Everyone wants to know if speculators are driving up oil prices. The answer from the speculators is "No, absolutely not! (wink, wink)" when they are asked. The Senate Energy and Natural Resources Committee held testimony today with billionaire T. Boone Pickens.
Reuters has run a full excerpt of some of Pickens’ comments. Most interestingly, Pickens noted that the world production has topped out at 85 million barrels per day with the United States using some 21 million barrels, and total demand being 86.4 million barrels per day. He also said that increased oversight of the oil markets from the Commodity Futures Trading Commission was a waste of time. That is an interesting comment when you consider that the head of the CFTC just told lawmakers yesterday that speculators account for a growing share of trading in U.S. oil markets and make up about 70% of trading in the key U.S. oil futures contract.
a673b.bigscoots-temp.com watches its own oil mavericks, particularly Mr. Pickens. But let’s take this a bit further. These same imbalances are the same numbers over the last year (except we thought Pickens used the 87 million barrels per day in global demand). So it is the same exact forces at work that have been at work last year. This is also much farther than oil It is corn, it is coal, it is natural gas.
What price will price kill demand? Pickens already said he believes you’ll see $150 oil. That is likely a $4.40 average national average per gallon at the pump. When SUV drivers or large sedan drivers are paying north of $100.00 to "fill ‘er up" it should start to cut demand a bit. Behavior is changing, but only gradually… and again, only a bit. Your recycling efforts are only worth so much if you burn a gallon on the round trip to recycle.
Even in Houston where oil is king there is at least starting to be some modified behavior. It is minimal but it is the comments about driving distances being too far and drivers being more efficient on their driving trips. This change might only end up being housewives and soccer moms carpooling in from the burbs to go to Saks and Neiman Marcus, but it is a start.
I was just on CNBC today covering the imbalance that the high energy prices are having on transportation stocks, particularly that of the airlines. Our number one way to play high energy prices isn’t trying to guess and hope which airline or trucker can hold out the longest. We still prefer alternative energy as the sector to go to for this. This is why three of our largest gainers in the "10 Stocks Under $10" newsletter have seen such large returns, with one being Capstone Turbine up some 200% from November. Until that demand gets broken or until a replacement fuel is out there, it’s the spot to be if oil goes to $150 or goes back to $100 per barrel.
Jon C. Ogg
June 17, 2008
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