Interview: Energy analyst with Consumer powerline
>> crude oil and gasoline have pulled back after an energy department showed u.s. inventories increased last week. our guest is michael gordon, energy analyst with consumerpowerline. consumerpowerline is an energy asset line that works with some of the largest companies in the world. what can we glean fromt’s inventory data with regard to crude oil, heating oil, natural gas through the end of the year?
>> the surprise on the crude oil to an extent i think is an option on the future of this market . people saying this market may look good stocking up. and then there’s a little bit of a cold snap which, then, people start to say, well, maybe it’s a good product. i tend to think a lot of the upside has already been targeted into the price. so i’m not quite as bullish on the price of oil as others are.
>> so crude oil today at $60.86 per barrel. do you see us staying within that range through the end of the year?
>> if we get a cold winter, we have $3 or $4 on the upside. if it’s a warmer winter, i think we have quite a bit on the downside, maybe $6 to $7 on the downside, prospectively, mid january.
>> consumers, businesses, fearful of home heating oil expenses. let’s discuss natural gas first, where we see the tremendous runup. given the increase we’ve already seen from last year, how much more will we be paying?
>> substantially more for natural gas.
>> at these levels?
>> yes. 40% to 50% more this year than last so we are going to see it. will there be a paul o’neill back at the―or even i’ve seen it both ways. long term, i think we’re seeing these kinds of increases consistently over the next three to five years but there are also opportunities in the midst of that so you see fallbacks often half the winters, you see fallbacks in mid january, late january, substantial fallbacks in price so i tend to be an advocate in a winter like this, because it’s overblown from hysteria, i tend to be an advocate of either capping, if you’re capping costs are 5% to 7% of total expenditures, or alternatively, taking over control of when you buy so not allowing the supplier to control delivery time table but instead to buy on dips, top off tanks, 3% to 5% dips.
>> are these customers in better or worse shape than the natural gas folks for heating oil?
>> slightly worse now. but heating oil actually, interestingly, because the heating oil market is more competitive, you may see better opportunities on the downside so now, worse, but later in the winter, possibly better.
>> how language should consumers expect to be paying $3 a gallon for gasoline?
>> i do think they’re falling back, absolutely and if you look at today’s inventory numbers, the expectations were for greater buildups and there were practically none and that’s probably because people see an opportunity in heating oil market and, a, imports are less, and b, people switch over. so i think we may have seen what we are going to see on the gas side.
>> and you don’t expect increasing demand there?
>> yes, there will be increasing demand from the fallback in prices, but we’re out of the driving season. and i just don’t think it will drive the prices back up. i just don’t buy it.
>> overall, how do you see the energy picture squeezing consumer spending? it’s a lot of concern about the holiday season ahead of us.
>> hmm, on the consumer side, people are afraid of what they’re going to have to pay. so i think it may, again, you have the hysteria concept. people feel that it’s―could be 70% to 90% more this year and they may be more and aul than they would―careful than they would otherwise be so, yeah, i think it will squeeze spending. over the long run, i think high energy prices are not a bad thing because infrastructure, all sorts of opportunities happen in a volatile market and ultimately i think it’s a more sustainable market but for now i think you’re going to see impact on holiday spending perhaps.
>> michael, thank you very much for joining us this afternoon.
>> it’s a pleasure.
>> this is michael gordon, energy economist with consumerpowerline. we’ll continue our focus on energy after the break. natural gas was lower today. we’ll ask why to the encana c.e.o., gwyn morgan, right after this. “after the bell” continues.
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highest since its peak in march. there’s speculation the federal reserve will continue raising interest rates into next year. the fed meets on tuesday. the european and japanese government bonds slumped on speculation central banks in those regions will boost rates for the first time in years. two-year treasury yields, more sensitive to expectations for monetary policy, at a four-year high. treasuries extended a selloff that gan when ben bernanke was named to succeed alan greenspan as fed chairman. inflation accelerated led by fuel prices. we’ll look at moves in the bond market with john miller later in the hour. meanwhile, stocks with their first back-to-back losses in two weeks after revenue forecasts from amazon.com and boeing disappointed. shortfalls left the market unable to capitalize on a morning rally triggered by better-than-expected earnings from chubb and conocophillips. the dow jones industrial average loses 32 points, mostly in late selling. the s&p off five and nasdaq down nine points. disappointing earnings and forecasts sent the nasdaq to its second straight decline. robert gray has details on the nasdaq trading from the market site in times square.
>> investor concerns over profit outlooks from companies sending the nasdaq lower for a second consecutive session. closing near the lows of the session. in the early part of the day, the nasdaq pushed up toward the 50-day moving average, less than a point from that, unable to push higher and began a slow, steady selloff throughout the afternoon, closing near the lows of the session, holding near the psychologically important 2100 level. we did see a number of companies with profit disappointments including flextronics, worst performer in the nasdaq 100 percentage-wise, falling on the profit short all and forecasts, saying profit in the fourth and third quarter will miss analysts’ estimates. and amazon.com falling after saying its profit will trail analysts’ estimates. cutting operating margin forecasts and saying the midpoint of its fourth-quarter sales forecasts will trail the average analyst estimates. garman limited, maker of g.p.s. navigation devices, low end of forecast for fourth-quarter consumer sect gross margin, sending that stock lower, as well. research in motion losing an appeal to a stay. john roberts rejecting a stay of a blackberry patent ruling in hay lower court that stated that research in motion infringed on patents owned by n.t.p. incorporated. the stock did rise on this news, actually, and an analyst told me that the reason it did close higher is that judge roberts moving n.t.p. and r.i.m. closer to a settlement which is what investors were hoping for all along. research in motion shares moved higher and she expects resolution by year’s end. a look at tech gainers, adobe systems, one of the best performers, saying fourth-quarter sales and profit will be at high end of forecasts and apple computer and google at records in the session. at the nasdaq, i’m robert gray.
