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Strategies & Market Trends : Joe Copia's daytrades/investments and thoughts -- Ignore unavailable to you. Want to Upgrade?

To: Dave Gore who wrote (13484)	3/19/1999 10:30:00 AM
From: Richard Nisbet	Respond to of 25711

Good News on Oil stocks....any suggestions? EXTRA! (Today's Feature Headlines) ***************************************** STRENGTH OF OIL AGREEMENT BODES WELL FOR SMALL CAP ISSUERS By John Dawe For many small cap oil related issuers it has seemed like an eternity since there was any hope of improved crude prices. Over the past year in particular the outlook has seemed to get increasingly bleak as major firms such as Exxon and Mobil announced mergers based on forecasts that profitability could only be maintained through cost reduction programs. When the giants can't make a go of it, it's hard to be optimistic when you're at the helm of a front line junior. However, all that now seems to be changing as The Organization of Petroleum Exporting Countries (OPEC) and other major oil producing countries appear to be in harmony over a plan for a reduction in production levels which is set to be ratified at OPEC's meeting in Vienna on March 23rd. As we reported last week in The Small Cap Express, the basis for this agreement is an initiative by Saudi Arabia, Kuwait, Oman and Qatar who stated they would “take all necessary measures” to win the cooperation of OPEC members and other producing nations. In our last update we noted that the possible success of this arrangement was suspect because Venezuela, OPEC's third largest producer, had not yet signed on. This has now changed and on Friday the oil minister of Venezuela joined with his peers from Saudi Arabia, Iran, and Mexico to announce they had reached agreement on plans to reduce world production by 2 million barrels a day. The composition of this group also represented encouraging news because it had been questionable whether the other producing states could reach agreement with Iran regarding the base level of production from which it would make cuts. Saudi Arabia and Kuwait will play a leading role under this plan and have each agreed to reduce their output by 7.3%. Outside of OPEC, compliance by Russia is seen as a major factor in the possible success of the plan. Although it has not expressed a firm commitment, Russia appears to be leaning toward signing on and the performance of futures contracts over the past couple of days indicates markets are supporting this outcome. Overall, the agreement involves about a dozen oil producing countries and represents a reduction of approximately 2.7% of the world supply of oil. Markets have reacted well to these developments over the past week and crude futures have traded around their hit six-month highs. Yesterday, Brent Crude May delivery futures traded up $0.59 to close at $13.27 per barrel and West Texas Intermediate Crude April delivery futures saw an increase of $0.59 to close at $15.05 per barrel. In terms of outlook, some analysts are predicting that a 70% compliance rate among signatories to the deal could push crude price up by roughly $1.00 to $2.00 over the next three months. However, currently there is a substantial global inventory of 500 million barrels of crude still overhanging the market and this deal will have to hang together for a year or more in order for the glut to be absorbed. From the perspective of the small cap issuer and investor, these signals are mixed for the short run, but are generally encouraging over the longer haul. As covered in our article on contrarian investing, if you have a risk oriented long-term investment outlook, this may be a classic time to consider re-positioning portfolio to include some exposure to the small cap oil sector. This sector has been bid down dramatically over the last couple of years and has effected the prices of companies from Alberta down to the gulf coasts of Louisiana and Texas. At present the large cap stocks of the Dow and Nasdaq are dominating headlines and capturing the imagination of investors. However for those with an orientation toward value investing, there are a wealth of opportunities available in undervalued Canadian and American small cap oil issues. Let's face it, there's no doubt that progressively bigger numbers on the Dow are a lot of fun to watch. But, in the long run, seeing your portfolio increase due to a well timed selection of an undervalued play may be a lot more fulfilling. To access reports relating to this story you may wish to try the following hyperlinks: nationalpost.com. cbcnews.cbc.ca. 312 cnnfn.com cbs.marketwatch.com. quote.bloomberg.com