MF Global Energy Analyst John Kilduff Shares His OPEC Expectations
Friday, November 28, 2008JEFF YASTINE: After much volatility, oil prices ended the week flat at $54.43 a barrel ahead of a weekend meeting of the Organization of Petroleum Exporting Countries, known as OPEC. Arriving in Cairo, cartel oil ministers said they will likely defer a decision on more production cuts until their December meeting. I recently spoke with energy analyst John Kilduff and began by asking him what he expects from OPEC this weekend.
JOHN KILDUFF, SR. VP, ENERGY, MF GLOBAL: I think there will be a great deal of discussion and the conclusion about the necessity for a further production cut at some point in December, but I don't expect a concrete announcement of a production cut this weekend.
YASTINE: And why not? Why not go ahead and get this production cut on the table so that the markets can begin pricing that in?
KILDUFF: They're going to float the trial balloon for sure. I think, though, they're in the process still of implementing their first round of cuts and I think Saudi Arabia, in particular, is still very concerned about the fragility of the global economy. I mean, when they see their last and best customer in terms of China now even having to engage in fiscal stimulus, they know it's a huge problem. So they don't necessarily want to get a big bump-up in prices here, although they also certainly don't want to see a cascade or crash. So they're going to work with-- seek to work with non-OPEC producers -- Russia, Norway, Mexico, in particular -- to get a uniform production output scheme going as we go into 2009. I think that's going to be the end game and the game plan for this weekend's meeting.
YASTINE: John, I find that fascinating -- a global coordinated production cut between both OPEC and non-OPEC members. How many times, if at all, has this happened in the past that OPEC has felt that need to get that extra constriction on the supply to bring in Russia and the other non- OPEC members?
KILDUFF: It happened as recently as 2001 and Mexico did join in, in previous production schemes as well. What's different, of course, this time is how systemic the financial crisis is and the recognition by western countries -- Mexico, in particular -- about how stimulus -- how much of a stimulus this represents, these lower energy prices. The numbers that consumers are saving at the pump are about two-thirds of what's been put out there by the Federal government in terms of stimulus. So they're going to have a tough time. It's just that I think Russia will be inclined to go along with OPEC because of their dwindling petrodollar reserve and how much this represents to them and their future. But I'm not sure about cooperation from Norway, given the state of affairs that they find themselves in with the rest of Europe. So it will be a fascinating process to watch to a degree.
YASTINE: John, what's your forecast for prices? We see oil kind of fluttering around $50 a barrel. What are we looking at for gasoline and for heating oil as we head into the coldest part of the season?
KILDUFF: Well, I would expect that crude oil prices will continue to take some blows here as we get bad economic data points going forward, and test down into the mid- to low 40s, at least a couple of more times here, over the next month or so at least. But I do think 50 is sort of shaping up to be something of a bottom because of the production cuts, of the additional production cuts that are likely to emerge. And similarly, just to the extent we get some kind of up tick or even there's an increase in confidence in the overall markets.
YASTINE: And gasoline, heating oil?
KILDUFF: Gasoline is still going to cascade lower, could get down to as low as $1.75 on a national average. Home heating oil customers should be seeing sub-$2 heating oil as well this winter.
YASTINE: And in 30 seconds or so that we have left, how long do you expect those prices to remain at those levels before we get some traction in the economy and those prices would expect to go back up to some other level?
KILDUFF: I think energy prices are going to be among the first things to go back up. And I think you'll start to see signs of higher prices as early as mid- to late spring or certainly into next summer.
YASTINE: And it sounds like we'll all certainly miss those lower prices, if and when the economy grabs some traction here.
KILDUFF: We will. The bad news will be there will be higher prices at the pump. The good news is it will be because the global economy has at least started to rebound.
YASTINE: John, thanks for your time on the program.
KILDUFF: Thank you.
YASTINE: Our guest, John Kilduff, energy analyst at MF Global.
