Crude oil is on the rise, now priced at $69.40 a barrel. Once again, black gold has proven to be the most volatile of commodities, peaking at over $147.27 per barrel last July 11, following a round of missile testing by Iran, and then bottoming at $33.87 on Dec. 21, 2008. Now, we are somewhere in the middle. But is too high, too low or just right? Our panel believes it's priced fairly, and that this recent run could be triggered by an actual, legitimate turnaround of the world's economies.
How can this be confirmed? Gerard Klingman, the head of Klingman Associates, does it by pricing a barrel of oil against an ounce of gold. Historically an ounce of gold is priced at 10-15 barrels of oil. With gold at $958.90 per ounce, it is worth 13.8 barrels of oil, priced at $69.42. So, for now, oil is priced just about right, though, of course, it can fluctuate.
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"We think oil is fairly valued right now based on the belief that global economies will begin to grow more robustly in 2010 which will increase demand," he says. "The other driver of prices besides normal demand is the desire for investors (or 'speculators') to own more commodities as a hedge against higher demand in the future."
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Carol Pepper, the head of Pepper International, says the rising price of oil reflects the increased demand due to signals that the long-awaited global economic recovery is underway. She has a few measures to back up this argument. One is the Baltic Dry Index, which measures worldwide shipping costs, rose every in May, for a 95.6% return, the largest in that index's history. The stock market at large is also important, as it's risen 38.2% over the past three months. Commodities in general have also been rallying, as the Reuters/Jeffries CRB index, which measures a basket of commodities, rose 13.8% in May--its strongest rally since 1974.
"We think oil is fairly valued right now based on the belief that global economies will begin to grow more robustly in 2010 which will increase demand," he says. "The other driver of prices besides normal demand is the desire for investors (or 'speculators') to own more commodities as a hedge against higher demand in the future."
Follow Intelligent Investing on Twitter.
Sign Up For Intelligent Investing's Newsletter.
Carol Pepper, the head of Pepper International, says the rising price of oil reflects the increased demand due to signals that the long-awaited global economic recovery is underway. She has a few measures to back up this argument. One is the Baltic Dry Index, which measures worldwide shipping costs, rose every in May, for a 95.6% return, the largest in that index's history. The stock market at large is also important, as it's risen 38.2% over the past three months. Commodities in general have also been rallying, as the Reuters/Jeffries CRB index, which measures a basket of commodities, rose 13.8% in May--its strongest rally since 1974.
