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

To: Brent Hogenson who wrote (39115)	3/6/1999 4:19:00 PM
From: Big Dog	Read Replies (2) \| Respond to of 95453

Looks like that article pretty much covers the bases. He has several scenarios...any of which could happen. Bottom line is that no one knows. But half the people will be right. In my "real" business as a rig broker, it is turmoil and volatility that creates the opportunity for me to develop transactions -- whether the industry is rising or falling. And you know the old saying... The broker made money, the house made money...and two out of three ain't bad. Hey -- Any of you PKD fans, I will be visiting with Bobby Parker on Tuesday in Tulsa...any questions for him? big loosbrock.com

To: Brent Hogenson who wrote (39115)	3/6/1999 5:39:00 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 95453

Typical doomsday type article often seen at the bottom of major bear markets. I would place it in the crackpot category. The argument thst oil will fall to $5 and remain there for a long time is so absurd that not even the strongest bears have made it before. The idea of oil falling to $5 (unlikley as that may may be) is not in itself abusud, but the assertion that prices could remain there for years defies credibility as oil investment would grind to a total halt. The idea that Iran and Russia would just sit there as the Gulf Arabs revaged their economies is equally Alan Greenspan and Don Wallenchuck versus an obvious hack at the Economist. Take your choice. That artivle reminds me of Business Week "Death of Equities' article that came out in 1975 when the Dow was around 600.

To: Brent Hogenson who wrote (39115)	3/6/1999 6:28:00 PM
From: Rob Shilling	Read Replies (1) \| Respond to of 95453

The economist article seems off base. It ignores the fact that there is a necessary return on investment for all money making enterprises. Oil prices are already so low that non-OPEC investment in oil projects is drying up. OPEC is also falling behind on investment in their oil infrastructure. The fact that oil can be pulled out of ground in various places around the world at costs below the current price of oil is only a short term threat to oil prices. And, I think we may have already seen the worst of that. The lack of investment is the indicator to the longer term oil price direction. The price needs to get back to where oil capital investments provide an adequate return on investment. As Slider has posted before, the OPEC countries have cheap oil, but the oil price they need to invest in more production is much higher than one would think because they have huge welfare economies (thus the reason why they are behind on oil production investment) Whether OPEC cuts on March 23rd or not is not much of an issue long term. I think it is just a decision on how much more short term pain OPEC wants to burden as low oil prices shut off high cost production. Remember Richard Rainwater had pointed out last year that excess supply in the world is down to 4-6 mbpd from something like 15 mbpd in 1990. He originally thought that the world would start feeling the tighter supplies in terms of higher oil prices by 2000. The international financial crisis (resulting in slower demand) has pushed his estimate into the future a bit. But, the ultra low oil prices we are experiencing will tend to self correct his assumptions by shutting off high cost production oil production at a much higher rate than originally anticipated. As far as Cramer goes. He was bullish on drillers around September, except he was worried about year end tax selling. I have watched Cramer in action and I tend to believe that sometimes depending on his trading position he may actually say the OPPOSITE of what he thinks. Think about it. If he is accumulating drillers (the evidence is piling up that now is a good time to do this), it is directly to his benefit to talk the drillers down! Is it legal, who knows, ethical? definitely not. But remember Vinick at Fidelity. He was caught talking up Micron Technology when he was selling it. Talking stocks down while you are buying is just the opposite play. This kind of thinking makes one wonder a little. George Soros recently said the Brazilian real is "undervalued". It makes one think that he wants to convince the Brazilian central bank into propping up the currency while he shorts it!

To: Brent Hogenson who wrote (39115)	3/6/1999 7:42:00 PM
From: Gary Burton	Read Replies (1) \| Respond to of 95453

Brent-As I see it, the Economist article is way too simplistic and for that matter idealistic. Far too many risks to Gulf States in short run to flood the mkt in order to try to get to the medium run.Short run unrest would cause havoc to SA and the Family would be most unwise to take the risk. Too many hotheads in too many other Middle East states-as well as in SA-who might well unseat the Family....Also, very recently the SA oil minister was calling for increased cuts if all could agree, so SA's policy is counter to the Economist's suggestion right off the bat....Finally, the article makes light of the demand side of the equation. Asian growth would likely change the entire economics

To: Brent Hogenson who wrote (39115)	3/6/1999 8:07:00 PM
From: VLAD	Respond to of 95453

Brent, Do you believe every fairy tale you read? Do you think countries such as the United States plan on becoming totally reliant on foreign oil? Will history repeat itself or do you think the US learned from its past?

