T Boone Pickens on Oil & Gas
T Boone Pickens, in a recent interview with Bloomberg, shared his projection that the price of oil (Brent) and natural gas will reach $115/barrel and $3.75/mmbtu by the year end.
Pickens avoided projecting prices for the West Texas Intermediate (WTI), since WTI is crude oil in the U.S., and he was of the view that President Obama would open up the Strategic Petroleum Reserve (SPR), which manipulates the prices of oil in the U.S.
He said that a doable price of oil will come in from the Middle East, and it is expected to reach $115/bbl.
When asked what he thought would be the future of natural gas prices, as the price of retail gasoline has recently been on the decline and may jeopardize the future prices of natural gas, he replied that it was great for the U.S. economy that gasoline prices were declining, as the economy heavily depended on gasoline consumption. Natural gas is still $2/gallon cheaper than gasoline, and there is still room for gasoline to come down, and natural gas to be sold as a competitive fuel in that market.
As extensively covered in our reports, the links to which have been provided at the end of this report, we have a bullish stance on natural gas and expect prices to recover from the recent lows.
This is due to the increased demand caused by consumption shift towards natural gas due to the availability of the fuel at cheaper prices. We expect utilities, transportation and industries to increase their consumption of gas, substituting the more expensive fuels being used at present. Also, there is investment being done in North America to export the low-priced natural gas to international markets like Asia, where prices are much higher ($15/mmbtu in Japan).
Suppliers have shifted production towards oil-and-liquid plays, due to better profitability. Natural gas prices declined significantly over the last one year, due to excess supply of the fuel in the country. At these levels, it is uneconomical for some operators to continue production of natural gas. Therefore, the recent trend witnessed in the operators is a gradual shift from gas to oil-and-liquid plays.
We were also off the view that cyclical challenges could push the price of oil upwards. The recent sanctions imposed on Iran have cut off imports of oil by the European Union. A recovery in the economic slowdown in the U.S. and China, and a recovery in the recession engulfing the European Union due to the debt crisis in the region, could help push oil above $100/barrel.
However, as mentioned in one of our previous reports, the structural changes in the Oil Industry should exert some pressure on the prices of oil in the U.S. in the longer term, due to the increased production of oil, and expectations that the U.S. will be energy independent by 2035. To play a rise in oil prices we recommend investors to take long positions in Chevron (CVX), Exxon (XOM) and ConocoPhillips (COP). The best plays for a rebound in natural gas prices are Apache Corp. (APA) and Chesapeake Energy (CHK).
Recent Oil and Gas reports by Qineqt
- Will Natural Gas Prices Rebound?
- Will Oil-To-Gas Ratio Mean Revert?
- How To Play A Rebound In Natural Gas Prices
- Fundamentals One Needs To Know To Trade Oil
- A Secular Change In The Oil Market
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.