Matthew Simmons, Texas author and investment banker and the guy who bet oil will hit $200 a barrel next year, feels pretty good.
Oil has doubled to $70 recently as the economy shows signs of life, and "prices do seem poised for the next leg up," he says on the phone. "By sometime a year or two from now, we'll look back and say, yeah, prices were really cheap."
Perhaps the leading proponent of the idea that oil is running out, Simmons probably won't win his bet, made with New York Times columnist John Tierney. But the prospect for further increases raises the question of whether you should buy future energy at today's prices, to the extent that you can.
I've already recommended buying two years of electricity from Washington Gas Energy Services at 10.8 cents per kilowatt hour (888-884-9437).
That's moderately less than the standard Baltimore Gas and Electric price over the next 12 months, which has already been set. (BGE's average price will be 11.93 cents for the period, meaning a typical family will save $10 or $15 a month by switching to WGES. Delivery is extra for both products.) I'm betting it will be less than or at least equal to standard BGE prices in 2010-2011, too.
It's also time to consider protecting yourself against higher costs for natural gas and heating oil. A two-year natural-gas deal from WGES is worth considering if you're optimistic the economy will resume growing and increase demand for energy. And if you heat with oil, it might not be a bad idea to fill your tank now instead of waiting until October and also to consider buying price protection for the winter.
Thanks to last year's financial crisis, energy prices crashed along with those of just about every other asset. Crude oil went from $145 a barrel in July to $32 in December. BGE's default natural gas price plunged from $1.58 per therm last summer to 53 cents per therm in March. Heating oil for sale to Maryland residences went from as much as $4.60 a gallon down to the $2 range.
But with the economy apparently on the mend, energy costs may have reached bottom.
Because factories and electric plants are burning much less natural gas than they were a year ago, "supply greatly exceeds demand," says Bert Wilson, a principal at South River Consulting, a Baltimore-based energy adviser. But, he adds, "the market has moved too darned far. The seeds of inflation are there. When demand starts to rise, it's going to outstrip supply and you're going to get a big spike."
