Analyst: Commodity Investment Drying Up
It was a busy and volatile day for energy traders today. After hitting record levels in 2006, oil cracked the $54 mark over night as investment funds liquidated their positions. Then as crude became oversold, there was some short covering. Prices rebounded over $1. CNBC's Maria Bartiromo interviewed two oil and gas analysts on “Closing Bell” this afternoon to find out which direction the market was headed.
Ben Dell works for Sanford C. Bernstein, and he says that an improving supply situation, moderate demand and growing inventories are putting downward pressure on oil prices right now. Dell predicted $50 oil for 2007 all the way back in November 2005.
“I think the big issue we’re seeing at the beginning of this year is that fund flow into commodities has more or less dried up,” he says.
Jordan Kotick is the global head of technical analysis for Barclay’s Capital. He’s expecting pricing to bounce from where they are in the short term, but says that the markets are still quite vulnerable in terms of crude oil over the long term. And while markets in Russia, China and elsewhere are feeling the weight of declining prices, the Middle East is feeling it the most, with some indices there dropping as much as 50% to 60% from their highs.
As for predictions for 2007, Dell says that oil and gas stocks tend to follow futures prices, so don’t own these equities unless you have to. Kotick disagrees. The drop in oil is part of an overall correction in the commodities market, he says. Pretty much all the commodities reached highs in 2006, and now they’re coming down. Kotick sees crude oil trending upward over the long term, but investors will have to hang on until then.