Outlook on Oil & Gas Prices by Again Capital’s John Kilduff

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SUSIE GHARIB: Joining us now with more on energy prices, John Kilduff.
He’s founding partner at Again Capital. Hi, John.


GHARIB: So despite all the denials from the White House, are we in an
emergency situation when it comes to energy? And does it make economic
sense to tap into those strategic reserves?

KILDUFF: Well, I think it’s certainly right and I’m heartened it see
that it is on the table, clearly that it is being discussed. For starters,
you don’t want to snuff out this nascent recovery that we’re all enjoying
right now because of $4, $5 a gallon gasoline. But secondarily, this won’t just be the U.S. and the U.K., this will be a coordinated global release of strategic petroleum reserves like we saw
last year during the Libyan crisis that will put much-needed oil on the
market. It’s needed. It’s necessary. And it will help.

GHARIB: And, yes, talk a little bit about would it help. I mean,
would those extra oil supplies really stabilize prices?

KILDUFF: They would. It will fill the gap. Saudi Arabia has stepped
up and said that they will make up any shortfall from Iranian oil being
embargoed, whether the Europeans don’t buy it or whether the Iranians
themselves take it off the market. But they’re going to be — it’s going to be tight. So what these SPR barrels will do, what they did with the Libyan situation, is fill that gap,
say, a million to 2 million barrels a day, which can be sustained for
really several months if not a year or longer, if necessary. We have upwards of a billion barrels of oil in our Strategic Petroleum Reserve here in the United States. So that can go a long way.

GHARIB: Well, in this geopolitical environment, what is your outlook
for oil prices, gasoline prices over the next couple of months?

KILDUFF: Well, on the pure supply and demand numbers, I’m in the camp
that thinks these prices should be much lower and would be going much lower
if it wasn’t for the situation around Iran. And that’s because it doesn’t get any more serious than this situation. The big problem you have obviously is not just the Iranian
production, but if they block off the Strait of Hormuz, you lose about 30
percent of the world’s oil including most of the Saudi Arabian oil.
And there will be no one, no other country, no other place to replace
that oil. So that’s why the stakes here are so huge. But we’re seeing
China slow, in particular, the other emerging economies who are the most
energy intensive, slow. That should at least stabilize oil prices and get
them lower.

GHARIB: Well, give us number some numbers. Without the Iranian
situation, where would oil prices be? And if that intensifies in the
Middle East, where do you see oil prices going?

KILDUFF: I think to the upside, for starters, we installed a high
recently of about $110 a barrel. If we get through that, then the high
from just last year, during the height of the Libyan crisis, $115 a barrel.
That would translate solidly into a national gasoline average of about
$4.25 a gallon if we were to hit the 115 level. But if there can be a diplomatic breakthrough here on the Iranian situation, and there are negotiations that have begun, although this is
going to be the last shot at it, I believe, prices could quickly fall back
below $100 a barrel and really should trade in the low 90s if not upper
80s. We were just at $75 a barrel in October. And then the economy started
to clearly improve and prices rallied a bit from there. So I think
somewhere in that $85 to $95 a barrel range is really fair value at this

GHARIB: Yes. Hard to believe that we were at 75 just a few months
ago. John, thanks so much for coming on the program.

KILDUFF: Thank you.

GHARIB: And we’ve been speaking with John Kilduff of Again Capital.

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