Crude oil
Interview: Peter Butele --- President of Cameron Hannover --- Analyst
>> you mentioned the 1% drop in crude oil today on that record set on friday. this was due in part to venezuelan president hugo chavez winning a referendum over the weekend to finish out his term in office, another two years, if you will. one analyst says we’re bound to see oil selling for $50 a barrel some time this year. that analyst is peter butele, president of cameron hannover, and spoke with my colleague, erin burnett, early early.
>> the momentum is clearly higher. we came out this morning and dropped overnight because hugo chavez had a 17-point lead. so it really wasn’t close but right away i started turning towards iraq where we had an oil well blown up this morning by insurgents and continue to have problems in najaf and we’re not sure how much oil they’re pumping.
>> is the venezuela potential crisis behind us or is there still a potential of upheaval in that nation due to the disputes over election returns?
>> i think it’s mostly behind us. had it been a lot closer, had it been 51-14, i think there -- 51-49, i think there would have been trouble but when you have a 16 po17-point lead, i don’t know what a recount will do. i think it’s behind us.
>> peter, one thing i wanted to ask you because you were saying that $50 a barrel is a siren’s song right now and i think about speculative trade. there’s been immense speculation in the oil market by people who don’t need to use oil. is it possible that speculation is driving oil more than the dismi and―supply and demand fundamentals?
>> the biggest problem is as we move into the fourth quarter we’ll see higher demand and we don’t know where we’ll get extra supply so there is an element of supply here every time we get any disruption, interruption to supply, we worry about it but there is a heavy element of speculation in this. we see investment money coming out of stocks and bonds into hard assets and when people think hard assets, gold and oil are the two biggies.
>> and certainly that’s driving up the price of oil but other things seem to indicate prices should be lower. inventories up about 3.5% from a year ago and some are saying that based on historical price-inventory levels, crude should be trading $10 to $12 below where it is right now. do you agree with that analysis?
>> do. i think if we were not involved in iraq and i’m not making a political comment, but if we were not there, i think oil prices would be lower. i think if opec had another two million barrels in its cushion we would not be there. i think perhaps if we had more in storage we wouldn’t be here. i think a lot of it is speculative and i think a lot is investment money we haven’t seen for years and years and years.
>> so, looking ahead, then, given all of those factors and your concern about that, why, then, will we go to $50? do you think in your view it’s just as possible we’ll go to $40 or $35 as inventory levels suggest is appropriate?
>> eventually we will. i think eventually we’ll be a lot lower down the road. but, no, i think we’ll have to go up and look at least $49 to $49.50. if we can’t break $50, you could see the bubble burst but if you break $50, people will talk about new numbers. right now, this is a locomotive heading downhill and will take something to derail it and there’s nothing fundamental out there that’s capable of doing it. the only thing that could stop this market is if it crumbles under its own weight of speculative interest.
>> one thing i want to askow this front, a point i’m curious about, crude prices up 43% for the year. natural gas prices, though, actually down 12%. i know there are fundamentals in the market in terms of natural gas being more localized but on an energy-equivalent basis, it would appear one or the other of these numbers is the right one. aboutwhat do you make in the disparity of trade between crude and natural gas?
>> the crude oil market is more psychological and one of the main factors of it is turmoil in the middle east. turmoil in the middle east doesn’t affect our supply and demand of natural gas so that may be perhaps the main factor. i think natural gas is reasonably priced. i think crude oil is dreadfully overpriced. i understand why we’re going to continue higher because you start from where you are today and say, well, things are bullish and they should be higher but if we help starting at $30, we might be talking about us heading towards $35 instead of towards $50. let’s look back to february of 2002. oil prices were at $17. the war was what really got us up this high.
>> sticking with the oil theme, coming up next, we’ll see why so many people on wall street are wondering if that higher oil price is actually the cause for slackening consumer spending based on recent data. at least one investment bank is taking a different tack on the topic. we’ll have details after a break.