Paul Killinger

The Crude Reality

I prefer to look at fundamentals to try to ascertain future demand.
Charts for most investments appear to be 20/20 only in hindsight to me.

There are two types of fundamentals in play when it comes to oil.
There is traditional supply and demand, as well as a host of "political fundamentals," which represents government intervention in the marketplace.

As for the traditional fundamentals of oil, the supply seems stuck at about 84-86 million barrels per day. While there is some demand destruction occurring (temporarily?) in the U.S., emerging economies elsewhere will continue to call for more oil.

Then there's the "political" side of the equation, which impacts oil prices unlike virtually any other commodity. This ranges from OPEC ("the 800-pound gorilla in the room") to U.S. government regulation, which artificially impacts supplies in the nation that utilizes 1/5 of the world's oil.

As Wall Street watches the Congress live on C-Span this fall, the pro-oil forces have the upper hand. Fully 3/4 of Americans want to open up our nation to increased exploration, and the politicians see that. Even if the anti-oilers stand fast, the Congressional moratorium prohibiting drilling in the OCS will end October 1.

It is my contention that the prospects for more U.S. supply and less federal regulation are what's causing the price of oil to fall in the U.S. If this is so, barring any major moves by OPEC, Mr. McCain's would be bullish for $60-80 oil, while President Obama would mean oil at $200-plus over time.