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Oil will tumble to $70 says new ‘bond king’


The meltdown in the oil market is not over yet.

That’s the message from Jeffrey Gundlach, the star bond investor who predicts oil will plunge another $10 (it’s $80 a barrel now).

While another decline in oil prices would bring smiles to American consumers — think around $2.70 a gallon at the pump as a national average — it could spell trouble for the boom in shale projects boosting the U.S. economy.

“I think it’s going to $70 and if it does, it’s bye, bye fracking. Goodbye all of the great job creation from fracking because fracking becomes too expensive if you can buy oil at $70 a barrel,” Gundlach said on Wednesday at’s Inside Fixed Income Conference.

Related: Oil prices are plunging. Don’t cheer yet

Those concerns help explain why energy exploration stocks like Apache (APA)and Newfield Exploration (NFX) have been creamed in recent weeks as investors watch the downward spiraling price of oil.

Crude plunged 2.4% to $80.52 a barrel on Wednesday. That’s the lowest price since June 2012.

Oil politics: While Gundlach acknowledged China’s economic slowdown is hurting oil prices, he mostly pointed to geopolitical drivers to support his bearish energy call.

“I’m convinced that Saudi Arabia wants the price of oil at $70,” said Gundlach, CEO and Chief Investment Officer of Los-Angeles-based DoubleLine.

Related: Wall Street bombshell: Bill Gross out at Pimco

That’s because the Arab country’s budget can withstand lower oil prices than some other oil-producing countries, including arch rival Iran. Saudi Arabia raised eyebrows recently by ramping up production in the face of plummeting prices.

“They don’t care if they run a short-term deficit because they love turning the screws on the people that mean them harm in the Middle East,” said Gundlach, hinting at Iran.

Another leg down in oil prices would also be bad news for Russia, which relies heavily on oil revenue to balance its budget. Last week, Moody’s cited plunging oil prices in its decision to downgrade Russia’s credit rating two notches to just above “junk” status.

Related: Crashing oil prices could crush Vladimir Putin

Meet the new ‘bond king’: Gundlach, 54, has seen his star rise in recent years, especially given the struggles of rival Bill Gross, the founder of bond giant Pimco.

Gundlach’s DoubleLine has been a beneficiary of Gross’s surprise exit from Pimco last month. Investors have yanked cash from Pimco, while DoubleLine has enjoyed a surge of inflows.

Before he left Pimco, Gross tried to sell Gundlach on the idea of teaming up to form a powerful one-two punch in the fixed-income world.

“I am Kobe. You are LeBron James,” the older Gross told Gundlach, according to Reuters.

While the two didn’t end up forming an alliance, Gundlach knows something about being forced out. He was fired in 2009 by TCW Group over a disagreement about control of its fixed-income division.

Since then, Gundlach has turned DoubleLine into a leader in the financial world. The firm listed nearly $52 billion in assets under management as of the end of the second quarter. That was before customers started fleeing into Gundlach’s arms from Pimco.


17 Comments on "Oil will tumble to $70 says new ‘bond king’"

  1. Kenz300 on Fri, 24th Oct 2014 8:44 pm 

    Any drop in oil prices will be temporary……. the long term trend is higher prices.

    Short term this will give the world economy a much needed shot in the arm at the expense of Iran, Russia and those investing in shale and tar sands.
    A few bankruptcies will slow some of the riskier investments.

    The fact that the Saudi’s can hurt their competition and slow their growth is an added benefit for KSA.

    China’s growth is slowing but it is still growing……rising demand from China and India will soon drive the price higher.

  2. Plantagenet on Fri, 24th Oct 2014 9:26 pm 

    If oil goes to $70 and sits there a while it will not only hurt fracking—-low energy prices will also hurt alternative energy development and sales of non-gasoline powered cars like the Tesla, Volt and various NG powered cars and trucks.

    Who needs alternative energy if regular old oil is dirt cheap?

  3. rockman on Fri, 24th Oct 2014 10:09 pm 

    “While Gundlach acknowledged China’s economic slowdown is hurting oil prices”. China’s economy isn’t slowing down. It rate of growth has decreased. China’s economy, for the moment at least, is growing faster the almost every other nation.

    “..they love turning the screws on the people that mean them harm in the Middle East”. So they KSA sees an advantage in antagonizing a neighbor who is currently try to develop nuclear weapons. A neighbor that has been held somewhat in check by the west et al threaten to hurt their oil revenue stream. So Iranian Muslim branch will become more docile when the opposing Muslim branch intentionally sh*ts on their economy? Oh sure… that will bring peace to the ME. LOL.

