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Should We Listen to Boone Pickens on Oil?

by: Jason Schwarz September 03, 2008 | about stocks: DBO / OIL / USO    

Jason Schwarz

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I love Boone Pickens.  He has had a remarkable career, his philanthropic efforts are far reaching, and the Pickens Plan offers a great future for our country. 

There's just one problem with his repeated claim that oil won't go below $100 a barrel.  He has a severe conflict of interest.  Those who are banking on this man's crude oil forecasts are at risk because of it.  Like clockwork, Mr. Pickens appears on CNBC when oil has a big down day to tell everyone that oil will be headed back up.  On Tuesday his rationale was that it's fun for OPEC to make billions and billions of dollars.  He predicts they will cut production to maintain the high price.  

Anyone who has followed the oil spike knows that OPEC lost pricing control a long time ago.  As they increased production, oil prices still continued upward.  So why is Mr. Pickens telling us that oil will stay above $100?  Because the Pickens Plan has everything to gain from high oil and everything to lose from low oil. 

Back when he was merely an investor it was fine to listen to his forecasts as he had the ability to move in and out of positions.  Now there is no backing out of his wind plan.  Pickens' company, Mesa Power, announced a $2 billion investment as the first step in a multibillion-dollar plan to build the world's largest wind farm in Pampa, Texas.  GE (GE) has already received the $2 billion order from Pickens and expects another $6 billion in orders from the planned 4,000 MW Pampa project alone. GE will begin delivering the turbines in 2010, and current plans call for the project to start producing power in 2011. 

Ultimately, Mesa Power plans to have enough turbines to produce 4,000 megawatts of energy. Overall, the Pampa project is expected to cost $10 billion and be completed in 2014.  What does history tell us about demand for alternative energy when oil prices drop?  The demand drops as well. Anytime Boone Pickens speaks about oil, his multi-billion dollar wind turbine purchase needs to be disclosed.  

Let's hope that his initiative continues even as the oil bubble bursts.  He certainly has our future government on his side.  Democratic candidate Barack Obama recently pledged $150 billion over the next decade for affordable, renewable sources of energy that includes solar power, wind power, and the next generation of biofuels.  John McCain will be going into greater depth on his plan during this week's Republican National Convention. 

A long term trend away from oil has begun that will send oil speculators running for the hills.  The United States Commodity Futures Trading Commission released a report showing that 4 speculators held as much as 81% of oil futures contracts in July. There are allegations against  Amsterdam-based hedge fund Optiver Holdings that the firm tried to "bully the market" on 19 separate instances by buying large volumes of futures contracts to influence prices. The alleged scheme resulted in a $1 million profit to the defendants. As this manipulation gets cleaned up I would advise against listening to those in the media with conflicts of interest on oil.  The oil bubble will burst in a major way.  Buyer beware.  

Disclosure: Short USO

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This article has 33 comments:

  •  
    Sep 03 11:08 AM
    opec lost its ability to keep the oil price within a target range, actually it only had this ability for a short while earlier this decade. however opec can still act to define a loose floor to the price as long as spare capacity is so low and nearly all in opec hands. look at the national budgets of the opec countries, if they are at risk going into the red due to a low oil price then (at the very latest) opec members will decrease quotas.
    Reply
  •  
    Sep 03 12:00 PM
    Boone Pickens is a great comedian: peakoildebunked.blogsp...

    I wish I got paid billions of dollars to go on CNBC and lie about oil.
    Reply
  •  
    Sep 03 12:31 PM
    Jason, you missed Boone's main point. Ultimately, it is about stopping 700 Billion dollars a year from leaving the US, and us being dependent on unstable and hostile areas for our energy. Boone is for any energy that is home grown. Natural gas and wind are a bridge to our future inventions. You need to listen to the entire plan. If you were 80 years old, would you rather be enjoying the last few years of your life, or taking on a campaign to save your country? This man is a true patriot.
    Reply
  •  
    Sep 03 12:34 PM
    Anyone who wants us to be energy independent would have to support offshore drilling, tax incentives and tax breaks to domestic oil companies, and a massive tariff on foreign imports. So far I don't see any of that happening.

    Pickens is a joke. He literally makes hundreds of millions of dollars everytime there's a plus tick in oil.

