One on One with Fadel Gheit, Oil Analyst for Oppenheimer and Company
Thursday, March 29, 2007
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SUSIE GHARIB: More analysis now at the Iran crisis and $66 oil. Joining us now is one of Wall Street's top oil experts, Fadel Gheit, oil analyst at Oppenheimer and Company. Hi, Fadel.
FADEL GHEIT, OIL ANALYST, OPPENHEIMER & CO.: Good afternoon.
GHARIB: Well, you know, you've been covering the whole oil markets and oil crises for many years. What is your take on this Iran crisis? Do you think that Iran will cut off oil supplies?
GHEIT: The answer is no. They cannot afford to. It will hurt them more than it would hurt anyone else. It is the lifeblood of their economy. Fifty percent of their GDP comes from oil export sales. So this is not something that they are going to do. But if the situation gets out of control and you have a short-term war, it's a new ball game.
GHARIB: Let's say there are supply disruptions. Let's say Iran does do the unthinkable. What are we talking about in the price of oil. Some people have suggested $100 a barrel oil.
GHEIT: Well, it will depend. In a very hypothetical way, the only response that the Iranian government can do is to try to blockade the strait of Hormuz, which is the bottleneck in the Persian Gulf, that takes the crude oil that is produced from the five or six countries in this area, to the world market. That would mean 20 million, potentially, you could see 28 million dollar -- 20 million barrel drop in supply, and that could get oil prices very quickly to $100.
GHARIB: Let's take the other scenario, that this crisis ends tomorrow. What happens to the price of oil? How much does it come down from $66?
GHEIT: Well, probably will come down but you have to understand the industry fundamentals are extremely strong. Demand for gasoline in the country today is 1.7 percent higher than a year ago, it at record levels. So all indications right now point to the fact that 2007 could shape up to be a much stronger year for oil demand than 2006.
GHARIB: So you are saying it's not just this Iran crisis that is jacking up the price of oil.
GHEIT: Correct.
GHARIB: It is demand issues.
GHEIT: Demand issue. We are using more oil than ever before. The rest of the world is not standing still. China is not going to stop growing. They are preparing for the summer again next year. So the economy is still going very strong. Higher oil prices did not have any negative impact on economic growth so far.
GHARIB: So Fadel, than what can consumers expect for gasoline prices, for example, in the height of the summer driving season?
GHEIT: Given the fact that demand will start increasing more than they have now, I would say that there is a possibility of another $0.10 to $0.15 a gallon in -- at the pumps. Now if we have higher oil prices it will also reflect the higher prices. We could see oil, gasoline prices moving up sharply in the middle of the summer if the conflict with Iran gets into a worse situation.
GHARIB: Most of the oil company stocks were up today on, you know, high oil prices. Is this a good time to buy oil stocks? And if so, which ones would you recommend?
GHEIT: It is good time to buy oil stocks, but not today. You buy them when they are on sale, and they will eventually go on sale, maybe tomorrow, maybe the day after. Longer-term, I do believe the industry fundamentals are very strong. This (INAUDIBLE) are not reflecting $70 oil or $60 oil, even $50 oil. And likely you are going to see those who are (INAUDIBLE) that these stocks are overrated, whatever, they are going to come back. I do believe.
GHARIB: What are your favorite oil stocks at this time?
GHEIT: Well, the large oil companies I think, the most undervalued are BP and Conoco Phillips. The middle cap group, Mercury Oil probably is the best choice. And then on the refiners, (INAUDIBLE) is the best value. And in the independent oil & gas producer, I would say Anadarko, Devon, Apache Oil are good deals.
GHARIB: Fadel, do you own any of these personally and does your firm do any business with them?
GHEIT: I don't own enough of it. But I own BP and Conoco Phillips.
GHARIB: OK, that you so much for coming on the program, as always we appreciate it. My guest tonight, Fadel Gheit, oil analyst at Oppenheimer and Company.
