One On One With Fadel Gheit, Oil & Gas Analyst for Oppenheimer & Co.
Wednesday, August 02, 2006
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SUSIE GHARIB: Joining us now with more analysis on rising oil & natural gas prices is Fadel Gheit, oil and gas analyst at Oppenheimer. Hi Fadel.
FADEL GHEIT, OIL & GAS ANALYST, OPPEHEIMER & CO.: Good afternoon.
GHARIB: Let me first begin by talking with you about today`s government report on oil and gasoline inventories and we saw a little bit of a drop off there. What`s your analysis of the numbers and is there anything that jumped out at you?
GHEIT: Not really. The weekly numbers are more of a - again subject to changes and corrections, but they`re very good too for traders, but really don`t tell us anything longer term (ph).
GHARIB: We saw also that natural gas prices really spiked higher and a lot of that is because of that tropical storm Chris. What is your view on natural gas prices. They`re right now at the $7.80 level. Do you see them getting as high as they did last fall, $14?
GHEIT: Well, $14, I`m not sure, but they are likely to go higher. The question is how active the hurricane season is likely to be and how cold the winter season is likely to be. Last year we had no winter and the hurricane season obviously was very active. I kind of doubt it very much that we are going to have the same one-two punch as we had last year from the two hurricanes, but nevertheless, the future markets tell us that gas prices will rise about 40 percent before the end of this year.
GHARIB: Let`s look a little bit at oil prices. They also notched higher to the $76 a barrel level. Given how the conflict in the Middle East is intensifying, what is your outlook there on oil? Where do you see prices going?
GHEIT: I really think we should get used to high oil prices because they are here to stay. I`m not sure they`re going to stay at $77 or $87, even $97, but they are not likely to go to $30 or $40 or even $60 any time soon. I would say that we are going to be in a trading band give or take $10 on each side. If we have increased tension in the Middle East and if we have hurricane disruption of a major magnitude, I don`t rule out $80 or $85 oil in a very short period. Now if we don`t have -- if the Middle East situation cools off a little bit and we don`t have active hurricanes, I do believe it will (INAUDIBLE) to probably $65.
GHARIB: We`ve seen that the U.S. economy has adjusted no matter what the price of oil has been and I know you`re not an economist and maybe you can`t speak to this, but I`m just wondering, is there a level at which, oil prices get, whether it`s $80, $90 or $100, where you will have a significant impact on the economy, no matter what the reason is that triggered this.
GHEIT: We really don`t know what the threshold of pain is. Five or six years ago, everybody thought that $50 oil will derail the economic growth, will start inflation, will hurt spending and it hasn`t happened. Why? Because it happened gradually and over a long period of time and only four or five years ago, we had $35 or $50 oil. Now we have $77 oil, but we are adjusting as we get into the higher prices. We`re beginning to look at $3 gas at the pump as no surprise. We`re only going to get surprised when we see $4 at the pump and we`re going to live with this. So I don`t believe that there is a fixed number where oil prices have this number. All of a sudden people will stop spending and inflation will kick in. It was a gradual process and it will be self correcting mechanism.
GHARIB: We`ll leave it there. Thank you, very interesting information, thank you so much Fadel.
GHEIT: Thank you.
GHARIB: We`ve been speaking with Fadel Gheit, oil and gas analyst at Oppenheimer.
