Oil Heading to $40; Natural Gas Better Bet: Analyst

Oil prices are heading lower — possibly to below $40 a barrel again in the coming months —while natural gas will be the best energy bet for investors, analyst Peter Beutel told CNBC.


With prices for US light, sweet crude eclipsing the $70 mark and raising worries that gasoline prices could be heading towards their peak last summer, Beutel said investors would be better off betting against any big moves higher.

"I think there's a chance we may be setting up to make a double bottom," Beutel, an analyst with Cameron Hanover, said in a live interview.

While oil is unlikely to see its $32.40 bottom achieved early in 2009 anytime soon, Beutel thinks it could dip as low as $39.80 to $40 by late fall or the early part of 2010.

The reasons: There's still ample supply despite this week's report that reserves were drawn down more than expected, and consumer demand will not strengthen enough to justify another run like in 2008.

"If you took a pail of water and threw it down a bathtub, once it hit the end it would slosh back, and that's what prices are doing," Beutel said. "We were at 147, we went down to 32 —this is a slosh back, and soon I think we're going to see what I'm calling the ripple-forward."

For the longer term he sees oil prices stabilizing until the middle part of the next decade, when the "peak oil" effect will kick in, a term used to describe the point at which the maximum amount of oil production is reached and begins to decline, setting off what economists fear will be a severe price spiral.

In the meantime, Beutel said investors would be better off buying natural gas because it remains in relatively scarce supply compared to oil.

"I think natural gas has the ability to go a lot higher over the next five, six years, whereas I think certainly over the next six months oil is going to experience a little bit of rockiness," he said.