"Peak Oil Pundit" Predicts Rally to $500 a Barrel

Crude oil futures zoomed more than $16 a barrel Monday - and traded as high as $130 a barrel - thanks to a steep decline in the U.S. dollar and speculation that the Bush administration’s plan to bail out the financial sector might actually jump-start the U.S. economy.

The record single-trading-session gain came on a day when CNNMoney.com republished a brand new Fortune magazine story in which author and noted "peak oil pundit" Matthew R. Simmons stated that crude prices were headed for $500 a barrel.

At that price level, gasoline would cost more than $10 per gallon.

Crude oil for October delivery soared $16.37 a barrel, or 15.7%, to close at $120.92 a barrel on the New York Mercantile Exchange. The gain surpassed the previous price-gain record for a single day of $10.75, a move that occurred on June 6. The highest percentage gain in a single day - 20.9% - was recorded on Jan. 3, 1994, according to FactSet Research Systems Inc.

Trading was halted for five minutes after the October crude contract reached the daily price-movement limit of $10 per barrel, MarketWatch.com reported. Under trading rules, the price-change limit is increased by another $10.

The October contract expired on NYMEX at the end of trading Monday, a factor that fed into Monday’s volatility.

"I never expected a move that big in one day without some real news, but I’m past the point of saying there are any absolutes in a market like this one we’re in presently," Neal Ryan, a managing partner at the New Orleans-based Ryan Oil & Gas Partners, told MarketWatch. The move "underscores that energy is the only place to expect outsized profits these days and the money is flocking into that market."

Simmons is the chairman of the Houston-based investment bank Simmons & Co. International. And like Money Morning Investment Director Keith Fitz-Gerald, Simmons is a longtime oil bull. Indeed, back in February, Simmons actually predicted that oil prices could climb as high as $378 a barrel - characterizing current prices in the $100 range as "preposterously cheap."

What he doesn’t understand, he told Fortune, is why so few others see what is so obvious to him.

"I find it ironic that here we have the biggest industry on earth, and I’m one of the few people to figure out that we have a major problem," he told the magazine. "And I did it all in my spare time. How stupid and tragic is that? I shouldn’t be one of the only folks that actually has a handful of ideas of how we can keep from blowing each other up and get through this."

Once just an "influential industry expert," Simmons was transformed into an "A-list pundit" by the 2005 publication of his book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," Fortune reported. In the book, Simmons argues that Saudi Arabia’s oil supplies are much more limited than everyone thinks.

Today he’s viewed as a guru of the "peak-oil" movement, a group of experts who believe that world oil production is near - or actually at - an "inflection point," after which production will no longer be enough to meet growing future demands.

As Simmons, Fitz-Gerald and a relatively small number of others generally predicted, oil zoomed from below $20 a barrel in 2002 to an all-time high of more than $147 earlier this year, before dropping back under the psychologically significant $100 a barrel level.

But with the financial crisis, oil prices have surged anew, making prognosticators such as Simmons look very smart.

"Like most people who ignore conventional wisdom, he was scoffed at, ridiculed, and denied," commodities guru Jim Rogers told Fortune. "And now, of course, people are starting to say, ‘Oh, well, I thought of that.’"

Billionaire oil and gas investors Richard Rainwater and T. Boone Pickens are two other high-profile billionaire oil-and-gas investors who both speak highly of Simmons.

U.S. Sen. Susan Collins, R-Maine, who recently began consulting with Simmons on energy issues, told the magazine that the expert is "issuing a clarion call that policymakers need to listen to."

Original post

Comments

[bigbucks2:]

I am 100% in USO as of Monday Premarket.
Charlie Maxwell (one of the worlds leading energy analyst) is also predicts $300.00 oil within 6 years.
We are at $100.00 now, three times my money in 6 years is good enough for me.
$300.00 + oil is also possible at ANY moment if Israel attacks Iran and that is very likely at any time.
With the US printing press running 24 hours a day, the dollar will become worth less going forward.
Warren buffet has predicted the dollar collapes for years.
Oil protects against inflation
Oil is much better than gold. Will gold increase 3 times to $2700.00 in the next 6 years, oil will.
Gold is having an artificial price increase because people are hoarding gold.
Oil has a real use and a real value that is not going away.
Gold prices will fall , a lot, if everything calms down.
Oil will go up no matter what happens.
It is the only "safe" investment.
Buy USO and forget about it for 6 years or sell when Israel attacks Iran

2008 Sep 23 06:20 AM

[John from C...:]

I hear IPET is going to $1000 a share, too! Oh, wait, that was last decade's bubble. Never mind.

2008 Sep 23 06:27 AM

[CLH:]

As oil goes up in price--less and less oil is used. Thus the price heads down.

2008 Sep 23 06:38 AM

[bigbucks2:]

Here is an interview with Charlie Maxwell on why oil will hit $300.00 even with declining use over the next 6 years.
www.kgoradio.com/viewe...

2008 Sep 23 06:49 AM

[pochovilla:]

Oil at $500 per barrel implies war and total chaos, massive deaths due to starvation, heat and cold related casualties. Even if you could enjoy the wealth effects the likehood of surviving the chaos would offer little satisfaction unless you had a private army for protection. It would be Depression squared (^2).

2008 Sep 23 06:51 AM

[phdinsuntan...:]

set the FED funds rate at 15% and you can divide the forecast by 10...

2008 Sep 23 07:31 AM

[mangolfer:]

What a pile of BS. Do you think the public would put up with that? Products I sell have had some huge price increases this year to cover oil price spikes already. (good for me on commission, bad for the consumers). I guess there always has to be a sucker on one side of the trades.....

2008 Sep 23 09:27 AM

[Brian Pursley:]

"Peak Oil theory is garbage as far as we’re concerned." -- Robert W. Esser, 2006

"Enormous implications follow from oil and gas being renewable resources." -- Peter R. Odell, 2004

oilismastery.blogspot..../

2008 Sep 23 02:14 PM

[OilyGasMiner:]

Great post Will! When Rainwater & Pickens start speak highly of Simmons, you just have to listen. Well I mean how can you ignore someone whose made accurate predictions in the past? In either case its interesting to see Senators beginning to listen and take heed. I can’t fathom seeing crude at $500 with gas at $10/gallon… but given the state of the market, uncertainty.. collapse after collapse, I think this idea only becomes stronger each day in the minds of many investors, including myself.
Valuing Mining Companies

2008 Sep 23 04:57 PM

[bearfund:]

Oil will surely cost $500 a barrel, but that won't be much of a reflection on oil. The dollar is headed to zero. Those holding dollars and needing oil had better snap up that $500 barrel; it will likely be $600 the next day and $100m a year later.

2008 Sep 24 01:07 AM