To: Brent Hogenson who wrote (39115)	3/6/1999 8:48:00 PM
From: Ahmed Elneweihi	Read Replies (1) \| Respond to of 95453

If the cost of oil production has fallen as the article says, why are oil companies canceling oil drillers contracts?

To: Brent Hogenson who wrote (39115)	3/6/1999 8:58:00 PM
From: Mike from La.	Respond to of 95453

re: the Economist Article Two observations. First, there is a deliberate, or accidental misquoting of Bill Richarderson, and the business about upstream development in SA. Richardson never said that he thought it would be opened up in six months, only sometime in the future, maybe. The Saudis said that they were only pumping at 90% of capacity and did not need any upstream development. That's a pretty serious twisting of fact, being used to support an argument, and fear, that the Saudi's are going to flood the world. Raises questions in my mind about motive, etc. Everything in the article is "what if". not fact. Second, I saw the article, when it was published about the consultant's report showing how the ME countries could flood the market to drive everyone out. All the numbers about 5$ oil for two years, then market share would increase to where it is profitable. Supposedly the study was done at the request of the Saudis. The first thing I thought was, what kind of consultant would throw his confidential reports out for the world to read? One not planing to get any more business. The Saudis would be very unhappy about hiring someone to do a study that may effect their energy policy in a very controversial way, and having that report shared with the world. Unless the Saudis told them to publish the report, which has its own set of implications, or the whole thing is bogus. I don't know which it is, but I strongly do not believe any reputable consultant would publish his paid for work. Is this part of a deal to drive down oil prices, so profits can be made when OPEC announces cuts in production? Could the Saudis be sending out a message that an agreement better be reached, or the Saudis could follow this strategy? All possible. I also question the timing. The first news about the study was reported around 3-4 weeks ago. If I had to guess, I guess that it report was ordered leaked by the Saudis in order to scare the sh-t out of the non-OPEC producer countries. Motive is to make them share in the cuts at the meeting. One last argument against the premise in the article, that the Saudis and other ME countries will flood the market. I don't think Russia would like it. Russia arms three countries directly, Iran Iraq, and Libya, and is involved in others, Algeria and Yemen at least. They are a growing influence in the region, and and their oil companies are more and more engaged with development in those countries. Iran and Russia announced just a couple of weeks ago the formation of a new company to develop Iranian fields. About 50% each. Russia wouldn't stand idly by while their country's economy is destroyed. In fact, a lot of countries wouldn't. That would be a very high risk course for the Saudis to choose, especially since things are already getting hot there. Lastly, the consultant's report made pretty light work of just a couple of years of a little discomfort, and then everything is great. How many ME counties will survive a couple of years at these prices, not to mention much lower? I think this is all part of the pre-game show. OPEC meeting, MARCH 23. Mike

To: Brent Hogenson who wrote (39115)	3/6/1999 9:02:00 PM
From: SliderOnTheBlack	Respond to of 95453

