The buzz at the Offshore Technology Conference in Houston this May was a debate about Goldman Sachs analysts’ forecast that oil would reach $200 within the next two years. Matt Simmons, founder of energy investment-banking firm Simmons & Co. International Inc. and a known peakist (i.e. is a leader among the “Peak Oil” theorists), added at OTC that oil could go to $300.
“Do we really believe this…?” asks James DiGeorgia, author of The Global War for Oil
. “And, if so, why? And, how can investors profit from the rise in oil (prices)?"
Well, he says, “Goldman Sachs is dead wrong
in its energy-research report that stated that the rise in prices isn’t motivated by speculators or the weak dollar.
"Specifically, volume in the oil ETF USO is about 17 million shares the last few days and would mean a total value traded is about $1.7 billion—17 million shares traded times $102 USO current price. The net asset value of USO is about $650 million. This means the ETF traded ownership 1.5 times during one day—this is speculation, not investing.”
He does expect oil prices to grow, however. Here are some reasons:
-- “Increased demand from investors and speculators.”
-- “The summer-vacation season starts soon and energy demand normally picks up.”
-- “The hurricane season will also start soon. Oil prices will continue to be firm once news of tropical storms in the Gulf of Mexico begins.”
-- “Nigeria: Terrorist attacks, political problems and strikes have been issues for this important producer now and for the past few years.”
-- “Venezuela: Last week, there was talk that the U.S. may impose sanctions on Venezuela because of U.S. intelligence reports that Chavez helped Colombian rebels. This news sparked the energy markets on Friday.”
-- “High short interest: Speculators have been shorting oil, causing short squeezes, buying to cover their short positions.”
-- “New highs: When prices hit new highs, it's very easy for prices to continue to make new highs because of the lack of supply, and because of resistance and sellers.”
-- “OPEC: In the past, OPEC has expressed concerns about high oil prices. Their main concern was the impact high oil prices would have on the world economy and the demand for energy. Lately, the news out of OPEC is that they will not increase production because, according to it, the current high prices are due to speculation. There is speculation that, even if OPEC wanted to increase production, it is at maximum production capacity and can't.”
–Nissa Darbonne, Executive Editor, Oil and Gas Investor, A&D Watch
, Oil and Gas Investor This Week