Talisman Mining Ord Shs TLM

Higher O&G prices are a double edged sword

[shambano]

First as prices rise O&G stocks will out perform as expected but then with rising prices we will get the US economy going into recession at some point in 2007 and since it’s already very vulnerable with a weak housing market and weak consumer spending. The more Americans spend on gasoline and heating oil and NG the less they have to spend on consumables and this will hurt their economy. If the US economy goes into recession the demand for O&G will decline considerably and we will get falling commodity prices. The best scenario for O&G sector is a steady 55-60 US dollar range for WTI and I think this balance should not hurt the US consumer, the US economy and the O&G sector. Of course we will not see new 52 weeks highs for O&G companies but we won’t see new 52 week lows either. Now if everyone wants to ride the wave, make some fast bucks and then move on with sector rotation then that’s fine but I don’t see any reason for new highs in the sector at this time. The other point to consider is that the US government also wants lower prices and what will they do to facilitate this? Can they fudge the numbers, or release emergency supplies into the market place to prevent a recession or can they influence OPEC into cheating on their production cuts? I’m not sure how they will keep prices in this range but I’m sure they are using oil and consequently gasoline as a stimulus for economic growth. They also know that the oil companies can make very good profits with oil in this range so they aren’t hurting them really. Just my opinion and I could be totally wrong with this theory.