Thursday, July 14, 2005

Matthew Simmons on Bloomberg 07-12-05.

Matthew Simmons of Simmons & Company International was on Bloomberg radio on July, 12 2005.

His comments, as close as my notes get them:

- There is a lot of oil on the market, but very little data about oil and reserves. Consequently he's not sure if anybody really knows if oil prices are high or actually remarkably low.
- Based on DOE estimates, it looks like oil refineries will have to be running sustained 24x7 operations from 7/1 through Labor Day.
- We've got a very tight system, and a very, very scary picture, he thinks $60 oil might turn out to be a great bargain.
- The risk is that we develop a shortage (demand greater than supply). His estimate is that odds are 50/50 we could develop a summer shortage.
- Ever since $30, there has been talk of speculation driving prices, but there is no substantial evidence of this.
- In terms of prices, he drew a comparison with other liquids we buy, and observed that although oil is non-renewable, it is still substantially cheaper per pint than renewables like beer (he actually said "cheap beer") and wine ("jug wine").
- He believes the price of oil will eventually reflect it's true value, somewhere in the mid to high triple digits.
- In terms of demand, at even $5, $6 or $7 dollars a gallon, we may not see a substantial reduction in demand. As an example, he was in Nairobi, Kenya recently, where gasoline is in that range, and he said the roads were jammed with traffic.
- This summer is not simple, and the winter could be a big problem; heating oil may cost quite a lot.
- "I worry a lot about winter, we may exceed by 4 to 6 million barrels per day of demand over supply."