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

To: Douglas V. Fant who wrote (33190)	12/20/1998 5:07:00 PM
From: Bradpalm1	Read Replies (3) \| Respond to of 95453

Doug, Do the following related provocative scenarios of massive oil price manipulation by the Saudis in any way fit the known facts? TIA for you thoughts <<I would hope this letter will get the attention of our Texas Senators Phil Gramm and Kay Bailey Hutchison through the people that read it and are concerned about the current plight of the nations oil economy. As we sit in Texas and watch the crude oil price hit an $8.25 posting it occurs to me that we have heard, again, nothing from Washington about the devastation hitting the independent oil and gas sector of Texas. It is truly amazing to me that someone, for example, like Saudi Arabia can, one year ago, trade (hedge or lock in) their oil production on our New York Mercantile exchange for some $20 per barrel for all of 1998 and 1999 but then through public announcements and/or over supplying the oil markets drive the price down to current levels. What do they have to lose? They continue to realize $20 for their oil while they punish the rest of the world's producers and destroy any competition within the mature basins of the United States. They can defend this position by saying they are simply earning market share, but how can we sit back and let them devastate our industry and be hedged at perhaps $20 per barrel when we only get $8.25. They are certainly getting everyone's attention in West Texas as there are very few drilling rigs running, hundreds of wells being shut down due to current economics and tens of thousands of people being laid off. What is even more amazing, through the use of our same Mercantile Exchange the Saudi's, for example, can be sure of making even more money when they eventually cut production and have it hedged the other way going up. How does this work? They can now trade their oil for the next two years whereby a trader will pay them for any price above say $13.00 dollars. They simply make an announcement of massive production cuts and assuming the price would get back to $20.00, they realize two gains. First, their physical commodity would realize the $20.00 price and secondly they would receive another $7.00 from the trader. Not a bad scenario, $20.00 oil in 1998 and 1999 and $27.00 oil in 2000 and 2001. All at the expense of the devastated Texas producer who is also the same taxpayer paying a portion of the billions being spent for defense of that same Middle East Region. A simple fact: there is three to four times more oil traded daily on the Mercantile Exchange than what is produced in the world. Who stands to make the most money off this situation? Obviously, it is those who control the world's supply. I hope you each will look into this practice. All we ask is to be on a level playing field. We in Texas don't want an advantage, we want to play fair, before its too late.>> <<Having spent all of twenty minutes thinking about it from the Saudi perspective, here is what could be happening: 1. Lock in income by selling futures at $20/barrel. 2. Dump oil to get the price to $10 3. Buy futures for delivery (to me) at $10 in two year's time 4 .Reduce or stop production entirely. 5. Buy oil on the open market at up to $12 - $14 to acquire product to deliver against my commitment of $20 6. Ensure that my competitors are blown away before I let the price rise further. 7. Push the price back up to $20, and take delivery of my futures at $10 8. Deliver at $20, that for which I have just paid $10 9. Sell forward at $20 The key is that as the largest producer of oil in the world they are the "swing" factor in the supply/demand equation. They don't even have to pump the bloody stuff out of the ground to make a killing. What they could do is continue to earn large profits whilst everyone else's reserves are being depleted, and their own reserves are left untouched. What a way to make money! Now, let's take it one step further. This action is likely to really pi$$ off the USA producers and we don't really want to make enemies of the USA. So let's invite all our old USA "friends" to participate in the development of new technologies in which we can share - which will allow us to all join hands and walk profitably into the sunset by sharing in BOTH USA developed/owned technology AND Saudi oil reserves, which - by the way - will have grown as a percentage of the world's total and will probably give them control bordering on monopolistic. If the Saudi's have been doing this, then I have to take my hat off to them. Brilliant! Just Brilliant!. They will have beaten us at our own game without causing us significant pain. The guys who will really suffer are the Venezuelans, the Nigerians, the Russians and all the other members of OPEC who were too undisciplined to toe the line. How's this for an afterthought? If the previous speculation regarding the Saudis is true, it might go some way to explaining the real reason why Iraq is being brought into line by US and UK forces (and only these forces).>>