  4. Davy on Sat, 25th Oct 2014 8:49 am 

    This is a earlier comment from Short I believe in response to Rock. I personally place these two individuals on a level with any in the world with comments on the future direction of PO and oil prices. I am especially leery of anyone from the den of thieves in DC or NY or for that matter global connected 1%ers. Their game is legalized corruption, market manipulation, and financial repression wealth transferring policies. Herr is Shorts earlier comment:
    “Of course that may depend more on economic vitality then geology.”
    I think $90/b oil would be a safer bet for the short term; not much chance of any extended jump over that. So how many ongoing projects are going to get canceled, and how much drilling is going to be stopped in shale, and other high production cost areas? Another unrelated analysis estimates that demand will fall by 1.9 mb/d next year. So it looks like we are on a 2.5 to 3% down slope from here on out. Our 2016 Peak for all liquids looks to be a little late.

  5. steve on Sat, 25th Oct 2014 9:12 am 

    Oil will tumble to $70 says new……and the Bears will beat the Giants!!
    Does it really matter? just like the election the states coming up…I tell people I am no longer voting because it really doesn’t matter….everything is baked in the cake already

  6. shortonoil on Sat, 25th Oct 2014 10:14 am 

    “I’m convinced that Saudi Arabia wants the price of oil at $70,”

    “Saudi Arabia raised eyebrows recently by ramping up production in the face of plummeting prices.”

    Apparently this guy knows things that the EIA, IEA, and secondary sources have missed; that SA is cutting their production. Of course the Saudis want oil at $70. They would just love to spend $180 million a day to pee on some Iranian’s foot. This guy is a “Bond King”. We hate to inform the “King” but prices are going down because depletion has cut into the value of oil to the point that the economy can no longer sustain higher prices. Now, sell that to your investors.

    Of course the nasty old Saudis, the guys that don’t mind shooting off their own foot to get even with Iran routine plays better to credulous investors. Just like W.C. Fields said, “sucker born every day – just enough to make a living”.

  7. JuanP on Sat, 25th Oct 2014 12:01 pm 

    Skip. Not worth a comment.

  8. nemteck on Sat, 25th Oct 2014 1:43 pm 

    shortonoil: “… prices are going down because depletion has cut into the value of oil”. That is a very odd statement. I thought that, if a vital resource is depleting, then the price is going up.

  9. Northwest Resident on Sat, 25th Oct 2014 2:19 pm 

    nemteck — In “normal” times, that conventional wisdom of supply and demand held true. But these are not normal times. If the VALUE of the resource is depleting as it is in the case of oil due to constantly decreasing EROI (which is now reaching a critical point), and if it is that very resource that is needed to sustain the economy and enable the economic growth that makes that resource affordable, then it is only logical that the price of that resource will go down. Shrinking EROI = shrinking economy = shrinking ability to afford oil = we’re screwed.

  10. Davy on Sat, 25th Oct 2014 3:14 pm 

    Nem, I know we keep trying to tell our corn friends this and they just keep shooting back “supply demand man” NOo in particular is always chastising us for not understanding Econ 101. This is the problem with the corns when substitution and technology no longer work. When markets become dysfunctional and financial repression is needed. This is surreal for a corn.

  11. Nony on Sun, 26th Oct 2014 1:50 pm 

    Nobody knows where oil prices will go. It’s about the same bet that they go to 90 as go to 70. But the “money bet” is 80. And even this is not a certainty (like a line on a football game). Just the median expectation.

  12. Davy on Sun, 26th Oct 2014 3:10 pm 

    NOo, what are your odds of $110 Brent again? Is there a term for Peak Price?

  13. Nony on Sun, 26th Oct 2014 3:33 pm 

    you can calculate the “Vegas odds” based on the prices of puts and calls. I have shown this to you before, but you did not pay attention. (See first chart after page 12.)

    Note that this is a few weeks old and is WTI, not Brent. Drop the average and band about $10 based on the former and raise it $5 [net drop of $5) and you’ll be close to what a current graph would look like.

    The green band shows the 95% confidence interval for price. Obviously, the further out in time, the more the band opens up. Note that just as there is a 5% chance of 120 in 2015, there’s also a 5% change of 60 (numbers are approximate, based on eyeballing the chart…but concept applies). The band opens a little more on the high side than the low side…

  14. Nony on Sun, 26th Oct 2014 3:35 pm 

    (raise 5 was from WTI versus Brent, in the above.)

  15. Davy on Sun, 26th Oct 2014 3:55 pm 

    NOo, very interesting and actually I eat that stuff up. Unfortunately I am not a math wizard but the concepts do fascinate me. NOo, I am wondering whether we are in a new reality where these analysis are influenced by a new underlying reality of descent. IOW, will chaos and its dysfunction, irrational, and randomness skew the traditional analysis? Just opining doom. You love when I do that don’t you NOo.

  16. Nony on Sun, 26th Oct 2014 4:49 pm 

    Davy: Anything is possible, but so far the doom-promisers have not done so well. Campbell, Deffeyes, Gail, Rune, Picollo, Simmons, Savinar, TOD (is dead), etc.

  17. Davy on Sun, 26th Oct 2014 5:13 pm 

    NOo, it ain’t until it is. Translation “anytime baby”

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