Boone on Crude
October 22nd, 2007 by Grant in: Alternative Energy, Energy, Oil & GasOn Friday, legendary oilman T. Boone Pickens predicted that oil will hit $100 a barrel, possibly in the fourth quarter, but definitely by sometime next year.
The reasoning behind is prediction is that he believes worldwide demand has outpaced global output of 85 million barrels a day. Consequently, Boone, as a believer in supply and demand (as am I) says oil prices have nowhere to go but up.
“I think you’ll reach $100 (a barrel) before you go back to $80,” Pickens said before speaking at a gathering of the Association for the Study of Peak Oil and Gas at a downtown hotel. “It could happen in the fourth quarter, but you’ll see it within a year.” -Source
The jury is still out though on whether daily oil output has reached its maximum level. The federal GAO reported in March that most studies have found oil production will reach a peak between now and the year 2040.
In regards to alternative energy, Pickens is big on wind, although he said that any alternative fuel has a chance to offset petroleum.
You can’t discount Boone Pickens, his history in the oil and gas sector speaks volumes.
I think he’s right, oil will probably see $100 before it comes back to $80, however I believe the 100 dollar mark will be a psychological event that could stimulate a bust in the oil industry.
Tags: Alternative Energy | oil and gas | petroleum | T. Boone Pickens | wind energy
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October 23rd, 2007 at 7:24 pm
Boone is certainly very attune to the inner workings of the oil industry. However, you also have to remember that he may have a personal reason to keep oil climbing…he is probably long all oil assets. If the price drops, he loses money.
The first question I ask when I see a talking head on CNBC is “what is this guy or girl’s objective.” If they interview a large cap growth manger, guess what, he or she expects large cap growth to outperform. So I certainly wouldn’t discount Boone’s comments; I would take them with a grain of salt.
October 23rd, 2007 at 9:44 pm
Ah the incentive. You raise a very good point. Depending on Boone’s financial position in the industry, he may have every incentive to help spur a rise in oil prices.
Sometime I’d like to hear his thoughts on the last bust (through the 90’s).
However, it’s starting to sink in how much of a world market the oil industry is in. In the past, the United States has been a leader in consumption. It was easier to forecast oil prices as they were driven primarily by our own demand. Isolated from the world economy, gas prices had much less to do with crude supply and demand, and more to do with refined product supply and demand (a la the gasoline shortage).
Today, we’re more at the mercy of global supply and demand forces, to which our American economy is losing reign of. Stimulated by high gas prices, additional refineries can be built to take the edge of the price at the pump.
The true competition has now become who’s economy is willing to pay more for crude.
So I think Boone is right in his analysis, but I, like you question his incentive to make the remarks he does.
-Grant
December 2nd, 2007 at 12:03 pm
The previous commentators make an important point: these CNBC “talking heads” all have an agenda. Stock fund managers and oil men, like Mr. Pickens, have long positions in their commodity. They are going to make statements that they hope will make people buy their commodities to keep the price up.
This discussion does bring out one point that is not usually addressed. Like any commodity, analysts know the commodity supply exactly. Oil is very easy since its supply is so controlled. No one does well at predicting the demand of commodity. This uncertainty is multiplied when there is a secret futures market — the ICE.
Mr. Pickens says that an incident on the Turkish border “caused” the recent jump of $10 a barrel.
Those of us holding oil stocks and oil trusts know that a different pattern took place. When the Federal Reserve cuts the interest rate by 50 points, the Fed must pump money into the economy. All this money went into the ICE and drove up the price of oil.
Demand for oil is the sum of consumer and speculator demand. This price is set on the ICE exchange. That is the “cause” of the wild price swings.
December 2nd, 2007 at 5:43 pm
I agree, Ring, but Boone is notable in that he has hedged his oil production quite significantly with alternative energy…
I also agree that it’s very difficulty to sort out cause versus effect, especially in the energy sector.
-Grant