The long term price of oil should be between $85 to $90 per barrel, but BlackRock’s Dan J. Rice sees it hitting $120 per barrel or higher this year, which could mean a slow down in the world economy.
“The world is growing way too fast,” said Rice at the IMCA Consultants Conference in New York City on Monday. “It will lead to significant inflation especially in India and China. There’s nothing really on the horizon that will change this by keeping commodity prices depressed.”
Since 2009 typical commodity stocks have soared about 200%, said Rice, who is co-head of the $1.5 billion BlackRock Energy and Resources Fund. To avoid inflation though the world GDP would need to grow at a rate of 3%. Over the last six months, he says, world GDP has grown 5%. This rate of growth is unsustainable given the limited supply of oil and other energy sources, which will mean slower growth going forward as energy and commodity prices weigh on the global economy. The question, Rice asks, is when will this be reflected in the stock market?
Currently, money is being taken out of gas drilling and being put into oil drilling, he says, which should accelerate in the next couple of months as more oil shales start to be developed.
But the most interest segment for Rice is actually coal. Putting aside the environmental factors, coal is the cheapest source of fuel. And with the world growing at such a fast pace, coal use will grow as well. Yet the stock market is discounting coal. “It’s one of the most unpopular segments of the world and yet you have a huge investment opportunity,” said Rice. “I don’t think you can make much money on oil. Yet coal is the most unloved segment of the world and it has the most upside of anything out there.”
Near-term Rice thinks investors may be able to get a bit more of a “pop” out of oil, but long-term natural gas is definitely a better play.
