In the thick of rising unemployment, unending billions-dollar bailouts to maverick bankers, and deep recessionary prospects, one of the industry's most intransigent oil and natural gas bears has morphed into a bull.
Quote-machine, long-time industry skeptic, contrarian analyst, and occasional TV talking head Fadel Gheit, of Oppenheimer, has reversed his long-held mantra of an overheated and oversold crude oil price world saying: "We believe energy prices will remain volatile, but fluctuate in narrower ranges than in the last 18 months when they were driven primarily by excessive speculation by financial players who created the oil bubble as well as the global financial crisis" in a November 24 report.
It certainly wasn't like this in late 2007 and most of 2008 when Gheit, it seemed, indefatigably dissed fellow analysts and investors for reveling in a $100-plus crude oil price environment.
While Goldman Sachs analyst Arjun Murti was hailed as a investment bank celebrity-cum-rock star for betting that crude oil prices would blow past the $150 mark (Murti said in May that $150-$200/b "seems increasingly likely over the next 6-24 months"), wary Gheit was cranking out reports that those prices were inflated and disconnected from reality. Throughout the year, his one-note song has been that crude oil prices marked of excess, not an accurate gauge of global supply and demand.
In a January 18, 2008 report, Gheit said: "This surge in oil prices, in our view, was more a result of excessive speculation by financial players, global tension, fear of potential supply disruption, and the sinking dollar, than increased demand or lack of supply."
In an April 7, 2008, Gheit wrote: "We believe the current record crude oil prices are a result of excessive financial speculation and not supply and demand fundamentals. Global oil demand is lower than projected and supply is higher, yet crude oil prices have almost doubled from a year ago...
Although we don't know when this trend will reverse, it cannot last forever.
And in a June 22, 2008 report, Gheit wrote: "We believe the current oil prices are inflated by excessive speculation, which we conclude must have been allowed, or even encouraged, by government action, or inaction, either because regulators cannot or are unwilling to stop it."
His July 24 report was titled: "There will be blood after the oil bubble." In the report, Gheit said: "Although crude oil prices retreated somewhat in the last two weeks, they are still up 30% this year and almost double their level of a year ago. We think hype and exaggeration by financial players and momentum investors drove oil prices to record levels and disconnected them from market fundamentals.
But in the heat of global meltdown, Gheit, who testified before the US Senate’s energy committee this year on what he called excess oil speculation, said it was time to wade in. In an October 20 report, he raised his "investment opinion" on oil and gas and refining stocks on majors such as ExxonMobil and Chevron, and on E&Ps such as XTO, Devon, and Pioneer Natural Resources.
Energy prices will remain volatile, but "the demise of investment banks and many hedge funds, tougher regulations, diminishing appetite for risk, and an energy policy," could cut volatility and closely link energy prices to industry fundamentals, away from excessive speculations, he said.
Gheit's outlook? Although prices may dip below $60/b, "we think the average prices are likely to be higher."
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