AFTER THE LULL: SHARPLY RISING OIL PRICES AHEAD

An insightful and well documented report about crude oil's bullish prospects was recently published in Futures magazine. The article was the work of Stanford Field, who is eminently qualified as an expert. After 45 years of experience in the oil industry, Mr. Field retired in 1993 from the Stanford Research Institute (known today as SRI International), where he was Director of the Energy Programs. Following are excerpts from his report with occasional notes from our staff.

"World crude oil demand sparked by the hot economies of southeast Asia and China is rising faster than increases in supply from all non-OPEC sources. In 1996 it is estimated that OPEC will operate at 93% of capacity, excluding the potential capacity of Iraq." See table below.

TIGHTENING OPEC CAPACITY UTILIZATION (Millions of Barrels Per Day of Crude Oil)
	1994	1995	1996	1997	1998*
World demand Non-OPEC Supply OPEC Supply Required	60.8 35.9 24.9	61.5 36.5 25.0	63.2 37.4 25.8	65.0 38.0 27.0	66.8 38.6 28.2

OPEC Capacity OPEC Utilization	27.8 90%	27.9 90%	28.0 93%	28.4 95%	28.8 98%

* projected

"The emerging capacity use squeeze within OPEC will drive oil prices relentlessly upwards. Any disruption of the oil supply - and there are numerous potential causes - will send oil prices off the charts in flashes reminiscent of 1974 and 1979." PLEASE NOTE GOLD SURGED 20% AND 126% IN THE RESPECTIVE YEARS!

The long-term crude oil
price uptrend - which
began in 1994 - is likely
to reach $40-$50 by
the year 2000.

"The rising prices will surprise the consensus forecasters who heretofore have been lulled into complacency by the long period of flat oil prices. In 1997 and 1998 oil buyers will become frantic as they realize oil output is approaching the maximum (i.e. capacity utilization at 98%). Subsequently, the price advance toward $40-$50 per barrel will cause economic chaos in the industrialized world and emerging economies."

"Financial markets are likely to deflate rapidly. Most economies will be in a recession and be furthered battered by rising interest rates." That means a period of "stagflation" again and all that it entails: Higher commodity prices!

Upcoming Squeeze - The only significant crude oil production capacity remaining in the world in 1996 is in Saudi Arabia and Kuwait. Iraq's hands are tied, and the remaining OPEC producers are running close to capacity. OPEC countries have not made capacity expansion a priority because domestic needs for political stability have become more important." In this last reference it is imperative to note rising political and civil strife in Saudi Arabia put into dire jeopardy the production of the world's largest supplier of "Black Gold."

Although we are not aficionados of the Elliott Wave Theory, Mr. Field's relevant comment follows. "Wave A (consisting of three waves) was completed at $38 in 1980. Wave B was completed 13 years later (December 1993) at $14. Wave A of C is now in progress and should carry WTI prices to $40-$50 OVER THE NEXT THREE TO FOUR YEARS. The fundamentals of the oil market strongly support this interpretation of the wave structure."

THE SQUEEZE IN OPEC CAPACITY UTILIZATION HAS ALREADY BEGUN AND

WILL BECOME EVEN TIGHTER - FORCING CRUDE OIL PRICES UPWARD

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