Sunday, April 23, 2006

Gas & Oil Part III

I found it very interesting to read over the weekend that many have come around to my way of thinking on Gas and Oil.

A quote for an analyst on CNN tonight - "many of us don't like to hear it, but we are likely the greatest single reason for the surge in oil and gas. Our reluctance to buy more fuel efficient vehicles and/or change our driving habits is a major factor in the demand side of the equation"

A quote from a article on Saturday - "the traders are pushing this market higher now. Any little ripple in the market is sparking waves of buying as speculators move in".

For what it's worth all of my hedge fund contacts are obsessed with commodities right now. All they trade is gold, oil, copper or zinc. That's not healthy for these markets.

Oil and gas should ease a bit in the upcoming week but it might not make much of a difference at the pump. If it makes you feel any better I do have a scenario for cheaper gas in 2008-2010.

1) Major oil companies are drilling like mad right now and they will bring online lots of new supply over the next 2-5 yrs. More supply = lower prices

2) The double whammy of real estate slowdown and rising interest rates is going to severely crimp growth in the US economy. Weaker US economy = lower prices

3) A slowdown of our economy will reduce manufacturing output and economic growth in China and the rest of the Asian developing world. Reduced economic activity in Asia = lower prices.

Unfortunately, we need our economy to cool (and cool pretty dramatically) before these effects will be felt at the pump, but I'd say with some confidence that we'll be paying less than $2/gallon again by 2009.

You might want to invest in a high quality bike just in case I'm wrong :)

No comments: