Interview: Pritchard Capital Ptrs.---Dingmann, Neal---Analyst
>> energy secretary samuel bodman weighed in on the latest rise in oil prices today in washington.
>> we’re continuing to deal with the same issues that we have been dealing with for some time. the suppliers of the world are having great difficulty keeping up with demand. and that’s why we have high prices and we have volatility. i wish there were a manualic wand that i could wave that would cause prices to decline. there isn’t one.
>> the secretary went on to say, the switchover to ethanol in gasoline may cause supply disruptions in the u.s. for several months. he blames it on the logistics of shipping, but says it will level out.
>> i do expect some issues. i have expected them for some time. but i do believe that we will see adequate supplies of ethanol available throughout our nation.
>> at least six service stations in the u.s. mid atlantic region were out of fuel yesterday because of the shift to ethanol-blended gasoline, according to a.a.a. demand’s up because the grain-based fuel is being phased in as a component in reformulated gasoline sold in large u.s. cities,. a rival additive, known as mtbe, is being phased out. so far, the rise in oil prices hasn’t derailed growth in the g-7 countries but there is fear it might. is there anything the g-7 finance ministers meeting in washington can do to push prices down? neal dingmann is energy lift analyst with pritchard capital partners in houston. thank you very much for being with us. is there anything they can do at this point if it’s a demand-driven situation?
>> worldwide there’s going to be very little short term. as the energy secretary pointed out, there’s no magic wand. opec could try to turn open the spigot but as we know, saudi is really, for all intents and purposes, th only ones with any excess capacity so that could ease us slightly but only very slightly near term.
>> why are oil prices so high right now if we see inventories also way up?
>> it really goes back and people haven’t mentioned this the last couple of weeks―it really goes back to the spare capacity issue, that you look out there and we still only have somewhere around 2.5 to three million barrels-per-day of oil spare capacity. so that’s why when you hear about this geopolitical risk, whether you talk about venezuela, nigeria, iran―any of those three countries, any one of those three going down to zero would immediately wipe out that spare capacity and would obviously surge oil prices.
>> the new theory out there is that in part the high oil prices we’re seeing are from speculation, people rushing in to buy oil because they think prices are going to remain high. we did see the commitment of traders report today indicate that hedge funds and others are raising their stakes, their long bets on oil prices. how much does that contribute, do you think?
>> you could see a little bit of that going on in the market by versus what the nymex and some of the nymex prices are trading, albeit oil or natural gas versus what some of the companies are getting at the hubs. so you can see some of that going on. but as far as the fundamental push more than on a day-to-day basis but closer to week to week or month to month, i still have to feel it goes back to simple economic supply and demand.
>> a lot of fingerpointing going on in washington about what could have or should have been done. is there anything that could have been done in years past that would have increased the supply of oil or are we pretty much taking in all we can get?
>> at this point, we’re definitely taking in―when you speak just domestically, they’re going to obviously have to start looking for other sources. and near term, the only magic wand i think there is near term, you would have to turn to coal and start to raise emissions but that’s sort of a whole ‘nother subject. but on the oil side, domestically, i think we’ve already turned that corner and it’s more imports is what we’re going to be depending on.
>> can we do anything in the longer term? is there something congress should be doing that perhaps wasn’t done in the energy bill or can we wait for some provisions of that to start to make a difference?
>> absolutely. i think there are a couple of things. one, on the oil side and they have done this in the past -- the issue and they’ll continue to issue some of those credits to drill offshore. there’s no question that still the most supply that’s going to come on in the next two years, three years, even five years is going to be found domestically around the offshore region, so obviously that’s going to be very important. andthen, secondly, we’re obviously going to have to be more serious about alternative sources because any sort of look there is not going to be a quarter from now or even a year from now but you’re talking a minimum two to five years down the road but we have to start looking right now, obviously.
>> obviously, also, gasoline prices are tied to the price of oil, although gasoline, people say, is also rising at a pace faster than maybe it should. why would that be?
>> you sort of right now have obviously two things going on with it. you have the ethanol-mtbe that you referred to earlier and obviously that could definitely pose a near-term crimp in prices there, obviously. secondly, you look at inventory alone on gasoline and we’ve gone from where we are today versus a five-year historical, we’re now about 6% under versus―i was looking early february, we were about 6% to 10% over. so, obviously, inventories are obviously demand is still there and again it goes back to economics, what is going to change that, it’s going to have to be probably the last time we hit $3 and that’s obviously when the consumers pulled back at the pump, didn’t spend and demand definitely drastically went down. >> how much is this switch between mtbe and ethanol hurting gasoline prices?
