Contrarian investor Wilbur Ross believes the oil bubble is over — and his belief is so strong that he's just bought an $80 million share in SpiceJet, the ailing Indian airline reported to have rejected a buyout offer made by Indian business tycoon and Kingfisher Airlines chief Vijay Mallya.
The move casts a solid vote of confidence for the long-term prospects of low-cost air travel in India from an investor noted for buying assets that have hit rock bottom.
The buy also reflects Ross' belief that oil prices have hit the bubble zone and will move sharply downward within the next 12 months.
"The fundamentals don't justify an oil price over $100," Ross told the International Herald Tribune. "It is the nature of bubbles that they expand farther and last longer than anyone logically imagined, but they always reverse."
Ross's firm — which has an estimated $7.9 billion in assets under management — is looking to buy more in sectors that have been hurt by high fuel prices.
The company has already purchased stakes in European railroad freight companies and is now considering refineries, gas station chains, and perhaps even the faltering U.S airlines industry.
When it comes to oil price spikes, Ross says that "worry about supply interruptions is creating psychological pressure, and there is speculation in some investments in oil and other commodities."
As evidence, Ross points to several factors he believes demonstrate that there is no real shortage of crude.
No lines at gas pumps, falling U.S. gasoline consumption, and a steady but slow growth in global oil demand he believes will drop further as governments in emerging economies continue removing fuel subsidies.
"I just don't see this ($146-a-barrel oil) as a long-term phenomenon," Ross observes.
However, Ross — who began his career as an airline analyst — may have to draw from his experience working on the bankruptcies of Continental, Eastern, and Trans World airlines in the 1990s: SpiceJet's stock dropped 67 percent this year as airline fuel costs have surged.
"We believe in the long-term validity of the low-cost airline model in India, and that fuel prices eventually will stabilize," Ross says. "This investment is to bring SpiceJet through a critical period. If the crisis lasts longer, we could be in a position to supplement the investment."
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