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Outlook 2008: Oil

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Oil could potentially trade at $60 per barrel in ‘08?!! Find out why from Lynn Westfall, Tesoro Chief Economist. (As you look to the year ahead, count on Fast Money for a series of thoughtful conversations on what to expect.)

Following are excerpts from the conversation between Westfall and the Fast Money panel.

Why do you think $60 per barrel in ’08?

“I think we’re seeing a restoration of OPECs fair capacity,” Westfall said. “In the last few years they built it up to where it stands now, which is 3 million barrels a day."

”Also I don’t think the economy is going to be as bad as people think,” he added. “The Fed appears dedicated to keeping us out of a recession. Those are the two primary factors, which I think will push oil down to $60 by the end of Q1 or sometime in Q2.”

Why do you have so much confidence?

“OPEC is now overproducing,” said Westfall. “Generally when OPEC members produce more than their quota, they believe the market is going down –and they try to take advantage of higher oil prices while they can.”

"Certainly you’re not going to see oil drop to $60 over the next month or so, he added, “because we’re entering winter – and on a worldwide basis the highest demand for oil comes this time of year -- for heating oil.” (Unlike in the US when demand spikes in the summer when oil is needed for gasoline)

But you’re a buyer of oil – aren’t you just trying to push down the price?

“Not at all, Westfall replied. “We’re in the refinery business. And refinery margins are pretty independent of the price of crude. We can make the same margins whether oil is trading at $50 a barrel or $80. So other than a cash flow consideration we’re fairly immune to the price of oil."

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Jeff Macke didn’t agree with Westfall's thesis, at all. Macke said, the trend is up and he wouldn’t be surprise to see oil hit $110 before it goes to $60.

Guy Adami countered that we’re going into an election year. Adami thought crude could fall precipitously.

On a related note, Pete Najarian added that options activity in BJ Services (BJS) suggested shares could move higher.

Tim Seymour thought Conoco Phillips (COP) looked cheap on a valuation basis.

Symbol
Price
 
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COP
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Trader disclosure: On Dec. 6, 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), (YHOO); Najarian Owns (AAPL) Options, (GOOG) Options, (YHOO) Options; Seymour Owns (AAPL), (CFC), (F), (INTC), (MBI), (TMA), (XOM); Seygem Asset Management Owns (VIP), (CX)