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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Mark Glembocki who wrote (26471)	7/24/1998 11:27:00 PM
From: P.Prazeres	Respond to of 95453

To All: Here is a site explaining the OPEC and Non-OPEC Production Cuts.. eia.doe.gov Paulo

To: Mark Glembocki who wrote (26471)	7/25/1998 2:05:00 PM
From: Mike from La.	Read Replies (3) \| Respond to of 95453

Mark, A little history is in order. I'm speaking from memory, so allow for some minor discrepancies. You asked about the price plunge in the early '80's. There lies the key to the entire present situation. There was a huge drilling boom in the 60's into the early 80's. Around 4700 rigs were working in the US alone. Just about the time things should have started to slow down, there was the OPEC oil embargo over the war in Israel. This created an artificial, huge drop in supply, and an oil panic. Prices went up to records you mentioned. After the embargo ended, the supply shortage was no more, but everyone's production was still high, because of all the wells that were drilled, including the OPEC countries, which were all breaking their quotas. Saudi Arabia tried to get the OPEC members to comply, but they continued to overproduce. So, Saudi Arabia, on it's own, cranked up it's production and flooded the world with oil. Now there was an artificially created surplus, after the artificially created shortage. It's strategy worked. OIl drilling and exploration came to a total halt. This produced the oil bust in La and Texas that lasted until around '92. It was here that I bought my first oil service stock, ESV for a split adjusted price of less than three dollars. I've held it ever since. No one was drilling and the rigs turned to rust. Now, all those fields are in decline. That's why US production is dropping every year. Now, again, there has been cheating by the OPEC countries, and again, Saudi Arabia has engineered a glut. We are seeing exactly the same scenario being played out, except this time there is not the artificial shortage caused by the oil embargo. The historical trend puts us closer to the period of the 60's where world demand requires new energy to meet it's needs. This price crash is much more of a blip, rather than the crash of the 80's. As an aside, prices hit another major blip in 94-95, (I think that's the right years). Just as drilling was starting back up, after the death of the oil patch, we had two warm winters in a row. What turned it around very dramatically? Hurricane Andrew. (La Nina?) When it hit the Gulf, the producing platforms had to be shut down, and indeed, some were blown away. The removal of that production triggered the recovery that has continued until this present oil surplus. It's the memory of the crash of the 80's that freaks everyone out every time there's a blip. But there are not 4700 rigs working now. So history repeats itself, and this storm too shall pass. Another note, rig count in Gulf increased by two this week, for first increase in six weeks, and another rig has been retired from world fleet. Now, if I can just hold on without a margin call. Mike