T. Boone Pickens, well known for making his millions in black gold, weighs in on the oil conversation on CNN Money, June 19, 2009:
Mr. Pickens has a solid argument here — in fact, without more information about demographic trends in emerging markets like Brazil, Russia, China and India, it would be difficult to argue with $300 oil. But, as these countries come online, it is possible, and seemingly likely, that the BRIC understands the demand for oil and probably feel the same way we do — alternative energies. Take cars, for example, and consider that one of China’s leading car manufacturers makes electric cars. BRIC knows that $300 oil will destroy their economies and standards of living, just like Pickens suggests will happen in the US. We won’t be the only one’s lowering oil demand.
And, say we happen to get in a situation where alt energies don’t take off in cars like Pickens suggests. We have billions of barrels of oil in North America. Enough to sustain half a century and even greater demand than today. Unless the goal is destruction of the US’s economic might in the world, it is difficult to imagine a world where reluctant politicians wouldn’t eventually succumb to drilling at home. Had oil prices remained at $140 from the summer of 2008 through now, it is almost guaranteed that we would have a “Drill Here, Drill Now” bill passed – even liberals were talking about it during the oil highs.
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Good work Mac. I’m big on oil and thus my first pick for my premium site was an oil play whose cost basis is $10/barrel. Now here is the scary part, despite the recession, despite forced selling, etc.. oil has basically doubled. Now, if Mr.Pickens gets it right…watch out.
Only thing that’s concerns me is how the consumer reacts to high oil prices. When oil was @ $150, we saw a huge cutback in travel. I found myself driving less, eating out less, etc.. to save on gas. $300 will be frightening as to what the consumer WONT do.
My personal view is that TBP may be right in the long-term — I’m talking 10, 20 years. We are in a global recession, and while the cost of oil may stay at, say, $70 – $100 in real terms for the next 5 years, I think it would only go over $100 as a speculative bubble. The demand simply will not be there.
I will say this: I can see oil going over $100 by the end of this year, during the remainder of this speculative market rally. But, after the rally gets toasted, oil is going to get hammered. In fact, the very fact the price of oil goes to $100 – $150 will lead to its own demise when consumers do exactly what you mentioned above. High oil prices and high interest rates on the 10,30 yr Tbonds will be the end of this “rally” and prove to those living in De Nile river that we are in the worst economic crisis since the Great Depression.
I am still holding oil and NG right now, but I have no quams about pulling the trigger on a sell, locking in profits, and looking for another play. Depending on the scenario, i also have no problem shorting oil via a dub-lev ETF if I see it get to bubble levels of roughly $120+, especially if interest rates get high enough to stifle the real estate market.
I hate to be a doom and gloomer, but the whole system is going to get hammered — globally.
Still, as a long term investment, I think playing good oil companies, with solid dividends, is a great bet. The fact is, oil will not be going away anytime soon, and as suppliers have to cut production, it is more than likely a worthwhile long-term play.
Mac, You said you’re holding oil and NG right now, but didn’t you say you were following HS Dent and Faber in selling oil for now or July? You also said it will go over $100 by end of year so I’m wondering when you’ll buy back on the dip this year?
Hi Tony.
I have been taking some oil profits since april. I unloaded 50% of my position in USO and all of my PBR… of course, in hindsight, i should have held both!
I am going to unload just about everything else i have by the end of July including my UNG if it hits my 10% trailing stop, which i have bought and sold a couple times over the last 3 months during dips and jumps. I don’t trust NG at all. I am seeing many differing viewpoints on NG. Specifically, there is a huge supply of NG according to various stats I have read (no references right now, but i am sure you could find similar info). I just read an article from Daily Wealth that suggested NG is going to double, but I am not so sure. In any case, if my stop is hit, i’m out and i’ll have to watch some other guy make 100% on it. Also, there is some wierdness in the UNG ETF that “tracks” natural gas. Do a GOOG search for “Jim Cramer UNG”… i am no fan of Cramer, but he made a good point about how UNG can be used to manipulate NG prices. Also, UNG has a max 300 million share limit and i think it is at around 260 mil outstanding. I can see some wierdness develop in the event of that 300 million level being hit — UNG could skyrocket, or perhaps the SEC steps in and does something — hard to say. there is enough uncertaintly out there already, and I don’t need UNG messin’ with my mind as well!
Oil is a bit tricky. I like locking in profits, but I missed the rise to $140 last year, and i would hate to do it again this year!
I still hold some USO for now, Canadian Trusts because many of them pay a monthly dividend (check cliff Wachtel for some great analysis) and a handful of other oil plays. I’ve got some stops set up here in case it drops too much, but i am not sure exactly which direction we’re going to go here. Oil seems to be following the broad markets, so if we see a correction there, we should see a correction in oil.
I am basically holding my remaining energy positions at this point.. if my stops are breached, i am out — the oil stops will trigger around $60 or so.
Insofar as buying in… oil under $55 would still seem kind of cheap, so this might be an entry point for me. The thing with forecasting like this, is that we never know what will be going on if it happens to go to $55. It will depend on market sentiment at that point. But, i suspect we might have another leg up as indicated by Faber and Dent. this market is ‘seemingly’ unstoppable at this point! I will ride the wave as much as i can, take profits along the way, and stop out if something takes a hit for whatever reason.
I would love to see oil at $40 again! but, i don’t think it is going to this level in the next month — $55 maybe…..
One other thing i am looking for on oil — I think it was the May 2009 HS Dent forecast where Dent suggested oil might move down in a correction, and then break through $70 and $80 and ride back up to a speculative bubble of up to $140!
so, one scenario i am watching for is oil correcting down.. say to $55, $60….. if it breaks back up, i am going to hold off making a huge move back in until i see it breach $75 – $80 and then jump into a double-lev ETF for the ride up to $140, with a stop of 10% – 15% (double-levs move like crazy so i have learned to adjust my stops a bit higher than normal).
We are operating in an imperfect market and using imperfect information to determine our next move. the environment is quite challenging! In any case, i believe this market rally is a total head fake and eventually, everything is toast. That being said, play only with the cash you can afford to lose. Tyler Durden over at Zero Hedge (AWESOME site) did an interview recently in which he said that whether investors are playing short or long, they are going to see “massive losses” because of the market manipulation he sees going on.
I’ll be the first to tell you that Inverse ETFs like SKF, EEV, SRS have been absolute killers in the last 3 months… I have been moving in and out of these positions since April and getting hammered hard along the way. Also, GM trading at over $1 on Friday didn’t help me any either! Thank goodness for the boom in agri, oil and NG or else I’d have been toast!
Sometimes i wish i would have just bought my high yield Canadian stocks, and “set it and forget it!”
(FYI: none of this should be construed as investment advice!)