Oil and Financials Bring Stocks Down, Again

Oil is once again in the spotlight today as billionaire hedge-fund manager T. Boone Pickens says he thinks that oil will reach $150/barrel this year as there is not enough supply to cover demand. This echoes what Goldman Sachs (GS) said a few days ago, that oil would rise to over $141 in the second half of the year. Oil prices surged to new records above $129 on this news and the stock market responded by dipping lower as investors took profits and worried about the impact of rising commodities prices, higher inflation and a continued housing and credit crisis.

While gasoline at $4 a gallon seems expensive now, Robert Hirsch, Management Information Services Senior Energy Advisor, said that it will seem cheap in the future and that prices could reach $12-$15 a gallon and that there could be rationing in the future. He says that oil production has remained nearly flat since 2004 and that it could go into decline in the future.

Meanwhile, there is still a road to recovery in the financial sector. Oppenheimer & Co. analyst Meredith Whitney, thinks that banks still have over $170 billion left in writedowns and that “The real harrowing days of the credit crisis are still in front of us and will prove more widespread in effect than anything yet seen.” AIG (AIG), which lost $7.8 billion in the last quarter, managed to raise $20 billion in its recent issue of equity & debt. While this is good news on the liquidity front, it also dilutes shareholder value.

Is today’s drop in the Dow and S&P 500 a sign that stock markets are finally reacting to the fundamental news? Or is this just temporary profit taking after a stock bull run that hasn’t been much hampered by rising oil prices or continued writedowns in the financial sector?

Comments

[icandoitdon:]

and what, boys and girls, would we expect boone pickens to say? that oil prices are being by a weak currency, artificially low interest rates and the prospect of supply threats caused by the constant threat of supply disruptions by the u.s. government's penchant for starting wars they can't finish? i don't think so.

when actul gasoline shortages develop in the market i'll believe that there is not enough supply to meet demand. until then it's a speculative run.

2008 May 20 03:15 PM

[oil myth:]

Mr. Pickens is telling us that oil is going to $150 as suppliers are running out of oil !!. Wasn't Mr. Pickens shorting oil only 2 months back !!. How come, he got this supply shortage news in last 2 months that he has been constantly ranting about every time the futures expire !!. Seems fishy to me !!....

2008 May 20 09:53 PM

[var:]

Gas can hit $12 or $20/gallon. We'll all switch to E100 and the thousands of other fuels.... just like Brazil. There is will not be a shortage..... My prediction is a surplus in 2 years that can not be sold.

Alternative fuels are being suppressed in the media by big oil who fear a sudden change.... They say it won't work and will cost more. Then please explain South America!! China and especially India will stop using oil as well and plant fuel crops. The US maybe slow (as usual) to catch on, but with the two largest nations switching say good-bye to the supply crisis.

China is looking at electric cars more and more.... WHY DO U THINK IRAN WANTS TO BUILD NUCLEAR POWER??? To power the 600-Million electric cars in the country across the street!

Oil will hit $200 or even $300 in about 5 years as less and less people want it... the cost of production will be the bottleneck and drive the price sky high.

2008 May 21 08:42 AM

[Clavis:]

$4 a gallon!
We pay more than $10 in the UK(taxman has most of it).
Buy a Velox motorbicycle, does 200+ miles to a gallon.
Happy peddling!

2008 May 21 11:29 AM

[who:]

I'll start walking or biking when oil hits $200!

Tax man gets 55% in HK with $2 per litre!

I don't think the subprime mess is over and personal credit (credit cards, car loans, personal loans) have kicked in yet. Next BSC will probably be a major retail bank!

2008 May 21 12:46 PM

[lefty:]

YEP! I'm converting to cng. Know how to convert vehicle and purchase compressor.

2008 May 22 07:29 AM