The Energy Report By: Phil Flynn Phone: 800.935.6487 E -mail: pflynn@alaron.com 08/18/00

Phil Flynn has been in the Futures Industry since the early 1980s. Specializing in the Energy market both from a fundamental and technical perspective, Phil has been featured in the book The Mind of A Trader.

Can this market wait until September 10th? Thats when OPEC meets in Vienna and when the Saudis said OPEC would make a decision on an increase. Guess that 4th of July promise was nothing more than a stalling tactic. The explosive rally yesterday was met with late day profit taking and options related selling. The stakes have gotten higher and so have prices as tight supplies just keep getting tighter.

When crude was hovering around $20.00 per barrel, I said there was a possibility we might head for $40.00 per barrel. Many scoffed! Many said there was no way the US or OPEC would allow such a thing to happen. What most missed was the anticipatory fundamentals and the old time technical truth that when a market moves from an all time high to an all time low the market should eventually revisit that all time high. Crude essentially doubled from its all time low of $10.00 to $20.00 and I concluded therefore that a test of $40.00 was in the offing. The technical aspects were one thing and I added to the mix the changing face of OPEC, politics, and a worldwide increase in demand due to good economic times. All of this adds up to a real possibility of $40.00. Others are arriving at my same conclusion. These others include: Julian Lee senior energy analyst for the London based center for Global Energy Studies, CGES founded by Sheikh Zakiyami who is a former Saudi Arabian Oil Minister and a supporting note from the Goldman Sachs Group. The $40.00 per barrel club has been growing in its membership and coming on board with me as Ive been saying as much from $20.00. The truth seems to be setting in.

Can OPEC put the toothpaste back in the tube? Once OPEC cut production and oil supplies worldwide were reduced, the thinking was that all OPEC had to do was flip a switch, produce more and prices would come back down. Yet since OPEC last raised production, only 4 of the 11 cartel members have produced up to this new production ceiling and 9 of the 11 are at 100% in production capacity. Capacity can be expanded as more rigs come on line; however, the market is only looking for a potential 1.1 million more barrels per day from the OPEC cartel by the end of the year 2001. And there is more to contend with other than these facts. Politics always plays a huge role in the constant negotiations as it is now in the attempt to raise production just as it was to lower back in December of 1998. Who could have imagined back in 1998 that there would be a difficult time in trying to get OPEC to raise production? OPEC and strong worldwide demand might make this a situation little can be done about.

Watch out big oil! Youre being set up to be the fall guy! The Democratic convention and their candidates are being perfectly clear that they want big oil to take the blame for the high price of gasoline. They want us all to forget that $10.00 oil forced mergers and caused near non-existent profits for US oil companies. They say who cares they have it coming. Why should any of us care? In the late 90s, US oil companies were screeming not to allow OPEC to dump so much cheap oil on us. Why? This made it impossible for us to compete. It made the idea of any further US oil explortion and production out of the question as who would invest to make it happen when the idea of any profit at all was only pie-in-the-sky dreaming. Had we had this investing in our big oil the, perhaps now - when we really need it - we wouldnt be so terribly dependent on OPEC furnishing nearly all our oil needs. Were begging them for more oil. Theyve got us over their barrel.

Down by the border! Down by the sea! The new President of Mexico - Vicente Fox - is proposing an opening of the border between our 2 nations. Mr Fox will be traveling to the US and Canada next week to try to push his NAFTA partners towards a common market. Mr Fox said its a question of convenience, intelligence and brotherhood and friendship.

With the options expiration fiasco out of the way, we should resume our thrust to old contract highs!

http://www.egcinc.com/Commodit-E-Zine/al/AQuotes.htm

-- Cave Man (caves@are.us), August 18, 2000