A New Era for Energy?
I read an interesting interview recently with the CEO of Valero Energy (VLO), the largest independent U.S. refiner. CEO Bill Greehey said their stock continues to be undervalued by the market. He said internally they are forecasting earnings of $12.27, while Wall St. analysts are forecasting just $6.95. Huh? That's a pretty huge discrepancy. Could the analysts (who Greehey calls "rabbits") be off by that much? Anything is possible. If he is right, that stock has a lot higher to go. I have traded it several times, but it is very volatile, so be careful there.
Greehey said the analyts are afraid prices will go down as fast as they went up. But "this is a new era", he exclaims. Those are usually dangerous words. Remember the Internet bubble? That was surely different at the time. But Greehey says everybody needs to get used to high prices, and that oil isn't going back below $30.
I tend to agree with him. I think oil is in short supply globally. The only thing I see taking oil back down below $30 would be a synchronized global recession. Otherwise, the incremental demand from countries like China and India will likely keep a floor under oil prices.
A new era? Nah, I wouldn't go that far. But the current up-cycle in energy is likely to last longer than most current forecasts. At least...that's how I see it.
posted by J. Kahn @ 3:16 PM
6 comments
6 Comments:
Where is the "non farm payroll" report? I only ask for one thing a month.
And where is the pop culture, sports and existentialism talk that we were promised?
If nobody think oil can ever see $30 again are everybody is trading accordingly, then the odds are quite high that there's a heckuva speculative premium built into the current quote of oil -- ie, $50 ain't a function of supply/demand.
If nobody expects oil to get to $30, it will probably get there.
Why do people only talk about "speculative premium" in oil, gold, etc. (ie. things the govt. or Fed don't want to go up), but they never mention this so called "speculative premium" when it comes to GOOG, NDX, SPX, etc. (ie. things the govt and Fed want to go up). On another note, what are your thoughts on the supposed Fed "Slip up" in the FOMC statement? Do you really think that this Fed, which is so focused on absolute transparency with the markets, actually forgot to keep the "inflation" line in their statement?
all i know is vlo stopped moving 4 pts/day since this merger. Can't we get rid of these arbs?
Greetings fellows - this looks like basically a family reunion. My sense is that rather than a "speculative premium" in oil, what you have at $50/bl. is the pricing of China's need in order to employ in the industrial area the 150,000,000 people the government is sucking out of its agricultural economy. Over the last couple of weeks there has been a marked acceleration in inflation data in China which is resurrecting fears that the gov. is going to have to jack up rates and slow things down.
In addition, despite the gigantic trade surplus with the US, China is actually running a trade deficit with the rest of the world. Revalue the yuan to make the US happy and they get screwed royally with their Asian partners and India. Shall we call it a conundrum? This condundrum, IMHO is what is causing oil to slide here.
Longer term my sense remains that the price of oil will be redenominated in another currency. This will whack the dolalr as people reload in the new petro-currency. So while the price of oil may not ultimately go up too dramatically, in $$ terms it may well get close to the freak out levels ($80-100).
Bear On!!
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