[+ Font] :: [- Font] :: Printable

Grandich Letter Special Alert

Oil...Going to $35 or $75?

by Peter Grandich
April 7th, 2005

Whether oil goes down to $35 a barrel or up to $75 a barrel, the price of oil has a profound effect on our economy and our world. At $35 a barrel, Wall Street throws a party. At $75, they throw a wake.

Because there’s an overabundance of bullish forecasts (the Goldman Sachs $105 prediction brought back memories of Internet predictions in the late 1990s), I find the contrarian in me thinking the surprise could be to the downside. While I do believe we’re only at the beginning of a long, drawn-out energy crisis, I feel the market has priced in a lot of the near and intermediate term upside potential. Hence, I believe we’re very vulnerable to a serious correction of at least 20%.

The bullish argument is a good one:

• Limited global supply cushion
• Rising demand, particularly in China
• Possible disruption worldwide - from places like Nigeria where labor strife continues, to refinery snags here in the U.S.

Hedgefunds and hot money have seized this argument and have come close to creating a self-fulfilling prophecy in the oil pits.

The concern I have is the current fundamentals aren’t that bad and if the speculative push runs out of steam, the market could break sharply lower. The key fundamentals include:

• Current supply is adequate. Indonesian Oil Minister Purnomo Yusgiantoro recently stated, “The world already has a surplus of more than 2 million barrels (of oil) a day.”
• Supply is up 5% from last year.
• The U.S. Strategic Petroleum Reserve, which the Bush administration has been filling at an average rate of 250,000 barrels a day, is nearly full. The expectation is that by August, the market should have that much more supply of light, sweet crude available to it.

The weekly oil and gas statistics are released this morning. Whether the market rallies off them or not, I believe the risk for the next several weeks and months is to the downside. Yes, we may have to print above $60 first, but I think we are going to the $40s before any real chance of maintaining a price above $60.

I wouldn’t be surprised if the U.S. stock market gets a lift from a sharp oil correction, but such a rise would be strictly an opportunity to lower ones exposure to general equities.

Afriore Ltd (AFO-TSE $1.86) – Back on January 18, 2005, I brought this company to your attention. At the time, the share price was $.65. The company has had good success with its drilling in South Africa. Some have asked what should they do with their shares? I can’t give individual advice but I can say two things:

• After a tripling in the price, it rarely hurts to take out ones initial investment.
• The company may be onto one of the biggest breakthroughs in South Africa in a very long time. I wouldn’t let share price alone be my deciding factor on what to do (except as noted in my first point).

Crosshair Exploration (CXX, TSX-V $.43) – I very much favor this budding uranium/gold play. The company is well positioned in New Foundland and expects to have several projects drilled this year. On ROB-TV last month, I noted my belief that the uranium stocks were likely to see a sharp correction. For CXX, I believe that correction has led to a current share price that is very appealing, albeit highly speculative. With nearly $5 million in cash, one of the better management teams I have ever worked with, and a portfolio of projects of which one or more can be a company maker, I urge readers to look closely at this time.

Anooraq Resources, Great Basin Gold and Northern Dynasty Minerals, will all be presenting at an American Stock Exchange sponsored event on April 19th in New York City. The public can attend. Contact the companies for more information.

Peter Grandich
April 7th, 2005

Grandich Publications, Inc. provides research, analysis, and investor relation services for certain of the companies featured in the articles appearing in its publications (each a “Featured Company”). Featured Companies may pay fees to Grandich Publications, Inc. that may include securities-based compensation that would appreciate if the company’s stock price rises. Accordingly, there is an inherent conflict of interest involved that may influence our perspective and provide an incentive for publishing favorable information with regard to a Featured Company.

Grandich Publications has been given the right to exercise stock options. A complete list of options and share price (in Canadian dollars) is listed below. Furthermore, most companies have entered into agreements to pay Grandich Publications a monthly fee. The fee is listed below in U.S. dollars

Company	Options in Cdn $	Monthly Fee in US $
AHR	50,000 @ $ .60	$1000
ARQ	50,000 @ $ .60	$1000
	and 25,000 @ $2.00
CVV	150,000 @ $ .32	$ 0
CXX	200,000 @ $ .25 $1000
FMM	50,000 @ $ .55	$1500
GBG	50,000 @ $1.40	$1000
GRS	50,000 @ $ .40	$1000
	and 100,000 @ $ .35
ITF	150,000 @ $. 26	$1000
KGN	100,000 @ $1.00	0
LMA	72,000 @ $1.00	$2000
LZN	150,000 @ $ .20 $1500
NDM	50,000 @ $ .94	$ 0
PFN	150,000 @ $ .52	$1000
PMM	250,000 @ $ .16	$1000
PXC	100,000 @ $ .26	$1000
	and 100,000 @ $ .11
SUE	100,000 @ $1.30	$1500
TIO	100,000 @ $ .35	$1500
TKO	50,000 @ $1.40	$1000

The material herein is for informational purposes only and is not intended to, and does not constitute the rendering of investment advice or the solicitation or an offer to buy securities.

The foregoing discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). In particular, when used in the preceding discussion, the words “plan,” “confident that,” “believe,” “scheduled,” “expect,” or “intend to,” and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the Act. Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward-looking statements. Such risks and uncertainties include, but are not limited to, future events and the financial performance of the Company which are inherently uncertain and actual events and/or results may differ materially.

Third party statements contained herein and information contained in any source cited herein are not endorsed by or adopted by Grandich Publications, LLC, nor has their accuracy been verified by Grandich Publications, LLC.