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Financial Roundtable: Top financial analyst predicts $225 oil and $9 gasoline in 2009

Financial Roundtable: Top financial analyst predicts $225 oil and $9 gasoline in 2009“We’re going to see oil prices at $225 a barrel within a year, year and a half, and I think we’ll be looking at gasoline prices at $7 to $9 a gallon,” says Bill Patalon of Money Map Report. View our exclusive TFN Financial Roundtable to find out how to profit!

Baltimore — (TFN): Welcome to TFN’s Financial Roundtable. I’m J. Christoph Amberger. Our guest experts today are Bill Patalon and Martin Hutchinson, both writing for Money Morning’s Money Map Report. Now gentlemen, we’ve seen some pullbacks in crude oil prices, but by the time this interview airs, we probably have surpassed $150 per barrel.

The question is, what’s behind the upswing in oil prices? People blame India. People blame China. People blame speculators. Bill, what’s your take on oil prices right now?

Bill Patalon: Near term, I think you can make the argument that speculators are behind it. But long term it’s definitely demand driven. I think we’re going to see oil prices at $225.00 a barrel within a year, year and a half, and I think we’ll be looking at gasoline prices at $7 to $9 a gallon.

J. Christoph Amberger: So we’d be right up to European gasoline price standards right there?

Bill Patalon: Unfortunately.

J. Christoph Amberger: Martin, what is your take on this?

Financial Roundtable: Top financial analyst predicts $225 oil and $9 gasoline in 2009Martin Hutchinson: I rather differ with that, because I think it was certainly demand-driven until late last year, with China and India increasing their demand very rapidly. But I think we’ve had an increase from $80.00 to $140.00 since last September, and I’m sorry, but the fault for that goes squarely towards Mr. Bernanke, because he cut American interest rates from five to 2 percent. He ran 17 percent money supply growth in the last year, and the result is that oil and all other commodity prices have gone mad.

And so now what I think you’ve got is a “Bernanke Effect”: There’s too much money chasing commodities. You’ve got a Speculator Effect, all the hedge funds and the pension funds have piled into oil, and demand has actually dropped.

In the U.S., March demand was something like 4 percent down. And you can work out that the price elasticity of oil, in other words the amount demand drops for each dollar increase is about 16 percent.

At $225, you’d suddenly find that demand dropped 15, 20 percent from where it is now. Therefore, you’d have a massive oversupply. So I don’t think it can get that high. It will go a bit higher in the short term, and it won’t turn until Bernanke wakes up from his dream. But $170 or $180 is the peak within the next three or four months.

J. Christoph Amberger: So what do you think? What is the effect that a dramatic downgrade in crude prices would have on those institutions, on those funds that have piled up oil like there’s no tomorrow? We’re looking at real estate down. We’re looking at, at general financial issues almost wiped out in the last couple of days. What’s happening to that money that is parked in oil and commodities?

Martin Hutchinson: Well I think it will have the same thing. They’re going to have a huge bear market and all going to lose their shirts, and they’ll bleat to the government to bail them out.

I’m hoping that the major U.S. banks aren’t playing this game, because I would prefer it if it wasn’t a bunch of banks or American pensioners that had a real claim on the government. If it’s Hedge Funds, obviously the government won’t bail them out. But frankly, they’ll be no loss. The level of speculation to investment has gone mad in the last 13 years because of the increasing money supply.

***View the video…

J. Christoph Amberger: Bill, if you believe that demand will continue to drive oil prices higher, where do you think that demand is coming from? We’re looking at increasing inflation in the United States. We’re looking at the potential—it’s not quite evident yet—of a slowdown in U.S. consumer spending. You’re looking at China: China’s export industry is a still a very lo- margin operation, and they’re getting squeezed on one side by energy prices, on the other side by actually increasing labor prices.

Where and how do you see demand growth unfolding in the next six to nine months?

Bill Patalon: Well I think in six to nine months, there’s definitely the potential for a fall back. Over the long haul, however, the middle class in China and India gets bigger. They accumulate wealth. In Beijing, they’re adding 1,500 vehicles a day on the road, and I think that continues. In India, major auto maker, Tata Motors has just come out with a $2,500 car, the Nano. It is aiming to induce people to join the motoring crowd. And I think that in the long term, you’ll see that continue, build up demand. And that causes oil prices to, to keep going.

J. Christoph Amberger: Martin, would you agree with that assessment?

Martin Hutchinson: I’d agree with that. In terms of where we were in 2003 and where we are now, yes, I think oil prices are going to be much higher. We’ll never see $20 oil. We probably will never see $50 oil again. But I would have thought the demand was there at $70 or $80 and that it would balance when you knock out the speculators and Bernanke. I’m not sure that there’s an underpinning and demand for a price higher than that.

And really the run-up we’ve seen in the last nine months, 70 percent in nine months is, is not demand. That’s speculation and too much money.

J. Christoph Amberger: Where would you put your money right now? Let’s say you’re an investor who’s looking his devastated portfolio after the last couple of days and he still has a $10,000 amount that he would like to invest. Is it time to go bottom fishing? Is there more pain to come? Where would you advise our viewers to put not last $10,000, hopefully, but their spare $10,000 at this point?

Financial Roundtable: Top financial analyst predicts $225 oil and $9 gasoline in 2009Bill Patalon: Definitely, you do some bargain hunting. You look at some U.S. blue chips that have a good international presence, that pay a dividend. Put some money in an inverse fund, just as a hedge. Look at the long haul, look at China, at India, at commodities, and at energy.

J. Christoph Amberger: Martin?

Martin Hutchinson: I think certainly I’d have some of it in an inverse fund, just so that the pain of the damn thing going down further got a bit less.

But I’d also look at companies that are making things that you can drop on your foot if you like, and that are benefiting from the commodities boom, somebody like John Deere…

J. Christoph Amberger: Or bowling ball manufacturers.

Martin Hutchinson: Or bowling ball manufacturers, yes indeed. But somebody like John Deere that makes agricultural equipment, which is of course benefiting from the commodities boom. It also has a huge new sugar cane cutter that of course is fantastic for the cane-based ethanol that I think is going to be a substantial chunk of our energy future.

Because it seems to me that has none of the disadvantages of the other sort, other sources of ethanol, and there’s an awful lot of the tropics in which you can grow sugar cane. But equally they inhabitants of those countries don’t want to spend their time under the tropical sun chopping it.

And so it seems to me that Deere & Co. (DE:NYSE) has a natural and very substantial market. And that’s the sort of company I think you want to be looking at.

J. Christoph Amberger: Very good. Well, gentlemen, that’s unfortunately all the time we have today. Thank you Martin. Thank you Bill for coming on our show today. And I hope I’ll see you around at one of our next.

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