"Are We Due For an Oil Change?" from Barron's
JUNE 11, 2001
Analyst says inventories have swelled and prices will fall to $18 a barrel
An Interview With Fred Leuffer ~ What's the difference between a masochist and an energy analyst? Well, goes the joke, the masochist enjoys himself. Calling crude prices is a tough game. There's the crystal ball of crucial but sparse and often unreliable commodity data. Then there's having to read the tea leaves of the members of a fractious oil-producing cartel, where Machiavellian political and economic motives abound.
The market increasingly seems to feel more comfortable of late about the sustainability of higher oil prices, but Fred, a veteran oil analyst at Bear Stearns, argues that inventory data over the past eight weeks support his prediction of far lower crude prices next year.
Fred's a modest guy, and he'd be the first to admit he's been early on this call so far, having said in March 2000 that oil would peak around $35 a barrel. But he's done pretty well over the years. Most recently, his Buy recommendation of refiner stocks came before some of them doubled. In mid-1999, when a barrel of oil was still trading in the teens, Fred was predicting $27 oil (about where it is now) based on production cuts from the Organization of Petroleum Exporting Countries, and later he called for it to reach $35, before he turned bearish in 2000.
As Fred acknowledges, the most difficult part of calling oil prices is negotiating the lag between production changes and when those changes show up in inventories. But now he asserts that OPEC's production hikes last year will come back to haunt it next year in the form of $18 oil. In the following exchange, he explains why.
-- Vito J. Racanelli[snip]
subscribers can see the full interview here interactive.wsj.com |
