HardAssetsInvestor

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello, everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Well, we’re going to talk about the petroleum markets today. And here to discuss it is John Woods, vice president of McNamara Options, right off the floor of the New York Mercantile Exchange. John, thanks for joining me on the show.

John Woods, VP, McNamara Options (Woods): No problem, Mike.

Norman: Look. We’ve seen the beginning of the new year; we’ve seen a rebound in oil prices and other commodities within the petroleum complex. You know, we look back over what has happened in the last year and a half, two years: the big spike to $150, prices collapsed down to $35. I know in your specialty area, with natural gas, we got all the way into the $2 handle. Somewhat of a rebound now – is this something that is the beginning of a new bull move? Or do you think it’s just trading action?

Woods: Well, I just think it’s really trading action. I mean, if you look at what’s happening globally – three, four weeks ago – we were trading at $68. Then, all of a sudden, we have these weather reports coming out, we spiked up to $83. I mean, that’s basically hedge funds just moving the market. Now we’re back down to $78. So we’ve basically lost $5 a barrel in roughly two or three days.

Norman: Now what about supply? I mean, supply had been at fairly elevated levels for a long time. And prices were supported; they were even gradually rising. And a lot more of the fundament players would say, “Well, it’s not justified based on supply.” But we’ve seen some drawdowns in inventories recently, haven’t we?

Woods: Well, that’s true. But that’s because you did see a big cold snap across the United States. So that’s going to draw it right there. As before, it’s like, all right, this is what our supply is; this is what we’re doing. It sort of matched itself off. And then, basically, we got caught; we really got caught nationwide. And that’s when you saw it run. And you saw a lot of traders come in, and say, “You know what, we’re going to be using this stuff.” And, hence, $80, $83 crude.

Norman: How much of it do you think is based on this economic recovery that we’re seeing and, perhaps, maybe if it stalls out, is there a chance, from your perspective, that we could see crude prices head right back down in the $30s, where we saw it hit bottom last year?

Woods: Well, $30 crude is pretty, pretty cheap. We’re looking at 10 percent unemployment. We can’t support extremely high oil prices. I think a bottom of this stuff is basically that $58 to $62 range. You know, we have supported $68, which we’ve seen. But long range, you’ve got to look at oil a little bit cheaper from here.

Norman: Now let’s get in to your sector, which is natural gas. And that had a spectacular crash. We have huge inventories of natural gas. The market did bounce. How does that look from your perspective?

Woods: Well, from here we’ve been in a tight range. We’ve popped up above $6, we get up to $6.10, $6.20, $6.30, and you still have the same fundamentals. There’s still a lot of gas out there. So you had a lot of people jump in this thing where we had crude run up. And we’re like, all right, crude’s here. Let’s buy natural gas. And the two really aren’t related. I mean, we’re a domestic product.

Norman: Right.

Woods: And we were part of that cold wave. There was a lot of draw on that, and once that subsided, we came back down. Just the other day, we got down to like $5.30. So we basically had a 50-cent move on the downside. So we’re in a tight range. Our range, basically, is a low $5 to mid-$6, until something changes – that being the economy. The economy has to turn around for this to move higher – your industrial demand. That’s what’s really going to push these prices higher.