Brent; - comments on - ''The Economist'' article I would agree with an earlier comment - as my initial reaction was that the article was ''too simplistic.'' It made some rather large leaps and assumptions that destroyed the credibility of the articles final conclusion on the possiblity of prolonged $5 Oil. His article digs its own grave imho; near the begining when he makes this leap in illogic: << We may be heading for $5. To see why, consider chart 1. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a normal market price might now be in the $5-10 range. >> The entire premise of his article is based on the precept that we ''might expect the price of Oil, like other commodities to fall slowly over the years.'' Let me get this right; we are supposed to ''expect'' that Oil should just fall over time - then if we believe that; the rest of the article will make sense... yeah, right... Why; should Oil Prices ''just'' fall over time ? This entire article is far, far, removed from any type of academic, statistical, or historically supported reality. Certainly this is not an academic oriented article; more of a news reporter type of article - just supposing, what if ? ... << The latest oil-price shock has come at a sensitive time for the Saudi ruling family. Power is passing from the ailing monarch, King Fahd, to his brother, Abdullah. The autocratic family has had problems with dissent in radical Islamist quarters. Low oil prices crippled the Saudi economy in 1998: output shrank by nearly 2%, both the current-account and the budget deficits soared to nearly 10% of GDP and debt approached 100% of GDP. This year will be worse. >> I think he offers the caveats that would probably keep any possible scenario of $5 crude oil from becomming reality. Among those being - the allready strong political instability of the Middle East, The fact that the Saudi's real breakeven price of crude is not the mythical $2 by ''just poking a straw in the ground'' - but rather the $17 it needs at current production levels to maintain a minimun level of Governmental Expenditures for its Oil dependant Economy and heavy social welfare state. This quote explains the impossible mathematical solution for OPEC to be able to generate its targeted revenue by turning on the spiggots - they would have to increase production by 5 times to achieve 1980 revenues at todays prices; obviously if they increased production by 5 fold - it wouldn't be at todays prices any longer - nor is it a mathematical possiblity for the world to consume that much Oil... << The revenues of the cartel's members plunged in 1998 to about $100 billion, only one-fifth of their 1980 revenues in real terms, according to Marvin Zonis of the University of Chicago. >> All in all; in my opinion - his basic premise is correct in that Oil due to technological advances which lower production cost over time will lower Oil prices as well over time. Also, the important fact is that this is NOT a problem. It is not the price of Crude Oil that is important per se - to the profitability of the Oil Companies, or the Drilling & Service Sector. It is the profitability of Oil at its current prices. When the Oil majors say they are preparing for $11 Oil - they are responding as good mangers to worst case sceanrios and will find ways to be profitable at $11. The good news is that we may in 10 years have a '''boom'' in the Oilpatch at $10-11 Crude Oil; as it may have the same profitability at $10-11 tomorrow - as it does as $18 today; due to technological advances and corporate cost cutting. This entire pseudo-crisis in the Oilpatch is more a cyclical anomaly - a coincidence than any new paradigm change in Oil Economics. Quite simply; we had 2 years of historically warm weather - and weather is a far greater driver of Oil consumption than many realize. Simultaneous to this Weather anomaly (El Nino) we had the Japanese collapse and weakness in Asian demand. Add, the third bad timing anomaly - that Saudi decided to pick up Iraqs production and increased supply at precisely the same time. So we had a triumvirate of catalysts that are not of a new-paradigm nature driving Crude Prices down. That being back to back warm winters, Japanese/Asian recession/increased Saudi production due to Iraq - at the worst possible time... Nothing more, nothing less than that. To not believe that Crude Prices will return to a normalized price enviroment; one must #1 - write of Japan & Asia EVER recovering, #2 ignore the non -OPEC production declines and the coming effect of historic Industry Cap Ex reductions and #3 write off the return to normal Winter weather .. I think any sane, rational person would have to say that over 9-18 months we will return to a normal Crude Price Enviroment. Longterm ? I would only point to the New EU, The 3rd World Europe that will greatly expand &Industrialize the Modernization of Mexico, South & Central America , The 1 Billion people in India - the 3 Billion in China who do not yet enjoy the automobile among other things..... The future will not be determined by merely the Price of Oil - but by the demand for Oil driven by what I see as potentially one of the great Industrial Expansions in our lifetime. PS - for the pessimists; - buy Nat Gas !

To: Brent Hogenson who wrote (39115)	3/6/1999 10:06:00 PM
From: Ahmed Elneweihi	Read Replies (3) \| Respond to of 95453

Two very important reasons why the ME countries would not want oil to go to $5: 1) This would de-stabilize their regimes for years (till the low oil scenario starts to pay off as the article suggests). They would be making the economic situation in their own countries ripe for a local revolt as they slash spending further than they have already done. 2) Oil at $5 is not good for many western producers, including the US. The Saudis and Kuwaitis regimes are dependent on the west for protecting their interest against local and outside threats.

To: Brent Hogenson who wrote (39115)	3/7/1999 8:43:00 AM
From: John Carpenter	Read Replies (1) \| Respond to of 95453

I disagree with the Economist article because the Saudis have never pursued an overproduction policy for a very sustained period. Sure, being the swing producer, they have punished cheaters in the past. They even called for 10% production increases a year and a half ago. But of course they didn't stick to this strategy because the current round of cuts was meant largely to reverse the mistake of the 10% across the board production increase. So something has stopped the Saudis from going all the way and just flooding the market indefinitely. I don't know what stops them - fear of civil unrest, inability to finance the welfare state or just fear of short term pain. The Saudis have been afraid to go all the way and pump like crazy for several years straight. Unless the Saudis overcome their fear of sustained overproduction, I can't see how we get to $5 oil.