>> currently, i think it’s still somewhat minimal and to me, it’s only going to exacerbate as we get close to the may date, the drop-dead date to switch over and so as we get to the end of this month, if prices are above $3, is that date they’ve set aside out there, is that pushed out or what’s happened because obviously right now it’s more a refining issue, a transportation issue and a feed stock, that being crude, issue, more than just the mtbe/ethanol itself.
>> you spend a lot of time looking at this. what about the political charge that oil companies are somehow responsible for the high price. is anybody withholding oil or are they dog anything to make windfall profits right now?
>> very little. my theory continues to be that if you’re going to tax or if they would withhold, you would generally have the national oil companies, albeit somebody in russia, maybe the saudis, somebody like that that would love at these prices to fill any gap so it’s really not advantageous for any of the domestic guys to step aside, especially at these prices, because those national oil companies at that point would love to step in and take a piece of that action.
>> what would you say to the driver filling up his tank who says somebody’s at fault here, i’m paying too much?
>> there’s obviously―this is a problem that’s gone on, now, for a little while, but even longer than that, it’s gone on and it’s just a problem that you can’t point a finger. i don’t think at this point at any one person. there’s a lot of fingers to be pointed and the fingers should have been pointed not in the last year to two years but several years in the making and now all of a sudden it’s kind of hitting the head.
>> thank you very much, neal dingmann with pritchard capital partners in houston. oil hitting $75 level today in new york trading. after the break, what differences will white house changes bring about and will they make a difference for the president’s sagging poll numbers? republican strategist howard opinsky weighs in when “money & politics” returns.
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>> hello, i’m michael mckee. welcome back to “money & politics.” another big jump in oil prices, another milestone passed today. crude oil rose to a record $75.35 a barrel in new york on concern that shipments from iran and nigeria might be disrupted. gasoline futures rose for the fourth time this week as record crude oil prices raise costs for refiners. gasoline up almost four cents. heating oil higher, as well. natural gas, though, lower on forecasts of mild weather. but a good weather forecast wasn’t enough to rescue stocks after the oil headlines. here’s a graphic picture of what happened today. a rally stopped cold by oil. at the end of the day, the dow jones industrials eastman kodak out a small gain―eked out a small gain, five points. but the s&p 500 fell a little less than a point and the nasdaq lost 20. all eyes on the market ‘s reversal after crude oil prices surged. deborah kostroun at the big board.
>> a dramatic day in the markets on friday. at one point, the s&p at a five-year high and then there was a major turnaround. the chart shows, as oil was going higher, above $75-a-barrel, the s&p going in the other direction. stocks hitting a brick wall as crude oil reaching that $75-a-barrel mark, another all-time high and higher oil prices may cut into corporate profits and hurt consumer spending. that’s one of the reasons we did see the turnaround. also this week, we saw better-than-expected earnings for most of the week, taking the spotlight away from the energy prices. the dow and s&p still ending the week higher. 70% of companies reporting first-quarter results have beat analysts’ estimates. other big news that broke late in friday’s session, that was merck. a jury awarded $32 million to a texas family in a lawsuit claiming merck’s vioxx painkiller caused a 71-year-old man to have a fatal heart attack. however, that amount is likely to be cut under state law. getting back to the main story of the day, energy remaining in the lead, biggest gainers in the s&p 500. in fact, the oil service index hitting a record and closing just off that record. oil services, integrated oil, all performing well. in fact, if you look at a one-day chart of the transports, looks very much like a one-day chart of the dow and s&p 500. transports also losing quite a bit of steam when oil went higher and many of the transports like the airlines were lower. also, retail names were lower. a lot of concern about consumers, they’ll be spending more at the gas pump and maybe less at the retail stores. cyclicals turning around. ford, second biggest drag in the s&p on its earnings. ingersoll-rand also releasing earnings. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> today’s jump to yet another record for oil prices isn’t likely to be the last. a bloomberg news survey of analysts, traders and brokers finds they expect higher prices next week. 23 of 42, or 55%, say prices will gain next week, the most bullish response since january. 10 forecast prices will be a ttle changed and nine expect a decline. 50% of respondents a week ago predicted futures would awe fall. when we return, we’ll look at the reasons why those analysts are so pessimistic about oil prices. neal dingmann of pritchard capital partners, joins us after this.