    “I was in wind energy for a minute…. I hate it. And when I got to looking at those damn things I said, I don't want to be a part of putting that on the horizon. I think it's homely and I don't like it. We took a loss and got out of it and I'm glad I did.” —T. Boone Pickens, Bloomberg, February 17, 2005
    Reply
  •  
    Sep 03 01:16 PM
    Hey guys...it's over. Energy is cyclical, no matter what anyone says.
    Reply
  •  
    Sep 03 01:24 PM
    Agree with article completely. Conflict of interest is a scary thing, sometimes you believe what you say, even when common sense is telling you it's false.

    On a side note, energy independence is just a political slogan. We live in the world and we can't be independent from it. We sell a lot of stuff, we buy a lot of stuff. Our biggest oil supplier is Canada, do we want to be energy independent from it too? No matter what politicians say and do, market forces win in the end. In the worst case, they win in a different country, and countries where politicians win over the market, go bust (all communists countries, with exceptions of China and Vietnam, now Venezuela and Bolivia are going there, Argentina might follow as well). And it doesn't really matter what kind of ideology you use to kill market: communism, energy independence, people's good, whatever.
    Reply
  •  
    Sep 03 01:24 PM
    I don't think he is worried about money at this point. Either way he is perfectly hedged- if oil goes up, or if alternative energies take off- he will be ringing the cash register.
    Reply
  •  
    Sep 03 01:53 PM
    Unfortunately, it appears that Mr. Schwartz is taking a short-sighted approach, like too many politicians in this country, concerning energy prices and their relationship to the success of the Pickens Plan. He unfairly suggests that Mr. Pickens would make a distorted, inflated analysis of future energy prices to secure more support for his energy plan. First, the oil prices over the coming months may inspire some energy users to take a harder look at the Pickens approach, but most Americans are already fed up with the pump prices they see every day. They don’t need any additional incentives or scare tactics to want workable solutions. Second, what Mr. Pickens or anyone else thinks about oil pricing over the next three or six months, will probably have minimal impact regarding the plan’s success. Some people may be more interested in the Pickens Plan due to high oil prices, but it’s not a short-term solution to high gas prices or other energy challenges. The Pickens Plan is a blueprint to cut foreign oil imports by more than one-third over the next decade and develop a reliable, affordable energy system for our future.
    Reply
  •  
    Sep 03 02:06 PM
    This just came out of the Lehman Energy Conference;

    SD at lehman...reduce rig fleet by 20%...have 45 rigs running now so that would reduce to 36.
    Reply
  •  
    Sep 03 02:09 PM
    The thing is, everyone knows Pickens has a lot to gain, we know where he is invested. Full Disclosure.

