[veliger]

Street.com

17 Reasons for Energy Prices' Peak

By Gary Douglas Smith
Street Insight Contributor
5/4/2006 3:31 PM EDT
Click here for more stories by Gary Douglas Smith

Editor's Note: This column by Gary Douglas Smith is a special bonus for TheStreet.com and RealMoney readers. It appeared on Street Insight on May 4. To sign up for Street Insight, where you can read Smith's commentary in real time, please click here.

1. Noncommercial longs (speculators) are at an all-time high; commercial longs have been selling.

2. The put/call on oil recently hit 0.25.

3. Energy is all over numerous magazine covers.

4. U.S. demand for oil fell more than 2% in March, according to the American Petroleum Institute, even as economic growth boomed.

5. The Energy Information Administration recently said U.S. gasoline demand hit a wall and is now flat.

6. Sales for the Ford (F:NYSE - commentary - research - Cramer's Take) Explorer, America's top-selling SUV, plunged 42% in April.

7. Most investment managers are loaded up on energy-related companies and have bought into the hugely flawed Peak Oil theory, thus making the argument that energy-related companies deserve higher multiples more than ever before.

8. Demand growth in China and India has fallen off a cliff even as their economies remain strong.

9. There has never been a time in history when more people, for both political and financial reasons, perceived they benefited from high oil prices.

10. The media treats energy analysts and traders like rock stars, much the way they did the tech guys at the peak of the bubble in 1999-2000.

11. Energy insider selling hit a high for this cycle last week.

12. Calls for $100-per-barrel oil are commonplace, especially on Internet message boards.

13. U.S. oil supplies are approaching nine-year highs, even though economic growth has been robust.

14. Rather than talk about current supply and demand, most energy bulls use fear as their justification for ever higher prices.

15. The recent decline in energy prices is being met with skepticism and complacency by energy equity investors.

16. There has been no pickup in industrial demand for natural gas, even after an almost 60% plunge.

17. It is looking highly unlikely that a gasoline shortage will materialize this summer as a result of the switch to ethanol-based fuel.


I welcome rebuttals; this seems to make sense to me.

[Leanan]

Please use the "link" button. (The one with the chain links.) Long URLs stretch the screen and make the whole page hard to read.

[Starvid]

$this->bbcode_second_pass_quote('', '1')2. Calls for $100-per-barrel oil are commonplace, especially on Internet message boards.

[Cynus]

Didn't one of the principles at Berkshire-Hathaway point out that commodity bull markets historically run for 10 - 15 years? That's a response without relying on the PO argument.

[NEOPO]

Frankly this does not deserve a rebuttal yet I feel very compelled to say something nonetheless

Half of the 17 things this guy says would/should actually bring the price down.

Square peg round hole.

I am sure someone will pick this apart before the day is done.

[Leanan]

$this->bbcode_second_pass_quote('', 'H')alf of the 17 things this guy says would/should actually bring the price down.

[big_rc]

The real question should be whether this is a permanent or temporary price peak. Almost all of the reasons he stated where demand based reasons for the price to go lower (and pretty reasonable). Peak Oil is primarily a supply side issue and that is where the big issue is. Basically he says Peak Oil is BS so there will be no supply issues. That is where I think his analysis is flawed. Supply problems are going to overwhelm demand in the near future resulting in much higher equilibrium prices. That's the million dollar question (how much can demand shift to accomodate supply).

[beechdriver]

Let's looK at Gary B Smith's track record:

6/25/2005 - Fox Bulls & Bears - $70 oil is a long way off.

7/9/2005 - Fox again - Oil will be $40 by labor day.

9/22/2005 - Fox Cavuto - (Past Labor day) Now he says gas to stay high.

10/1/2005 - Fox Bulls & Bears - oil mid $50s by December.

Hahahahahaha - what a joke - and people pay this guy money for investment advice???

One day he might be right - but I think I would rather throw darts at the Wall Street Journal stock page.

Try writing down some of the stuff these guys say on TV and then check their records later on. Froelich is even a bigger joke.

[kmann]

Most of these points have a valid rebuttal. But the main rebuttal is that there is little, if any, surplus production capacity in the world. Coupled with instability and/or uncertainy in Iraq, Iran, Nigeria, Venuzuela, Russsia, US gulf coast... Prices will remain high until at least some of these problems are alleviated.

[cudabachi]

What big_rc said.

[pup55]

I will try it.

$this->bbcode_second_pass_quote('', '1'). Noncommercial longs (speculators) are at an all-time high; commercial longs have been selling.

[pup55]

Per item 8 above:

China Demand



Here it is. The notion that China's "demand has plunged" is just not supported by the data. It's increasing at 5.5% per year and growing faster than in 2005.