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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 (42020)	4/10/1999 9:41:00 PM
From: Aggie	Respond to of 95453

Brent, good evening The worldwide oil market is far too complex a mechanism to describe in a few short sentences. A year ago, the price of oil was about $18 and on its way down. At that price, coupled with advances in exploration and drilling techniques, there were many oil plays that were profitable. Once developed, these plays don't deplete overnight, especially if they're oil plays. Typically, an oil property will continue to produce profitably for many years, dependant, of course, on the price of oil and the property's lifting costs, and well as the reservoir's properties. The OPEC countries, thinking of Saudi in particular, have a tremendous producing infrastructure which, by virtue of the huge reserves and relatively easy recovery, is essentially paid for. It's no problem for them to crack the valve and produce quite a bit more oil than they currently do. But the net effect is to drive oil prices down, as we have been witnessing for the past 2 years, and this reduces their cash flow, something they must have to finance their domestic programs and critical for their ongoing political stability. So what remains is a balancing act: in the long term, OPEC needs to keep the world oil economy healthy so that technology continues to develop, so that their resource is recovered with maximum return. The development of technology is financed by the private sector (the oil companies), which are in turn financed by the price of oil. The majority of the 1,000 rigs were drilling for oil last year - about 2/3, I think. We then got hit with a surplus in oil inventory - all these new properties producing, I guess, although some would dispute its existence - at the same time as a mega-downturn in demand appeared in Asia, a region that everyone had been harping about as expecting 20% energy growth /year for the next two decades. Hence the "glut". But more importantly (trying to answer your question), there is a big distinction between excess production capacity (the rate which an oil property is capable of producing) and surplus inventory (excess produced oil, sloshing around in tank farms). The latter has a huge impact on the speculator-driven oil futures market, or the price of oil. Regards and good luck, Aggie