    So do you act as a contrarian...or if he is headed in the right direction, get on board? I agree that he, and in turn we, must take a long-term view. If Pickens is poised to reap big gains, well...so am I.
    Reply
  •  
    Sep 03 02:16 PM
    This is ridiculous, there is no issue of disclosure when T. Boone Pickens and his energy plan which is proposing the construction huge amounts of wind turbines in Texas are on T.V. as much as Obama and McCain. T. Boone has a history of understanding the trends of oil pricing and has made guesses that have panned out amazingly in the past. Now he is telling us that the time for oil is over in a huge way. If he is benefiting from speculating that oil prices wont drop below a hundred dollar barrel and this directly results in more of a push for his renewable energy plan then we too will benefit. Get over the fact that he has vested interests, of course he is going to benefit from oil staying high and everyone knowing it, but he is not doing it by hiding anything about his plan and “manipulating the market” He is a straightforward business man who is proposing that we get behind a business which will change the American energy economy for the better and decrease our ecological impacts as a nation as well. We will all benefit from renewable energy and the Pickens Plan.
    Reply
  •  
    Sep 03 02:17 PM
    This is ridiculous, there is no issue of disclosure when T. Boone Pickens and his energy plan which is proposing the construction huge amounts of wind turbines in Texas are on T.V. as much as Obama and McCain. T. Boone has a history of understanding the trends of oil pricing and has made guesses that have panned out amazingly in the past. Now he is telling us that the time for oil is over in a huge way. If he is benefiting from speculating that oil prices wont drop below a hundred dollar barrel and this directly results in more of a push for his renewable energy plan then we too will benefit. Get over the fact that he has vested interests, of course he is going to benefit from oil staying high and everyone knowing it, but he is not doing it by hiding anything about his plan and “manipulating the market” He is a straightforward business man who is proposing that we get behind a business which will change the American energy economy for the better and decrease our ecological impacts as a nation as well. We will all benefit from renewable energy and the Pickens Plan.
    Reply
  •  
    Sep 03 02:18 PM
    The Pickens Plan has turned into a movement of over 200,000 people who are all willing to rethink renewable energy in America. T. Boone is doing nothing but trying to push us towards a future that America is ready for and needs to accept. I think it is so counterproductive to keep arguing about T. Boone’s interests in regards to the Plan, yes it is a business, he will make money but in doing so he will create for America the infrastructure it needs to be great. And by the way as everyone knows T. Boone has been extremely generous with his charitable donations in the past and I saw in an interview the other day that he said that all of his estate will go to charity, so if he makes money it doesn’t really matter, that’s not the issue, lets focus on the plan like everyone getting enthusiastically involved on the Pickens Plan site!
    Reply
  •  
    Sep 03 02:19 PM
    The Pickens Plan has turned into a movement of over 200,000 people who are all willing to rethink renewable energy in America. T. Boone is doing nothing but trying to push us towards a future that America is ready for and needs to accept. I think it is so counterproductive to keep arguing about T. Boone’s interests in regards to the Plan, yes it is a business, he will make money but in doing so he will create for America the infrastructure it needs to be great. And by the way as everyone knows T. Boone has been extremely generous with his charitable donations in the past and I saw in an interview the other day that he said that all of his estate will go to charity, so if he makes money it doesn’t really matter, that’s not the issue, lets focus on the plan like everyone getting enthusiastically involved on the Pickens Plan site!
    Reply
  •  
    Sep 03 02:19 PM
    The Pickens Plan has turned into a movement of over 200,000 people who are all willing to rethink renewable energy in America. T. Boone is doing nothing but trying to push us towards a future that America is ready for and needs to accept. I think it is so counterproductive to keep arguing about T. Boone’s interests in regards to the Plan, yes it is a business, he will make money but in doing so he will create for America the infrastructure it needs to be great. And by the way as everyone knows T. Boone has been extremely generous with his charitable donations in the past and I saw in an interview the other day that he said that all of his estate will go to charity, so if he makes money it doesn’t really matter, that’s not the issue, lets focus on the plan like everyone getting enthusiastically involved on the Pickens Plan site!
    Reply
  •  
    Sep 03 09:16 PM
    Jason Schwarz,

    You may not like Pickens message, but you should heed Matt Simons' stand on oil.

    Do you think oil will be below $50 ever again? Is that your position? Do you expect we have seen the last of the hurricane season? Do you see 3 billion people suddenly vanish from the face of this planet? Do you think the Chinese will driver fewer cars and continue to live in slump like conditions? What about Asia?

    Oil is a global commodity, you can't 'grow' oil, and renewable energy is not going to impact the oil equation significantly for the next 50 years.

    Buy oil, long, on corrections as it is currently going through now.
    Reply
  •  
    Sep 03 11:44 PM
    Conflict of interest? Is that what this is about? By that measure, I would have to assume that the president lied about oil in Iraq, or that Enron lied about its profitability....oops.

    oh, wait, um...a better response would be that just because someone stands to gain from something, doesn't mean they are lying in promoting it.
    Reply
  •  
    Sep 04 12:50 AM
    Yes we should be listening.
    Reply
  •  
    Sep 04 01:32 AM
    Boone Pickens plan isn't supposed to change this would this week or this year. The price of oil may be nearing $100 today, but it won't be several years down the road. That is when his plan will matter as right now he is only building the infrastructure for a world of high oil prices to come. So yes we should listen, if things go his way, he could even become an American hero .. like Mr. Ford.

    www.stockresearchporta.../
    Reply
  •  
    Sep 04 01:57 AM
    No one with a functioning brain will make long term bets based on the ability to make short term manipulations. He's not lying about expensive oil because he wants wind investments to work. Rather, he's made investments in wind because he believes oil will be high. You've put the cart before the horse. No conflict of interest here. His actions have shown his true beliefs, and they are consistent with what he's saying.

