It's hard to believe but looking back at much of 2006, the public stock-market valuations of many E&P companies actually exceeded the market valuations those companies would have received had they been sold in private-market M&A transactions. But along came late summer and the Nymex floor saw a 2006 energy-sector version of Katrina. As speculation about an ease in tensions in the Middle East and word of high gas-storage inventories spread among traders, the wind gradually came out of sails of stratospherically high commodity prices. Between August and late October, the futures market watched oil prices topple from $78-plus to $56; gas prices, from $9-plus to around $4.50. Amid this reversal of fortune, a lot of speculators found themselves on the wrong side of commodity-price bets. Notably, Amaranth Advisors, a $9.2-billion hedge fund, lost about $6.4 billion in a matter of weeks on the heels of one of its traders making the wrong call on the direction of natural gas prices. Today in the energy markets, speculation has begun yielding to reality and a focus on supply/demand fundamentals. And investment bankers, analysts and private-equity players are now beginning to reach consensus on where the price floor-the point of price equilibrium-is for oil and gas. Could we see $30 oil or lower? "While OPEC might be unofficially comfortable with $45 oil, I don't think most OPEC countries could survive an oil-price drop to $30 or lower, given the need to keep their social-spending programs in place [to control their populations and avoid riots and regime changes]," surmises one Street analyst. "Put another way, if OPEC lets oil hit $30 or below, there won't be heads of state; there'll be heads on plates."

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