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1. Hugo Chavez will make good on his promise to divert some oil away from the U.S. and it won’t make a drop of difference. Crude oil futures may spike temporarily on the news, and then we’ll notice that U.S. imports haven’t changed a lick, and the world will realize that oil is fungible. If Chavez sells an extra barrel to Europe instead of selling it to us, the barrel the Europeans didn’t buy from Africa or the Middle East will make its way here. And nothing, except the transportation cost (which would be slightly higher) will have changed.
2. Look over Sharon Epperson’s shoulder next time you see her standing in the pit at the NYMEX. You’re likely to see Ray Carbone, one the savviest veterans of the options ring. You may not have heard of him, but if you want to know which way the wind is blowing on the floor of the NYMEX, he’s the one to watch.
I think that as 2008 gets underway, Ray will keep buying $100 and $120 calls. By stockpiling some of those calls, he’s betting the price of crude will charge to $100 and more in the New Year and more than a few investors will scramble to buy a hedge along the way. And there he will be, with a fistful of the goods they want.
3. You won’t hear much about ethanol for a while after the Iowa Caucus. This is the innovation in the energy industry that is the most political and makes the least sense to me. We need to find an alternative at some point (at the very least, one day, we really are going to run out of oil and somewhere along the way to that day it will become so expensive, other forms of energy will be more affordable.) But ethanol isn’t that alternative. It drives up the price of food. And there are a number of cheaper alternatives. Don’t believe the hype.
4. Oil will cross $100 in 2008. Right now, it looks like the bulls are heading for the hills. But this seems to happen every year! The longs cash out. And then they come charging back with fresh money. I think the most recent collapse of the oil trade is just temporary. We’ve seen it around all the milestone numbers, like $50 a barrel (the good ol’ days! We should have all bought 1000 barrels!) We’ll cross $100 in 2008. Or I’ll drink some ethanol.
Questions? Comments? energysource@cnbc.com
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