    Whether or not he's right will be shown in time, but his track record is pretty good. Let's talk again in 2014.
    Reply
  •  
    Sep 04 02:10 AM
    Its funny how oil at 100$ now is "alright" when it 1 year ago would cause an uproar.
    Reply
  •  
    Sep 04 03:17 AM
    People tend to confuse oil price with the economics of Wind and Solar. They are not that highly correlated because- oil is mainly used as a trasportation fuel though a small percent is used as raw materials for producing plastics. Where as wind and solar produce electricity whose main competitors are coal, nuclear and natural gas.

    In the long run what really matters is the price of electricity for wind and solar not the price of oil. Though oil price may have some impact in terms of material cost but in the operations terms only the price of electricity matters.
    Reply
  •  
    Sep 04 04:19 AM
    Anyone who has followed the oil spike knows that OPEC lost pricing control a long time ago. As they increased production, oil prices still continued upward

    Are you kidding? they won't cap the ceiling price but only the floor price. because their interest to keep oil price remain high.
    Reply
  •  
    Sep 04 07:26 AM
    I like Pickens' approach re: LNG. I'd rather use LNG for vehicles, geothermal and concentrated solar for heat and electric, not wind.
    Reply
  •  
    Sep 04 08:15 AM
    If you are going to comment on oil I wish you understood the fundamentals.
    Certainly oil prices can come down but long term , assuming we have an economy, the daily requirement for oil will increase and only higher prices will allow exploration and development of hard to reach crude oil. The cheap cost of production days are gone.
    Reply
  •  
    Sep 04 09:27 AM
    CNG, Compressed Nat. Gas.
    LNG, Liquified Nat. Gas.

    The long term prospects for Ethanol DIE under the TBoone Plan. Heavy Transport may still help with Biodiesel as I am unsure whether CNG energy is enough to keep the Big Rigs rolling.
    Reply
  •  
    Sep 04 09:39 AM
    Jimmy Carter did not get many things right, but his take on energy was right on. He advocated research and development to take us to a sort of quasi post oil energy era. If his suggestions had been heeded and the effort sustained, the current energy problems might be moot. Pickens is on the right track and it is time to move on. I don't subscribe to much of the man's politics, but energy dependence is not nor should be a political matter.
    Reply
  •  
    Sep 04 05:15 PM
    Paultaut said, "I am unsure whether CNG energy is enough to keep the Big Rigs rolling."

    True. We need a shift to more rail transport - - electrified, that is. Electrified rail is a couple of dozen times more efficient that big rigs in moving goods, without even counting the reduced cost of road maintenance from getting the rigs off the road.

    A short-run shift to CNG for small trucks/cars for energy-security reasons is OK, if it doesn't mean burning more coal (w/o sequestration) for electricity. Burn more coal only in a really serious national emergency like what would occur if there were a rapid onset of peak oil.

    The diesel saved from reduced big rigs and diesel-elec. locomotives being switched over to straight electric can be reallocated to jet fuel and home heating oil. Continued flying will be needed until a rail system like Europe's is put in place, then flying can be cut back to cross-ocean and cross-continent.

    Of course all of this, or something like it, means there must be a national discussion on energy and implementation of an energy policy (not just a billionaire's commercials to sell his nat-gas and wind electricity).

    p.s.: Did Boone get his CNG idea from the Iranian's who are moving to CNG in a big way, including mass conversions of existing vehicles, to reduce their dependence on imported gasoline?
    Reply
  •  
    Sep 04 10:15 PM
    You go Solargirl!
    Reply
  •  
    Sep 05 03:17 AM
    Boone's ads are much more focused now. I like them much more than when the first one was released.

    BTW, Canada is our single Biggest supplier of Foreign Oil.
    Reply
  •  
    Sep 05 04:06 AM
    if pickens' plan was competitive, he would just do it, rather than promote. how many tax funded dollars does he want for infrastructure and operating subsidies and tax credits?
    Reply
  •  
    Sep 05 05:26 PM
    kebu 77, Where will we put all this rail capacity? Canadian National has been trying to buy the Chgo Elgin & Eastern to improve the capacity around Chicago, and all the communities are in an uproar of denial. Nobody wants a lot of freight trains 2 miles long running through their backyards and street crossings.
    Reply
  •  
    Sep 07 04:40 AM
    Pickens = Energy Leadership

    Because there isn't any in Washington.

    If he makes billions, he deserves it. This is after all a free economy.

    Anyone with a better plan? Please speak out.
    Reply
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