Focus on oil
Interview: Jack Eyedden---Senior Managing Director and Analyst---Mcdonald Investments
>> crude oil rose today heading back over the $30 mark again, this on concern that a strike in nigeria may disrupt oil exports from the sixth largest supplier to the u.s. our next guest says while there is a sense on the street that oil will go lower than its current level in the second half of the year, geopolitical issues continue to keep crude above its fundamentals. jack eyedden is senior managing director and analyst at mcdonald investments. he covers oil and gas industries. let’s take a look at that with you, jack. thanks for coming? what do you mean oil is trade agriculture buve its fundamentals? isn’t it almost always given all the other things it has to buffett its price?
>> it’s your price premium into the crude market because of the geopolitical potential interruption, potential issues, for example, everybody was expecting iraq to come in by now to be up to a million and a half two million barrels a day. almost every week that’s been delayed another week, 10 days. those are the issues that keep crude, the premium into the price.
>> then weather, of course. we are in the hurricane season. definitely if there is interruption in the production in the gulf, loading, unloading doesn’t take place. then definitely you look at nigeria, you look at venezuela, you look at other parts of the country, and then the new country is iran which is, too. so that’s why there is a premium into the price.
>> all that said you believe the price will come down, that $30 is still rich.
>> i think when things settle, you know, a little of the political situation settles, think crude will come down.
>> there is excess capacity that will bring crude down t market doesn’t justify it.
>> that said you point out there is a certain disconnect between way the crude driven stocks are performing and disconnected from the way the commodity itself is performing. what do you make of that?
>> well.i. think it’s always investors do not want to buy stocks when crude is basically trading at 30 and above, because then the feel is where is it going to go from here? so they rather buy when the crude is down with the potential upside that there is some $2, $3 on the upside that factors into the earning and cash flow.
>> talk to us a little bit about natural gas. is this just basically a simpler proposition that supply and demand relationship is simply clearer?
>> well, i think gas is north american commodity. there is the resource -- definitely we have a shortage of production. there snow question that’s a -- you know, it’s real. it is given as real. however, with natural gas prices up at $6 level, also there is demand destruction, put it simply, the cure for higher prices is higher prices. the cure for lower price, lower prices. in a sense, the market ultimately will work.
>> an awful lot of your colleagues are saying natural gas is a place to be for all the reasons, the basic shortage, controlled environment and so on. i gather that you anticipate an opportunity to buy at lower prices in the near term.
>> well, if the injection this week into storage is about 120 and above, i think we could have a short term blip, in a sense short term impact on natural gas stocks . in a sense we could see easily 8% to 10% decline in those stocks . i think if that were to happen, i believe that’s a very very good reentry level into those names.
>> we are talking about companies like patina oil and gas, saint marry land and exploration, westport resource, even burlington resources.
>> we have to leave it. thanks very much. this is jack aydenen taking a look at oil and gas for us on that disconnect, managing director and partner at mcdonald
