John Kilduff, Energy Analyst at MF Global Offers An Outlook on Oil
Friday, June 06, 2008SUZANNE PRATT: Joining me now to talk about that huge move in oil prices today is John Kilduff, energy analyst at MF Global. John, welcome back to the program.
JOHN KILDUFF, SR. VP, ENERGY, MF GLOBAL: Thank you Suzanne.
PRATT: So it was a crazy day in the energy market. Tell us what happened.
KILDUFF: Well, it was really one for the record books. We had never been lock (ph) limit up. Futures rose as much as they possibly could today and the commodity markets are still a little old-fashioned with our circuit breakers and we reacted strongly to several of the things that you've been speaking about in this broadcast so far. I think chief among them though was the shutter that was sent through the market from Israel and the comments from their transportation minister, who isn't just some transportation minister. This gentleman was a former defense minister, is seeking to succeed Ehud Olmert because of the scandal that's going on embroiling his administration and he also made a comment that U.S. military had approved of this plan. So the oil traders didn't really want to stick around too long to get the details on that. They just bought with both hands because of the potentialities that exist and the repercussions that would come from such an attack.
PRATT: So is geopolitical risk now back on the table? It was sort of missing from the marketplace for a little while.
KILDUFF: We were, for a while, really just dealing with the economics of everything. From the -- from watching the value of the dollar closely, watching interest rate moves very closely, even hanging each day on the various data points to see if the economy was slowing or not, which would dictate future energy demand and whether or not prices were justified at the ever-higher levels. But, yes, this brought the geopolitical worries front and center once again.
PRATT: About a month ago I think I believe you were saying that you thought the top for oil prices would be somewhere in the $130s range. Now we're almost approaching $140. Are all bets off for you? What do you think? Where are we going in terms of prices?
KILDUFF: We're at a crossroads. I have to say the bias is towards the upside still now. We had called for $138 to be the top and when we hit $135 at the end of May, we thought that it might have been over. A lot of things are certainly coming together to argue for that. The dollar had stabilized and was rebounding. Some of the economic data points were sufficiently down to say that energy demand was heavy, not the least of which was U.S. motorists driving about 6 percent less and diesel fuel consumption down about 8 percent. But now that is all out the window. I think you have to say it's going to go higher still before it can crack and go back lower.
PRATT: So today we had Morgan Stanley analysts saying $150. Weight in on this. Where do you think we're going?
KILDUFF: At this point obviously setting a new high. We are looking now at the next target is $142. You're going to need some help, some events of some import to get to that $150. The Israeli worry here today was one of those that needed to emerge. And, to be honest, to the extent that we see climb down from this by Israel and talking it down by the U.S. military, some of this worry could quickly come out of this market. So I think we will get a $140 print next week, but I would look for these prices to come down. I just cannot see how they're sustainable given the demand response that we are in fact seeing at least here in the U.S. and more and more globally.
PRATT: What about speculators, everybody has been talking about speculators in the market. Do you think they were a huge factor in the market today?
KILDUFF: There was a lot of buying that went through and there was certainly capitulation of all sorts. My point about the speculation is that it will stop - speculation will stop once it stops making sense to speculate on these various issues. The consequences of an attack in Iran are that we could see 25 percent of the world's oil knocked off line because of the blocking of the Strait of Hormuz just off Iran's shores. And that would argue for $300 oil, if I can even put a price on it. So I think, again, the demand deterioration continues. Some of these geopolitical worries get pushed back again. Some of the speculation will come out of the market, but there is no room for error. We cannot make up any lost supply at this point. So that's what is driving these things. There is a rationale behind the speculation.
PRATT: Some very interesting comments. Thank you for joining us.
KILDUFF: Thank you.
PRATT: My guest this evening, John Kilduff of MF Global.
