Who Thinks Oil Will Correct To $60…

by BWK ~ January 22, 2008

“Lower growth, lower demand. If economic activity slows, demand for oil will have to slow to, won’t it? And shouldn’t this mean lower oil prices? That to me is the real contrarian trade of 2008…and oil correction to $60 as a recession hits and consumption slows. Peace will also break out in the Middle East.”

Y’know…………… it would take a lot of economic slowing down to arrest the squeeze between growing demand trends and depleting supplies, even with the output growth that does come on line from new fields & reserve growth. Oil supplies are so tight…….. between sabotage in Nigeria, bad management in Venezuela, raw depletion in Mexico, Peak Oil in the Middle East…. the slightest amount of bad news (hurricane in Gulf of Mex, pipeline leak in Alaska, bomb blast in Iraq…) sends prices up.

OK, risk premium for war is……. $20/bbl or so. Your guess is as good as mine on that one. Rex Tillerson of Exxon, and Mike Economides of U of Houston both say $20-$22 is the risk premium. Who am I to argue?

So maybe we will see oil back in the $70s or so…. yeah, maybe. Just maybe. It’s a long shot, but maybe.

If that happens, are you ready? Do you have some cash in the stash? Because if oil drops, it will pull down the great service companies and equipment providers.

Here is my buy-list if oil drops………..

Oil service Cos………….

Schlumberger
Halliburton
Baker Hughes
Weatherford

And the subsea systems guys…………

Cameron
FMC Technologies (FTI)
Aker Kvaerner (Norwegian, with US ADRs)
Dril Quip

You will not have long to act if any of these great companies drops down in share price.

Meanwhile, buy the dips. You are going to retire on these guys.

Be prepared…

Best, BWK