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Gold/Mining/Energy : Global Santa Fe (GSF) (formerly Global Marine) -- Ignore unavailable to you. Want to Upgrade?

To: Fredman who wrote (739)	5/27/1998 1:13:00 AM
From: Greg Jenkins	Read Replies (1) \| Respond to of 2282

This is from the Individual Investor's website. iionline.com. Crude Oil Prices Suffer Continued Downward Pressure Crude oil prices took another hit last week. The West Texas Intermediate (WTI) Cushing spot price dropped almost 8% to $12.99 per barrel before rebounding into the $14 range. This sharp decline was precipitated by the American Petroleum Institute's announcement that U.S. crude inventories rose to its highest level since July 1998. Inventories increased 2.6%, or 8.7 million barrels, to 353.1 million barrels in the week ending May 15. Concern about a world-wide oil glut and the fact that refineries processed crude at 97% of their capacity, up from 95.9% a week earlier, heightened investor anxiety. The oversupply of oil, which is affecting the Midwest more than any other region of the U.S., is attributable to several factors. Three main reasons for this oversupply are the apparent failure of some OPEC-member countries to comply with their stated production cuts of 1.72 million barrels a day, reduced demand from Asia and a generally mild winter in the Northern Hemisphere. According to Tom Blakeslee, an oil trader at Eildon Marketing LLC, "Not only is there a lot of crude out there, the U.S. has been a dumping ground for some time." Plummeting prices in the Middle East and Europe have led to increased shipments to the U.S. As a result, the available storage in Cushing, Oklahoma (the delivery point for Nymex oil futures contracts) has been reduced. These factors, when combined, sent the June contract, expiring on May 19, down to $12.96 per barrel, the lowest price in nine and a half years for a contract close to expiration. Despite this bearish environment, signs that oil prices might stabilize in the upcoming months are appearing. The Department of Energy announced that gasoline stockpiles fell by 2.9 million barrels last week. U.S. gasoline demand rose above 9 million barrels a day for second time in history. This strong demand was fueled by retailers that stocked up for the summer driving season. However, as Peter Beutel, president of Cameron Hanover, an oil and gas consulting firm, notes, "We had a huge increase in crude oil stocks though gasoline demand was about as good as it gets." That means gasoline demand solely will not eliminate the oversupply of oil, which is estimated to be between 1 million and 1.5 million barrels a day. The outcome of the June 24 OPEC meeting in Vienna may be the deciding factor. Certain members, Saudi Arabia included, have already said that production must be cut by another 500,000 barrels. They also agreed that compliance with previous cuts must be enforced. According to a Gerard & National Intercommodities report, "The market is already showing the cartel that a further production cut is desirable." Consequently, failure to agree on output cuts could cause oil prices to plunge dramatically. The continuing pressure on oil prices clearly has the sometimes fractious OPEC worried. We expect members will agree to further reduction, possibly one exceeding the proposed 500,000 barrels. But until the issue resolves itself, we expect to see continued short-term volatility in crude oil prices and most energy-related equities. If you want to make a play in the oil industry, look at deepwater drillers. Companies, such as Transocean Offshore (NYSE: RIG) and Global Marine Inc. (NYSE: GLM), operate with long-term day rate contracts and are less impacted by short-term volatility.

To: Fredman who wrote (739)	5/27/1998 8:04:00 AM
From: Rambi	Read Replies (1) \| Respond to of 2282

Hi Fred- I can give you a simplistic answer. Both airline and oil are extremely cyclical stocks which depend on many factors for profitability. For airlines, a great deal relies on not just filling a plane, but decreasing their passenger cost per mile. One of the major factors in the airlines' terrific profits this past year has been the low price of fuel. If oil prices go up, it will dramatically cut into these profits. The amount of fuel used by a jet during even short flights is amazing! (my husband's in the airline industry and explained this to me) As I said, simplistic but it made sense to me.. penni (haven't I met you at IRSN?)