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Thursday, 29 July 2010

Double-Dip? "Resilience" of Oil Prices Saying "Something Different", Chris Edmonds Says

Crude oil prices took a hit Tuesday after trading over $79 per barrel, the highest levels in nearly three-months. Prices fell below $76 per barrel following news the Consumer Board’s consumer confidence index fell again in July.

Chris Edmonds, managing principal at FIG Partners Energy Research & Capital Group, says prices are likely range-bound for the time being. Current prices suggest healthy demand but he doesn’t expect prices to go much higher than $80 “until we get more clarity on the economy.”

But he doesn't foresee oil prices falling much below $65 anytime soon and says "the resilience of oil prices told us...that the domestic and global economy is beginning to stabilize, and demand obviously is a key part of that."

Crude oil futures are up about 15% in the last year and had risen sharply this month prior to Tuesday's setback. "Oil has some risk" if the macroeconomic data continue to deteriorate, Edmodns says. "But those who trade the commodity feel like they see signs of stabilizing and incrementally growing demand. Oil prices are also telling you supply remains difficult."

Goldman Sachs says current prices are too cheap – telling clients this week prices are significantly lower than fundamentals warrant.

"Those who have resources to drill and exploit are those who will perform best over long periods of time," Edmonds tells Aaron in this interview. Based on that he recommends investing in Apache, EOG Resources and Northern Oil and Gas.

Disclosure: Edmonds' firm has an investment banking relationship with Northern Oil & Gas. He does not own shares of any of the stocks mentioned.

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