Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Oil & Gas Price Economics -- Ignore unavailable to you. Want to Upgrade?

To: jackie who wrote (77)	4/18/1999 2:14:00 PM
From: jackie	Read Replies (2) \| Respond to of 350

It's a 90s kind of thing Some comments on the paper found at simmonsco-intl.com First, no relation. My branch of the Simmons name conjures images of tracks, trailers, and truck drivers. We perfected the concept of dysfunctional before people even knew what it was. His branch is one of accomplishment. For starters, this is a must read document for anyone interested in investing in oil. Or for students of mass hysteria and delusions. This is truly a watershed speech and paper. It exposes the root causes of what can only be described as the oil glut deception of the late 90s. Not due to conspiracy, just our own institutions running amok with wrong information. Its a 90s kinda of thing. Why did oil prices collapse? Which is another way of asking, what caused the price of HEC and other oil E&Ps' to go down with it? And why haven't we recovered? From Mr. Simmons' paper we can draw the following historical reconstruction of the last eighteen months: The authoritative source of all information on the oil industry is the International Energy Agency (IEA). When anyone talks about oil consumption or production, this is who they rely on. This authority has made at least three key errors in the last two years: 1) Overestimating the increase of non-OPEC oil. There was no increase. Rather there has been significant decrease. 2) Underestimating oil consumption. In spite of the Asian flu, world consumption of oil went up in 1998. 3) Rather than admitting to their error, like all organizations, they conjured up the ‘missing barrels' hypothesis when the production and consumption did not foot to the real stocks on hand. Because the IEA is the expert, the paper barrel guys, the options players who are now setting the market price for oil, did what you would expect. They bid oil down. And down. And down. The IEA folks were getting a little nervous later on in the year as they could not find the missing barrels. But, the price was going down, proof there was a glut. The paper barrel guys saw the IEA guys were sticking to there guns. Not only was there an excess of oil, there was a glut of monumental proportions. So they bid the price down. Some news items floated around regarding the missing barrels. This made everyone nervous about holding onto anything related to oil. They sell their shares, or options, or lay off oil field workers, etc. IEA still can't find missing barrels. But, look, the price keeps going down. So, we must be right. Not only that, look at all the layoffs and shut downs in the oil patch. There are missing barrels. Wait until the price rises just a little. All of the missing barrels will be dumped on the market, continuing the price slide. There was talk of world wide deflation. Reading all of this, the paper barrel guys drive the price down. It is pretty obvious what was going on here. We had a huge negative feed back loop between the source of data on oil supplies, which was wrong, and the price setters. One fed on the other. And they were tied together with all of this new found communications capability with an audience of millions of investors watching on their browsers. Not only does information fly through the web, but so does misinformation. It even got to the writer of the article in the Economist. All of those millions? They became part of the loop too. Its a 90s kinda of thing. Make no mistake about the excess oil supply. It was there. But not the extent everyone said it was. Not to the extent it will take years to recover. In fact, it looks as if the oil glut will be gone in months, if not weeks. And just in time for the recovery of the Asian economies to start kicking it. And both meeting head on the beginning depletion in our world wide sources of oil. Guess what I think is going to happen to oil prices now? What happens when this loop goes positive? And I haven't talked about the failure of technology to show up on the bottom line of the oil industry. Or how the entire world makes no provisions for oil field depletion. Its going to be a 90s kinda of thing. Regards, Jack Simmons