Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome back to the HardAssetsInvestor.com interview series. I’m Mike Norman, your host. I’m here for the second half of my interview with Fidel Gheit, managing director of Oil and Gas Research at Oppenheimer.

Fidel, let’s talk a little bit about the geopolitical environment. Recently we saw Russia move in to Georgia in a very hostile, belligerent fashion. We’ve seen Russia in the past use oil and gas as a political weapon. They withheld it from Ukraine several years ago, they’ve been very tough now in negotiations with gas supplies to Western Europe. How does the geopolitical environment flesh out for you in terms of the outlook? Is this a potential source of ongoing nervousness? Can we see price spikes out of this, or is it something we shouldn’t really worry about?

Fidel Gheit, managing director of Oil and Gas Research, Oppenheimer and Co. (Gheit): Unfortunately it is the case. Despite the invasion of Georgia, oil prices dropped by $10/barrel, which just underscored the fact oil prices had been inflated by a factor other than supply-and-demand fundamentals. If it were not for this fact, oil prices would have been up $10 or $15, but the fact that oil prices came down, that means that they were already heavy to start with.

I do believe that geopolitical situation or factors will continue to have an impact on oil prices. So if oil prices would normally be $50/barrel or $40/barrel, because of the global tension, they will never go to the level of $40-$50/barrel, they will stay up another $10 or $15 or $20, or even $40. And that will be the case. Russia is not going to go away; Russia is not going to turn around and be nice all of a sudden. We’ll still have Nigeria, we have Venezuela, we have Iraq which is a big mess, we have Afghanistan, we have a lot of unknowns and uncertainties, and that will give the speculator the ammunition to go and reload and go into the market.

Norman: And they’re still in the game as we said earlier.

Gheit: Absolutely.

Norman: Let’s talk about the other main monopolistic force, if you want it call it that, Saudia Arabia, who I think, it’s probably true, at the margin, they are the price setters, because they’re the only ones really with space capacity. We’ve seen oil at $150/barrel, we’ve seen massive inflows of money into oil-producing nations and we see oil now down 30%. It seems to me while it may have been hard for the Saudis and other major producers to increase production because of capacity constraints, they could very easily cut it. We’re already starting to hear Iran talk about cuts. Is there a point - and it’s really the Saudis we have to watch I think - is there a point where, because I think they’re at a four-year production high right now, is there a point when they say, enough is enough, we’re going to defend, let’s say, $100/barrel?

Gheit: Theoretically they can; realistically speaking, they cannot or they would not. Let me put it this way: because you don’t want to kill the goose that laid the golden egg. At the end of the day, if we have slowed down in global economy more than we have right now, demand will dry up, and Saudi Arabia will have no use for its oil. They can cut as much as they want.

So the same speculators that took oil prices from $30 or $40 or $50/ barrel to $150/barrel, they are in the business of making money, not friends, so they are going to jump and load it on the other way, and we’re going to have a sell-off like we’ve never seen before. You could see oil prices going from $110/barrel or $107/barrel now to $50 or $60/barrel in a few weeks.

Norman: Wow. And on a price-adjusted basis, on a constant dollar basis, that might be equivalent to the $20 we saw back in the mid-90s. Let me ask you this point, because we hear a lot about opening up offshore, the offshore drilling, maybe the ANWR, that’s now being discussed - offshore’s clearly on the table. A lot of people say “Hey, that’s our solution! If we do that, we’re really going to see prices go down!” Do you buy that?

Gheit: It’s absolutely nonsense. I’ve been in this business 30 years, and it’s an insult to the American people. The politicians say, “If you drill more, you’re going to have lower gas prices at the pump.” Oil is a global commodity; supply and demand fundamentals and geopolitics and all those things will impact. If we start drilling right now, we are not going to see a drop of oil for five to 10 years. So it’s not around the corner.

Conservation we should focus on. First of all, we need to have an energy policy to start with. We’ve been talking about it for 30 years; we haven’t done anything about it, but then it has to be more balanced, with more emphasis on saving - energy saving - not more drilling.

Norman: Right. And very quickly, just to wrap it up, price forecast, six months, one year for crude?

Gheit: It’s going to be much lower in six months, and lower than that in a year.

Norman: Wow, that’s good news for consumers. All right folks, you got it here with my guest Fidel Gheit. Thanks, Fidel, very much for coming on. Stay tuned for more from the HardAssetsInvestor.com interview series. I’m Mike Norman; take care.