>> thank you. the market was battling between good earnings and bad earnings today. finally finishing lower. for more on the action, here’s a report from deborah kostroun at the big board.
>> we were battling with a lot of earnings today. some earnings good, some, not so good. conocophillips released third-quarter earnings beating expectations. they also, however, did have supply disruptions from the hurricanes but also rising demand. crude oil and gasoline declining today after an energy department report showing inventories increased last week so what you saw in the energy industry, pretty much a little bit of a mixed market . delphi, of course, we’ve been following that since they filed for bankruptcy. delphi wants to cut workers’ wages by as much as 2/3 and begin monthly charges for healthcare and eliminate health benefits for retirees in the plan to exit bankruptcy. laggards in the dow jones industrial average, boeing, the worst performer after cutting its forecast for delivery of aircraft to 290 planes this year because of that 28-day machinist strike, which, of course, slowed production. they also cut their full-year sales forecast to reflect delays from the strike. dupont rising the second day, biggest gainer in the dow jones industrial average for the second day, after the company saying yesterday they would buy back $5 billion of its stock. chubb hitting a 52-week high. chubb saying yesterday that their third-quarter profit before investment gains, 89 cents, more than four times the 20 cents estimated by analysts at sandler o’neill and partners. claims from katrina were also lower than expected. material stocks among the biggest winners. cyclical stocks performing well. cibc, they raised their rating on u.s. steel. citigroup raising its rating on international paper. so material stocks, the best performers of the 24 industry groups in the s&p 500. anheuser busch was down, profit falling 24% in the third quarter after price cuts on budweiser and michelob. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> thank you. crude oil and gasoline declined after an energy department report showed inventories increased last week. crude oil supplies jumped 4.4 million barrels, the third straight increase. gasoline supplies rose 159,000 barrels. crude oil at the dlos close down $1.78 a barrel. gasoline fell more than 4%, heating oil down more than 1.75% and natural gas futures off 2%. exxon-mobil’s profits may set a record in the company’s history when it reports tomorrow before the market opens in new york. suzanne o’halloran has a preview.
>> thank you very much, lori. record oil prices last quarter may translate into a strong third quarter for exxon-mobil. analysts are forecasting exxon’s profit to jump 44% to $1.38 a share. net income probably rose to $8.6 billion, the highest quarterly profit in exxon-mobil’s 123-year history. the lingering effects of hurricanes katrina and rita on oil, gasoline and heating oil prices, plus rising demand worldwide, is lifting the bottom line. the storm shut down oil and gas output along the u.s. gulf coast for several oil companies, including exxon-mobil. analysts say any losses for exxon were probably offset by higher profit margins from pumping oil.
>> although the refineries in the u.s. took down time due to the hurricanes, exxon is one of the biggest refiners in the world and they have refineries in every geography around the globe and all of those refineries experienced much higher margins, contributing to higher profitability.
>> the price of crude oil peaked at $70.85 a barrel in august, a day after hurricane katrina struck. since then, the price has retreated on concern u.s. demand may be falling. fears have taken a toll on exxon-mobil shares. the stock has dropped more than 11% this month compared to a 3% drop for s&p 500. investors are shrugging off demand concerns, saying worldwide demand should be strong through next year. he says any weakness in exxon stock makes for a good buying opportunity.
>> we still view exxon as a core intermediate to long-term holding in the energy sector. exxon is one of the best managed and most consistent producers of earnings in the energy sector and has been for many years.
>> he says exxon-mobil shares could climb over 25% to $72 a share in a year especially as the company boosts oil production in new markets such as anguolla. the stock lost 2% today ahead of the earnings released tomorrow morning.
>> analysts not expecting improvement in verizon communications earnings or sales. they’ll release third-quarter earnings tomorrow amid tough questions about the strategy. the third-quarter profit barely changed as verizon was forced to cut prices in order to keep customers from jumping to competitors. verizon will likely report a profit of 1.8 billion dollars or 64 cents a share. a year ago, it made 65 cents a share. sales may grow 4% to $18.9 billion. verizon was cutting prices for phone calls and internet access as it battled tougher competition from cable companies and vonage.
>> what they need to do is stem customer defections that they’re losing from the local side of the business. they’ve worked hard to try to improve that by discounting the bundle of services, discounting d.s.l. service but competition from cable and wireless is intensifying and making it a challenge.
>> it’s been a tough year for the phone giant, spending billions of dollars to build a fiber optic network to deliver phone and tv services. the stock has plunged 25%, on pace for its worst annual loss since the company was formed in the breakup of at&t 21 years ago. we have more coming up. reality check on the energy markets , charting crude oil for you and the quarter ahead. all of this as “after the bell” continues.
