One on One With Fadel Gheit of Oppenheimer & Company
Wednesday, August 30, 2006
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LINDA O`BRYON: Our guest tonight says the price of oil continues to reflect what he calls the fear premium. A short time ago, I spoke with Oppenheimer and Company senior energy analyst, Fadel Gheit and began by asking him about the factors behind this fear premium.
FADEL GHEIT, OIL & GAS ANALYST, OPPEHEIMER & CO.: Recently the fear premium has been with us for about four years now. In the last few weeks has been the war between Israel and Lebanon, but in the background, the market is looking at the showdown between Iran and the UN. The imposition of economic sanction is basically likely to lead into speculation, potential supply destruction and that`s why traders have give themselves room, if you will, of about $5, $6 over involved (ph) what prices were only a few weeks ago.
O`BRYON: And how would you value this entire fear premium, not just a few weeks ago but just in terms of the pricing?
GHEIT: It`s really very difficult. I cannot justify $80, $70, $60 oil based on the current market fundamentals, supply and demand. We don`t have any supply disruption anywhere. Inventory levels at a fairly high level, at the high end of the five-year average. We didn`t see any potential supply disruption right now. If we eliminate the fear factor, if you will, if we eliminate the Iranian unnoticed, if you will, I think that oil prices will probably drift lower. How much lower nobody knows. It could be $5; it could be $10. Would I say in the $5 to $10 range.
O`BRYON: And do you see this happening if there`s a breakthrough on nuclear development between the UN and Iran, for example?
GHEIT: Again, I mean this is the $64 question. I do believe we are going to see intensified negotiation between the UN, the U.S. and Iran. Nobody wants to see the situation getting out of hand and economic sanctionwould be noting short of declaration of war. The Iranians will have to respond and (INAUDIBLE) they have is no nuclear record, is basically blockading the flow of oil from the Strait of Hermos (ph) that could deny the world $20 million a day of crude production and that could send oil prices to $100, destroy our economy and the rest of the world. Nobody wants that.
O`BRYON: So is it your opinion then that negotiation will be the route we will see?
GHEIT: It`s the only sane way of thinking (INAUDIBLE) and the only rational way of thinking is that we have to negotiate. The Iranians do not want to push us to do the unthinkable and we don`t want to be pushed to do the unthinkable either.
O`BRYON: All right, aside from the geopolitical issues, we have heard today about increase, a big increase in build-up of supplies. Were you surprised by that report?
GHEIT: Not really, because a couple of things. One, getting at the end of the driving season, we are seeing global economic growth slowing down. We are seeing demand for energy slowing down. Higher prices obviously have an impact. But more important than that, higher prices invite more supply and higher prices depress the demand growth and that`s exactly what we`re seeing. So economics 101 works. The price however is still tilted toward speculation regarding Iran, Nigeria, Venezuela and elsewhere.
O`BRYON: All right. Thank you very much.
GHEIT: You are very welcome.
O`BRYON: Our guest tonight, Fadel Gheit, senior analyst with Oppenheimer and Company
KANGAS: The labor movement has big plans for the upcoming midterm congressional elections. Today the AFL/CIO said it will spend $40 million on the November vote. Most of the money will go to increase voter turnout. None of it will be spent on individual campaigns. That $40 million is the biggest effort by the big union in a non-presidential election.
O`BRYON: One issue of special importance to labor this year is an upcoming decision from the National Labor Relations Board. The panel is expected to decide next month on the definition of a supervisor. As Stephanie Dhue reports, that definition could have big implications for both business and labor.
