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The New York Times reports that nobody knows where the price of oil will go next. It quotes John Richels, president of the Devon Energy Corp. (NYSE: DVN), an international oil and gas company based in Oklahoma City, saying $150 a barrel was possible, but so was $55.
To me, the most interesting part of this forecast is that an executive in the industry has no idea where the price will go. As the Times suggests, this is because the price is determined by traders and hedge funds. And these market participants view U.S. equities, housing, credit and currency markets as shaky. By contrast, they see oil and other commodities as a safe haven.
If the Times is correct, then the price of oil will be determined by the direction of U.S. equities, housing, and currency and whether these traders and hedge funds continue to see oil as a store of value. If you think that housing prices will rise in 2009; that the U.S. economy is in for robust growth and a balancing budget in 2009; and that peace will break out in the Middle East then those traders and hedge funds are likely to sell oil and buy dollars -- dropping the price to Richels' $55.
Otherwise, $150 here we come.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Devon securities.
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Reader Comments (Page 1 of 1)
1-04-2008 @ 7:59PM
sofie said...
Oil Goes Up, Oil Goes Down
It never ceases to amaze me how much time people spend trying to guesstimate the future of commodities prices. Will gold hit $1,000? Will oil push past $150? Am I anticipating a weakening in the price of silver? Is uranium headed for a fall? Disaster, even?
These people are not only sadly wasting their energy, as no one but Nostradamus has ever successfully managed to predict the future, but – more importantly – they’re missing the whole point! To be a successful natural resource investor, you need to buy companies with projects and people so extraordinary, they’ll do well no matter the price of their commodity.
If these fortunetellers spent half the time now dedicated to crystal balls and qualified guesses on actual company specific research, I bet they would make enough money to invent a time machine, travel to the future, and find out for themselves.