent: 4.5 billion barrels) in north central Texas. Up until 1999 or so, it was impossible to get that gas out of the ground. Good old fashioned innovation found a way to get it out. Right now we know that there's a bunch of crude in Siberia, probably more than anywhere else in the world, but technology hasn't figured out a way to get it out. Proved reserves there might be 50 billion barrels. Plenty of respected geologists believe that another 50 billion barrels is there. That's a lot of crude. 4) Analysts believe we'll see $3 gas by next year. Note that gasoline is a minor part of the equation, and it is driven more by our lack of refinery capacity than the price of crude. That said, demand for gasoline here dropped the last time we had prices at this level. Don't be surprised to see the same thing happen again. SUV sales are dropping off a cliff (seen F or GM's stock price lately?) and Toyota has lines a mile long for their hybrids as they sharply ramp production. an aside: A pet peeve of mine (and others in the energy industry) is the misnomer "gas". You're not talking about "gas", you're talking about gasoline. Gas is not a liquid, it's a...gas. Natural gas is probably more important for our economy than gasoline. At the beginning of April natural gas was at $8/mcf. Since then the price has declined sharply to $6.70/mcf, dropping with the slowing economy. 5) Bush's energy plan has been stalled in the Senate and even if it does get passed it is an inconsequential piece of legislation. There is no long term energy strategy in this country worth a pinch of salt. We've NEVER had an long term energy strategy. And yet, the price of energy has stayed within the same nominal range for decades. Adjusted for inflation, the price of energy has been declining. the cyclical high right now is the same nominal price as the last cyclical high a decade+ ago. 6) Growth in India and China outside of their strategic reserves is going to continue to be staggering over the next 5 years. That will lead to massive new oil consumption as a whole new generation can suddenly afford cars in markets where clean air isn't legislated. Remember how much more dependent our economy was on energy prices a couple of decades ago? High energy prices REALLY hurt back then. It also brought on a lot of conservation strategies. Crude demand here in the US started declining in 1980, and didn't reach 1980 levels again until about 1998. Don't be surprised to see the laws of economics work in China and India, too. Those analysts also believe that oil won't fall below $50 anytime within the next several years. Those same experts were saying the same thing in 1980. That's all not to say that our economy won't have a rough patch later on this year. I'm in agreement with you on that one. But all the experts predicting higher prices forever for crude and natural gas have very short memories.