On Thursday CIBC World Markets Chief Economist Jeff Rubin said oil production will barely grow over the next five years, and that shortfall, combined with solid emerging market demand, will drive oil to $150 per barrel by 2010 and $200 per barrel by 2012, and The Financial Post reported Thursday.
Just as bad, and despite easing gasoline demand in the United States, U.S. gasoline prices will climb to as much as $7 per gallon by 2012, Rubin said, and The Financial Post reported.
Oil closed Thursday down $2.32 to $115.98 per barrel. Oil hit a record high of $119.90 per barrel on April 22, 2008. Wholesale unleaded gasoline closed down 3 cents to $3.01 per gallon. The U.S. national average for gasoline now exceeds $3.50 per gallon, with several high-cost zones, including New York and San Francisco, already reporting prices over $4 per gallon.
Slowing production growth?
In his research, Rubin argues that global oil supply will increase by only about 1 million barrels per day per year -- far slower than ramping demand, with the market bidding-up the price accordingly, The Financial Post reported, adding that a rise in natural gas liquids found in current oil production was a sign of depleting oil supply in certain, mature oil fields.
Global oil demand for 2008 is projected to be 87.2 million barrels per day, according to the International Energy Agency. Meanwhile, global oil supply for March 2008 totaled 87.3 million barrels per day, due to lower supplies last month from OPEC, the North Sea region, and non-OPEC Africa.
U.S. conservation seen
Economist Glen Langan told BloggingStocks Thursday Rubin's projections "would certainly have to be placed at the bleakest end of the worst-case scenario spectrum," but that it does provide cause for further analysis. While noting that he hasn't reviewed Rubin's research yet, Langan said a $130-$150 level for oil by 2012 is the more-likely, worst-case scenario, given changes he expects the developed world to make as oil, and its products (gasoline, diesel, motor oil) climb to unprecedented levels.
"More than likely, consumers and businesses will cut back consumption, demand destruction will occur, and nations will begin to find substitutes," Langan said. "A [gasoline] price of $4 per gallon is enough to propel changes in U.S. housing and commuting patterns, so at $5 the changes will occur that much more quickly. The short answer is that, absent subsidies in the U.S., Americans will simply use less gasoline and oil, and there will be substitutes, and that will place a top on oil's price."
Oil Analysis: For the typical investor / trader, each week can seem like a new session of 'Can You Top This?' regarding oil price projections. Still, two oil fundamentals are a stark reality: high per capita gasoline consumption in the U.S. and galloping oil demand in emerging markets. Based on Q1 2008 data, it appears American consumers have started to cut back. Rising demand in China, India and other developing markets, however, still must be addressed, before one can relegate Rubin's analysis to the overestimate category.
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Reader Comments (Page 1 of 1)
4-24-2008 @ 6:18PM
Dan Barnett said...
The problem is of course that given the state of public transportation, location of housing, & major foci of employment; there is only so much conseveration to be done. Unless a major development in electric cars is made the US is going to be dependent on oil & gasoline for years to come.
By the way, since gasoline taxes are primarily used for financing public transportation & road repairs, repealing the gas taxes, while sounding good, is not a smart move. Roads are deteriorating at a rapid rate even now for lack of funding for repairs.
4-25-2008 @ 12:25AM
Michael Ishigaki said...
Hopefully this bad news will result in an acceleration toward energy independence as nuclear energy becomes more attractive and as more money is allocated to the research and development of solar energy and energy storage. Also, after all Hell breaks loose after we make the huge move to Ethanol everyone will realize that Ethanol is mostly a political scam. (The good ol' we'll scratch the farmers' backs if the farmers scratch our backs.) I foresee long-term agony and very-long-term happiness. :)
4-25-2008 @ 12:37AM
Mike Ishigaki said...
Dan Barnett,
The short term agony that you described is sure to happen. But don't you think it's better that it happen in the near future rather than in the distant future? The way I see it, as time progresses our roads are only going to get worse and as the population increases, conservation is only going to become increasingly difficult to do. There is also a potential halo effect: alternative energy research and development becomes easier to do as the general demand for alternative energy R&D overpowers the deterring voice of the oil companies. Politically influenced media focus and money flow would also move toward clean alternative energy R&D because the general public would be demanding it heavily. Plus, we would gain freedom from the awkward political situations with these countries we are so dependent on for oil.
4-25-2008 @ 2:35AM
Steve said...
Well maybe the price of gasoline SHOULD reflect its broader cost. Cost to the environment, cost to the atmosphere, cost to produce etc. It has always seemed kind of crazy to me that gasoline is cheaper than Coca-cola to purchase. Imagine what it would be like if everyone had to buy gasoline in two litre bottles like Coke and put it into their cars bottle by bottle. Then I think people would really understand how much of the stuff they consume.
Just my thoughts.....
4-25-2008 @ 3:16AM
Chapelon2 said...
Facing record high oil prices, the simple effective solution is energy conservation. You may not wish to reduce driving, then increase engine efficiency will reduce fuel comsumption, ease the demand on foreign oil. High Efficiency Integrated Heat Engine (HEIHE) has been invented, which is the solution to beat down oil price. HEIHE's efficiency will cut fuel comsumption in half, resulting oil less demand.
Please invest in HEIHE @ www.heihetech.com
4-25-2008 @ 6:55AM
al coholic said...
Jeanne Dixon was better at predictions than most economists are.
But I do agree that it does seem that the days of cheap oil may actually be gone this time. No matter how much we conserve, new industrial growth from previous low users of oil products and world wide population growth make for a scary future energy scenario.
Remember, in just a few years there will be 10 billion of us.
4-25-2008 @ 7:38AM
Dan Barnett said...
Mr. Isihgaki,
You are correct. My point is that the US's physical structure, where we live, where we work, how we commute, the level of public transportation, & etc. are all built around cheap gasoline. Imagine the effects of housing prices in the ex-burbs of $7 gal gas. Imagine the costs of truck transportation of just about everything at $9 diesel. But people do live in the ex-burbs. We do use trucks to tansport. Those facts won't simply go away. & they won't go away overnight.
Mr. William Lindblad (among many other brilliant comments) has made numerous good suggestions about how to conserve gas by keeping cars in repair. I endorse every one. But the fact is that people live where they live & work where they work & have to get from point A to point B & back every day.
Al Coholic also makes a solid point that there are some 300 Million Americans. Back during WWII it was more like 160 Million. & so even assuming (unwarranted, I'll give you) equal usage, the total use of gas will double that of 65 years ago. & will continue to grow with the population. There is only so much conservation to go around.
& so my rant, among news coverage of whose Pastor said what when, & who heard gunshots & thought they were the target; we aren't hearing any discussion of this in the news coverage of the political campaign.
4-25-2008 @ 7:25PM
Mike Ishigaki said...
Mr. Barnett,
It's a shame what our television news has come to. People are too worried about the drama of a polygamist group in Texas to care to our long term growth and the many troubles our country is going to face down the road.