Oil prices have seemingly dropped overnight. But they may not rebound anytime soon. And that could create a great investment opportunity in 2015.
That’s the opinion of David Rubenstein of Carlyle Group. The CEO of the giant private equity firm said that he believes it could be a few years before oil prices approach $100 a barrel again. “Oil prices are likely to stay low for a while,” said Rubenstein, who believes that many oil shale producers can stay profitable at lower prices.
Rubenstein was talking Wednesday morning on one of the opening panels of the World Economic Forum in Davos, Switzerland.
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Rubenstein said lower oil prices should be a good thing for the U.S. He admitted that the oil industry is more important to the U.S. than it used to be, and said that some oil rigs have been shut down and that will cost jobs. But he said the boost to the consumer will far outweigh any negative affects for lower oil prices.
Another panelist Min Zhu, an economist from the International Monetary Fund, said he thought Rubenstein and others were downplaying the negative impact that oil prices could have on the global economy. Zhu said there are $1 trillion in bonds issued by energy companies, not all of which will be profitable at lower prices. If there were to be major defaults, that could create a problem for the world’s financial sector, Zhu said.
Axel Weber, the chairman of UBS, told the same panel that the price of oil would soon rebound to $70 a barrel.
But Rubenstein said he thought the debt of energy companies could turn out to be an opportunity for investors, not a problem.
He said many of the bonds of oil explorers, particularly in the U.S., are trading at a discount. Rubenstein said he thought distressed debt in the energy sector appears to be one of the more interesting investing sectors in 2015. “You are going to see distress investors come in and take control of these companies,” said Rubenstein.
Overall, Rubenstein said the U.S. seemed to be the greatest place in the world to invest these days, but he joked that you shouldn’t take his predictions too seriously. An article in Bloomberg that was published on Wednesday morning about the how often the talking heads at Davos are wrong cited Rubenstein, who predicted in early 2008 that the U.S. would avoid a recession, as an example.
“A year ago I would have not predicted that oil prices would drop 50%,” said Rubenstein. “Now that they have, they are not going to go back up quickly.”