Last night I had the opportunity to sit down with PG, who is the head of a small refinery based in Texas. We talked about the economy, and most specifically, crude oil – where the price may be heading, and supply/demand considerations.
(OK it’s my father-in-law…we were having an after-dinner beer…but I’ll take his insights on the energy complex against any of the talking heads on financial TV! He’s been in the refining business for over 25 years, and really knows his stuff.)
On the price of oil…
Oil fundamentals don’t support $70 crude oil. There is plenty of oil right now. Oil should be priced in the $40’s and $50’s based on fundamentals.
On the new potential CFTC regulations…
That would be good for refiners, because it would drive the price of crude down as the speculative premium is chased out of the market. (Brett note – looks like they may have started to break in already!)
Break-even prices for crude oil…
Although crude should be priced below $60, it actually needs to stay above $60 to keep North America drilling. A LOT of supply has come offline in the US and Canada, because often it doesn’t make sense to drill below $60.
Could we see another price spike…
If and when global demand comes back, the price of oil will skyrocket. The high level of oil and gasoline prices today – with global demand in the gutter – is a testament to how tight supplies are. ANY real move on the demand side could send prices up…very fast!
Brett again – I wouldn’t be surprised to see crude oil trade between $40 and $60 for some time. Now crude does have a history of going much higher…and much lower…than anyone expects.
I just think that with all the supply on the market, we’re going to need to see a real recovery to the global economy to see a sustained rise in oil prices. And I just don’t see any signs of that yet. But when oil does start to rise, we could be in for a helluva shock!