Oil price has been climbing and so far over the last year, it gained around 14% to over $104. In a recent intervention on CNBC, Bill Smead of Smead Capital Management has provided his opinion on the valuation of oil, stating that the prices should decline because the competition and supply of oil keep raising.
“The Wall Street is the only place in the world where as the competitors come in and become your enemy that people bid up the price of the industry,” he said.
Mr. Smead also said that the competition in the oil industry is getting stronger, because “every Tom, Dick and Harry in the world is poking holes in the ground.” He also mentioned the oil fracking in Northern England in late January, also stating that if someone started fracking in England, it should mean that there is no other place in the world for “poking holes.” We should mention that the process of fracking is dangerous as it involves polluting ground waters near the wells by toxic chemicals used for fracking and methane gas.
However, Mr. Smead pointed out that the largest user of oil in the world, the United States, is reducing its consumption of oil, and the Mileage per Gallon of the U.S. cars is improving, with the MPG standards planned to increase significantly over the next ten years.
“There’s way more competition and, therefore, way less competence which means ultimately prices should fall quite a bit,” Mr. Smead concluded, earlier quoting Charlie Munger of Berkshire Hathaway who stated that “competition is the enemy of competence.”
Watch the full video below: