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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: Doug who wrote (4867)	3/25/1998 3:08:00 AM
From: Kerm Yerman	Read Replies (2) \| Respond to of 24921

Doug / Timing Permit me first to say your mixed bag of holdings aren't bad at all. With these type holdings, I would assume you are buying for longer term appreciation. If you're looking for the ultimate in advice, the best objective is to sit back and be a little patient with the environment the industry is working within this year. Attempt to determine how the market reacts to the first quarter reports of the senior oils (not the integrateds) and at the same time, check the progress of Opec shipping against their new quotas. You should be able to dertermine whether to get in or stay put as far as the market goes. The direction in the price of oil is still up in the air. There is a better chance of the price seeing $14.00/bbl before seeing $17.00/bbl. The only positive I see ahead is the gasoline season, for inventories are low. However, the refineries are talking in negative terms and that worries me. I would like to think Opec left some playing chips on the table. The big three producers should of cut back exported oil more than they did - like another 50% of the rates they announced. In January they raised their quotas by 10%. In addition to those increased quotas, the standard cheating continued. Now they announce cutbacks, and all they've done is bite into the cheating that's been occurring. They sit back - analyze the markets - probably evaluated pretty closely the supply/demand picture - determined they could increase quotas another 10% and the world would absorb that supply level. They probably didn't do too bad a job. However, variables occurred which changed the picture in regards to supply/demand on a world basis. But still, without the cheating - we would probably have a balanced act occurring between supply and demand. The solution is imposing penalties. But that won't happen because the big cheaters are the powerful entries in Opec. I did it again, got rambling about Opec. It just irks me to no end as to how ineffective this organization is. I'm a simple man with a little basic math ability. Permit me to lay out some numbers and maybe someone can point out what's wrong in my thinking. Say a country's quota is 100,00 bbls/d. World supply/demand situation says if I ship 100,000 bbl's/d, expect a base price of $14.00/bbl. On the other hand, if I was to cut back 10% - I would realize $16.00/bbl. Now, with this scenario - I would realize revenue on 100,000 bbl's amounting to $1.40 million. At the 90,000 bbl's level, I would stand to make $1.44 million. Tain't I making more money shipping less oil. Their first thought is - hey, I can cheat over the 100,000 bbls to make up the difference in revenue. Next thought, hey - why not, I certainly have the capability in capacity. Who cares if I lose 1 year in supply every 10 years - we're swimming in oil. Like a spreading desease, other countries say - if you are going to do that, we will too. Before you know it, the $14/bbl price is now approaching $12/bbl and I guess I have to cheat a little more. Sounds astonishing doesn't it --- but this is exactly what is happening.