And once every so often, I'll find another analyst that hits the nail right on the head. You've probably had a similar experience.

Today, I came across an interview that I knew my readers would enjoy. Not only does analyst Fadel Gheit support a strong upside to natural gas, but he also points out several warning flags I've been showing you during the last several weeks. One point in particular that we share is a hesitation to follow the herd into oil majors like Exxon.

I'll get into the natural gas recovery a little more next week. For now, kick your legs up and enjoy. - - - 

Fadel Gheit: Oil Prices to Remain Inflated, but Don't Pass on Gas

Ranked #3 on Forbes' Best Brokerage Analysts for 2009, Oppenheimer Senior Analyst Fadel Gheit sat down with The Energy Report to shed light on existing conditions in the oil and gas sector. In terms of oil prices, "financial players are more in control now than oil companies or OPEC," according to Fadel, who is currently more bullish on gas than on oil. "Despite the fact that gas stocks gained significantly this year," he says, "we think the upside potential remains great."

The Energy Report: Why is there such a high ratio and differential between natural gas and oil right now?

Fadel Gheit: Because oil is a global commodity; gas is a regional commodity. You can have a huge discrepancy in gas prices from country to country, from continent to continent, because of a lack of adequate transportation- the means of shipping to take gas from where it's found in abundance to where it's needed. For example, gas in the Middle East has no value because there is no local market for it. Most of the oil-producing countries actually flare gas because, basically, they use gas, you call it, as a drive. They use gas to pump it back in the oil field instead of water, because they don't have water, so they use natural gas that comes as a co-product with oil to pump it back into the wells to push oil because that's what they want. They want oil; they don't want gas.

We do the same thing in the Alaska North Slope. The oil companies that operate the fields put away the used gas to push it back into the oil field to lift up oil because there is no pipeline to take the gas into the lower 48. So the reason that oil will always sell at premium to gas is because of the ease of transportation from one place to the other. Pound for pound, it's only the transportation differential between oil delivered to Rotterdam or oil delivered to Houston. Oil, also, is the more politically-driven commodity than is gas-much more politically driven. If OPEC decided to do something and if Russia, OPEC and other producers decided to slow down, guess what? Oil prices will go up. We don't have a cartel or consortium to control natural gas.

TER: Yet.

FG: Yet.

TER: Sometimes I think Putin thinks that he has the beginnings of a consortium.

FG: It's very difficult to implement. Theoretically, it could happen, but I would say decades from now because the global distribution system is light years behind oil. Ships are not available and cheap enough to make natural gas a global market yet. As I said, it will take decades in order for us to reach parity between oil and gas. Gas is a much more preferable fuel. It's cleaner, it doesn't have any messy spills and it doesn't kill. But, obviously, how to transport it is the tricky part.

TER: Supply and demand seems to be an equilibrium at about 80 million barrels a day. What's going to kick in demand?

FG: Two things. Oil prices have not been driven by supply and demand fundamentals for years. This was exacerbated by the incredible influx of money from financial players into the commodity markets over the last five years and especially oil, which basically created the oil bubble that we had last year. Supply and demand fundamentals are beginning to play a secondary role now in oil prices. Financial players have much more clout and basically manipulate-influence, if not manipulate-oil prices; that is very clear. That's why we have the investigation by the CFTC and all the hearings. I am not holding my breath to see any changes because the politically motivated individuals and the incredible lobbying by financial institutions make it very, very difficult to regulate or enforce regulations in the books to stem that incredible increase in financial institution influence on the commodity prices.

TER: So do you have a view as to where oil is going to go over the next 6 to 12 months?

FG: I can tell you oil prices will remain inflated and not fully reflect supply and demand fundamentals. I just got a call from the Kuwait National Oil Company. They are wondering when this is going to end. I said, don't hold your breath. It's not going to end. They basically believe what I believe-that financial players are more in control now than oil companies or OPEC or anybody else.