Oil Price Drop

Brian Hicks

Written By Brian Hicks

Posted February 20, 2009

This week started with a reaffirmation of Peak Oil by the head of an international oil major.

As I wrote in Wealth Daily Monday, French oil and gas producer Total’s CEO Christophe de Margerie sees oil production peaking at 89 million barrels per day, likely inside the next decade.

Yet oil is down hard on Friday along with equities, as traders pull back from the best crude gains in nearly two months.

We’re suffering from energy market myopia when it comes to oil production. It makes sense that banking shares are down as investors worry about bank nationalization.

But resource nationalization, declining production rates in major fields in the North Sea and Mexico, and significant advances in renewable energy that may require OPEC to keep setting price floors… these factors should de-link oil from the Dow’s decline.

One analyst told Bloomberg exactly how the knee-jerk selling scenario works: "I don’t think anybody trading commodities can look at what’s going on across the way on the Big Board and not just sell," Brad Samples said.

It’s important to keep in mind that energy investors look at the long-term case. Traders are allowed to move in fits and starts, but company heads like de Margerie have to allocate investment capital based on more than a day-to-day timeframe.

Oil will rebound. Today’s drop in crude was an exception, with oil traders giving in to insurmountable selling pressure across all industries. Keep your eye on the CEOs’ investment strategies for the real direction of crude through this recession.

Sam Hopkins

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