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Who Wins From $90 Oil?

Thursday, 25 Oct 2007 | 7:43 PM ET

It seems like simple common sense: crude goes up, gasoline follows and oil stocks hit new highs. But not anymore. The chief economist at Tesoro (TSO) explains the cause-and-effect breakdown and whether it’s here to stay.

$90 Oil: Who Wins?
The Fast Money crew discusses who wins when oil hits $90 a barrel. They're joined by Lynn Westfall, chief economist at Tesoro.

Lynn Westfall of Tesoro explained that, foremost, this is a “shoulder month” for oil, meaning we are caught between the high gasoline demand months of summer and the high heating oil demand months of winter. Shoulder months occur in the spring and fall and are not unexpected.

Westfall believes crude prices will fall back down to $60 per barrel because, eventually, market fundamentals will replace the anxious speculation that is what’s driving the price now. The hedge funds and financial investors that drive the futures market of oil are artificially inflating the price when they pour so much money into commodities, Westfall said. These investors are also more likely to overreact to news headlines – be it Iran or Turkey – that industry players know to take in stride.

And don’t forget that Saudi Arabia has publicly said it will not let crude stay at unsustainable levels that could damage world economies. When oil is at $90, the alternative energy complex starts to look a lot more inviting and the Saudis “won’t let that happen,” Westfall said.

The bottom line, according to Westfall, is that oil prices will self-correct once the appropriate fundamentals are back in place. There’s no shortage of crude and Westfall believes the turmoil in the Middle East is exaggerated as it relates to impacting the price of oil.

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Trader disclosure: On Oct 25, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Macke owns (INTC), (ATVI), (EMC), (YHOO); Najarian owns (UA), (DISH), (GOOG), (YHOO), (MSFT) Options; Finerman’s firm and Finerman own (GS); Finerman’s firm owns Russell 2000 Puts, S&P 500 Puts, (NMX), (NYX), (MSFT), (BEAS), is short (BIG), (MER); Finerman owns (C)

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