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In March 1996, my Manhattan hedge fund started heavily investing in oilfield service, equipment, and drilling stocks.  Then, the Philadelphia Oil Service Index – or OSX – was the HUI of my world; and remained so until I left the oil service business in February 2005.  Back then, it was under 50, compared to roughly 250 today…

PHLX Oil Service Sector

After nearly two years of being immersed in the sector – and completing the CFA program – I was hired by Southcoast Capital (now Capital One Southcoast) as a sell-side oilfield service analyst.  Southcoast is headquartered in New Orleans, so it was exciting – and scary – moving so far from home; to a strange city, so starkly different from what I had known.

I arrived in “N’awlins” in May 1998, just in time for a terrifying encounter with Hurricane Georges three months later; and worse yet, “THE PERFECT STORM OF 1998.”  In the prior two-plus years, oil had averaged $15-$25/barrel; but had sunk to the low end of that range as I drove across the South to my new home in the “warehouse district” off Tchoupitoulas Street.  And just as I started writing “call notes,” the “perfect storm” hit; for the oil markets, the financial equivalent of 2008’s Global Meltdown I

The Oil Price Crisis of 1998 – Oxford Institute for Energy Studies

Oil prices plunged below $10/bbl, the OSX free-falled from 140 to 45, and Economist magazine predicted single-digit prices into the foreseeable future.  Southcoast’s fortunes are as tied to energy as Miles Franklin’s are to PMs, so you can imagine the stress around the office…

WTI Crude Oil 96-05

At the time, several short-term factors conspired to cause this horrific drop, all of which corrected themselves by mid-1999; including the Long-Term Credit Management crisis, the “Asian contagion,” the Russian Ruble collapse, a temporary increase in Iranian oil exports, and a warm global winter.

Long-term fundamentals appeared as strong as ever, but in the short-term, the industry suffered horribly.  Hundreds of E&P (Exploration & Production) firms went bankrupt, and a MASSIVE wave of M&A swept the majors; creating behemoth firms like Exxon Mobil, BP Amoco Arco, and Chevron Texaco – among others.  Production cratered, capex collapsed, and share prices tanked; causing significant financial damage before “THE PERFECT STORM OF 1998” passed.

Today, Precious Metal investors are experiencing the same gut-wrenching stress – particularly those speculating with “PAPER PM Investments”; only this time, the “perfect storm” relates solely to government price MANIPULATION.  In the oil business, an overt Cartel (OPEC) seeks to support prices; while in PMs, the covert gold Cartel suppresses them.

That said, the fundamentals have never been stronger; and frankly, I’d venture to say the “value” in today’s gold and silver prices far surpasses that of 1998’s oil and gas prices…

US Fed Reserve Holding Vs Debt

Those of us in the oil business successfully weathered “THE PERFECT STORM OF 1998”; while “goldbugs” have endured countless such events in the past 13 years – particularly in late 2008.  The “Perfect Storm of 2013” will also pass; and when it does, it will have a lot of catching up to do.