Bolling: Oil Should Be in the $70-$85 Range, Buy the Dips
Posted Jan 07, 2009 11:53am EST by Aaron Task in Investing, Commodities
Related: USO, DUG, DXO, OIH, XLE
After rallying 40% from the December lows, oil prices were recently down more than 3% to $46.95 per barrel Wednesday, falling in concert with stocks and as the DOE reported a sharp build in inventories.
Declines like these are opportunities to add to oil positions, says Eric Bolling, a former NYMEX commodity trader and host on Fox Business News. While oil's midsummer rally overshot reality, its subsequent decline was similarly overdone, says Bolling, who believes oil should be in the $70-$85 per barrel range.
The trader and television commentator is currently long oil via the United States Oil ETF, which he says is the best ETF at handling the "roll" that occurs when crude futures contracts expire each month.
Bolling said he will add to the USO position if/when spot crude falls below $45 per barrel - which it approached earlier today - and is a long-term bull on the commodity because of geopolitical risks and the U.S. government's efforts to "reflate" the economy.
And David Pescod Says...
CRUDE OIL
$42.82 -5.76
NATURAL GAS
$5.86 -0.13
It’s an ugly day on the markets. In the U.S.A. they report
almost 700,000 job losses, which shows things aren’t going
that well.
Meanwhile, in the energy market it’s also an ugly day as
the U.S. Department of Energy reported its latest petroleum
inventories for the week and crude inventories rose last
week by 6.7 million barrels and is currently much higher
than the same time last year.
Gasoline inventories rose last
week by 3.3 million barrels to 211.4 million barrels and are
slightly lower than last year. The net result was a significant
swack to the oil index and oil dropped over $5.00 a barrel.
In the meantime, it’s the time of year that oil analysts tend
to make the projections for the coming year and needless to
say, the projections from the different brokerage houses are
all over the place.
The parameters they are looking at are
much the same, but what their crystal ball delivers can be
quite different. The one big negative is that suddenly the
world has a lot bigger supply than it needs, courtesy of addi-
tional Saudi production that could come on stream. That’s
the only big negative, but it’s the only one that matters.
If you are trying to find positives, it’s that it looks like
OPEC might be actually cutting back as it said it might, par-
ticularly some of the countries that never seem to do what
they say they will do such as Venezuela, Iran, Ecuador and
the like. Also the Americans are looking up to 20 million
barrels of oil for their strategic reserves and the Chinese
also suggesting they might need multiples of that, is a posi-
tive. But quickly becoming the big factor is the enormous
cutbacks by companies around the world from Enerplus
Income Fund in Canada (cutting exploration from $500 mil-
lion to $300 million) to Gazprom (the Russian giant cutting
exploration by 25%).
With oil companies around the world, whether it’s Pemex
or Petrobras, if these people aren’t looking for oil...they are
not finding it and meanwhile, the natural decline rates in
different areas of the world can be anywhere from 5% to
30%, so a year from now, there is going to be less oil coming
on stream.
It’s the time of year that analysts get around to making
predictions about what next for oil prices for the different
brokerage houses and of the reports we find of interest is
the one put out on December 31st by Barclays Capital and
they write, “At the moment there is an inbuilt instability in-
volved in the realities of supply and demand. The price that
generates enough long term energy supply is a high one,
and the current freezing up of investment activity across
energy and alternatives is likely to make it even higher in
the medium and long term.
