One on One with John Kilduff, Energy Analyst at MF Global
Monday, June 30, 2008
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SUSIE GHARIB: Mounting tensions between Israel and Iran pushed oil prices to a record high of $143 a barrel today. But by the close of New York trading, August crude futures settled at $140 a barrel, down $0.21. Joining us now for more analysis John Kilduff, energy analyst at MF Global. Hi John.
JOHN KILDUFF, ENERGY ANALYST, MF GLOBAL: Good evening, Susie.
GHARIB: All right. So what was driving oil prices today? Was it demand? Was it geopolitics? Was it speculation?
KILDUFF: Well, I think it's a combination of all those things. I mean certainly overnight we had the news you referenced about further escalation in the worries about a potential Israeli attack on Iran. That's been a developing upset for the oil market because it represents such a huge potential supply disruption that it's almost incalculable how high prices could go on such a strike. Beyond that though we had a real disruption of further oil out of Nigeria. And basically when you talk about speculation, it's speculation that these things may occur or could occur are becoming increasingly likely to occur so that these assets, the oil gets bid up really ahead of time on advanced worries about the possibility of what the future may bring.
GHARIB: Do you think these prices -- $143 a barrel -- are justified?
KILDUFF: I think you can make a compelling argument as to why we are where we are. Have the speculators and some of these worries advanced these prices much more quickly than we ever could have imagined? Yes. But basically world oil demand has grown 12 million barrels a day just since 2001 and those supplies have struggled to keep up. We are really in a consumption deficit right now. We're consuming more oil than is being produced. Oil supplies seem to be threatened almost on a daily basis and oil supply number news always seem to be bad, not good except in terms of the potential new fields that are being found out there, but those represent hope for years down the road, not today.
GHARIB: What about the news out of Iraq that it's opening up its oil fields to big western oil companies to develop? Will that help satisfy demand and will that bring down prices?
KILDUFF: It's one of the few real bright spots out there. Actually it's one of two. When you think about the huge discoveries that are being revealed to us in the country of Brazil and then look at Iran, some of the more recent seismic information that we have about Iraq that has just emerged in the past year or so tells us that their reserves may be almost as great as Saudi Arabia. They will leapfrog from the fourth spot to the second spot and they could easily get their production from today's 2.4 million to three million in about maybe six to eight months, but from there, their stated goal of going to 4.5 million that they announced today very realistic in the short term.
GHARIB: All right. In the short term though, what about prices? There are forecasts that are all over the map, $150 a barrel, $200 a barrel. Where do you see prices going short term?
KILDUFF: I think realistically, you know, some of those predictions obviously are counting on a significant supply disruption event. I think just on the numbers, we have more ahead of us to the up side in the very short term. I think $150 looks to certainly be in the cards over the next week or two. This is the peak driving week, the fourth of July. This is it. Whether or not people hit the road because of $4 and $5 gasoline is the big open question. I don't think they will. I think there's other issues going on particularly as they relate to China's stockpiling of massive quantities of refined products ahead of the Olympic games. I think after we get through this period and that Olympic period in August, you can look for prices to come down potentially considerably into the latter part of the year.
GHARIB: Are you saying that maybe even gasoline prices will come down because today they hit a new record high of $4.10. What's your forecast on gasoline?
KILDUFF: They're going to continue to go higher here over the next couple of weeks. But I think consumers should be seeing sub $4 a gallon gasoline come fall and potentially even lower. Unfortunately though, it's going to be in the back drop of a significantly poor economic back drop for the U.S. But beyond that, they should be able to come down considerably.
GHARIB: Interesting information as always, John. Thank you so much for coming on the program.
KILDUFF: Thank you Susie.
GHARIB: My guest tonight, John Kilduff, energy analyst at MF Global.
