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

To: Ram Seetharaman who wrote (1360)	3/14/1999 8:31:00 PM
From: Rational	Read Replies (1) \| Respond to of 2282

Oil producers have considered the natural resource as free (God-given) and so have been selling oil at a price to merely cover the cost of production. As myopic creatures, they will continue to believe that oil fields/reserves are free. The only thing that has changed now to force the OPEC to consider cutting the supply and raise price is that the cost of production is no longer simply the cost of equipment in place. The equipment is up for a major overhaul. Furthermore, the cost of operation of these countries that own the oil fields is growing at a pace that can no longer be met by current oil prices. These countries are now realizing that the cost of production is equal to (i) the long-run cost of maintaining the production process plus (ii) the over-head cost of their governments. They should also add the opportunity cost of losing the reserves some day in the future; but, as humans, they are myopic and so ignore this third element. They are now at least working on a more accurate assessment of (i) + (ii), and are realizing that a 2.6% cut in production, which is likely to raise oil price by 50%, is vital. I think the whole field of economics is quite shallow with respect to pricing of natural resources because the principle of supply and demand is totally meaningless as it ignores the ultimate supplier, (the Nature/God) that has bestowed the mankind with these resources, is totally dormant in setting the prices. But, that is a different question humans will address some day in future, if they still outlive other catastrophes. That is irrelevant to the current or near-term stock price of GLM. The realization by the OPEC that factor (ii) is critical in setting oil prices has led them to take serious measures to boost oil prices. This, in my opinion, will sustain an up-trend in oil and oil stock prices. Other stocks will then face a set back due to inflation induced by oil prices. This will be healthy for the global economy, although I see a rational set back to the bubble-like American and European economies.