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To: Mark Bartlett who wrote (8694)	3/22/1998 8:31:00 PM
From: Lalit Jain	Read Replies (3) \| Respond to of 116760

Mark, I wonder how the POG will respond to a 2M bls decrease oil production. Sunday March 22, 7:35 pm Eastern Time Riyadh oil pact could hurt U.S. bonds By Jennifer Westhoven NEW YORK, March 22 (Reuters) - A deal by major oil powers Saudi Arabia, Venezuela and Mexico to cut back about 2.7 percent of the world's oil supply could hurt bonds the most in U.S. markets on Monday. ''This is mostly negative for bonds, which have done well because we haven't seen any signs of inflation despite the strong U.S. economy,'' said Peter Canelo, U.S. equity strategist for Morgan Stanley Dean Witter. ''Suddenly, that's gone.'' He said the news raises the spectre that consumer and producer prices could start rising, reversing their downward trend. In Riyadh on Sunday, Saudi Arabia, Venezuela and Mexico said an agreement was reached between OPEC and some non-OPEC members to remove up to two million barrels per day (bpd) or 2.7 percent of supply from a glutted world oil market. The agreement came after days of secretive talks. The deal sent oil prices above $16 a barrel in trading on New York Mercantile Exchange's (NYMEX) out-of-hours ACCESS system at 1900 EST/2400 GMT. Bellwether oil futures for May delivery on the NYMEX closed Friday at $14.61. ''The drop in energy prices has been one of the major factors keeping inflation down, and this cuts the leg out from under that stool,'' said Hugh Johnson, chief investment officer at First Albany Corp. With no major economic data due this week to provide a clearer picture, the bond market will be taking cues from the oil news and any developments related to the Japanese fiscal stimulus package, analysts said. At the 1500 EST/2000 GMT futures close on Friday, the benchmark 30-year Treasury bond was up 3/32 to 103-10/32, yielding 5.89 percent. Two-year notes were unchanged at 99-31/32, yielding 5.52 percent. In later trading, five-year notes were down 2/32 to 99-24/32 to yield 5.56 percent, while 10-year notes were unchanged at 99-15/32 to yield 5.57 percent. The news should also hit stocks when they open for trading on Monday, but analysts were mixed on the overall effect of the news. Airline stocks were likely to take a beating but oil and oil-service stocks should jump, they said. ''Long-term, (the cutback) is positive,'' said Michael Metz, chief investment strategist for CIBC Oppenheimer & Co., who said he did not expect the rise in prices to fuel a major gain in inflation. ''Oil prices in the mid- to high-teens are what everyone really wants,'' he said, because it would removes the threat that the countries hit hardest by lower oil prices, such as Russia, Venezuela and Saudi Arabia, could suffer a Southeast Asia-like recession. ''It really could be positive from a macro-economic viewpoint because that could have been a snowball on top of Southeast Asia. This removes that danger,'' Metz said. Oil prices had declined 45 percent to their lows since October 1997, leading to severe financial strains for oil-dependent nations. The news does not bode well for consumer spending, which has risen due to the lower oil prices, analysts said. The Dow Jones industrial average topped off the week by jumping 103.38 points Friday to 8,906.43, crossing 8,900 for the first time and setting its fifth straight record. For the week it rose 303.91. Analysts said the news might impact the dollar but the reaction was likely to be muted. ''Theoretically, you need to buy oil in dollars, but as oil fell it didn't really hurt the dollar, so this should not have a notably bad effect,'' one analyst said. biz.yahoo.com Regards, Lalit Jain