Oil prices to derail recovery?
To understand just how much the goal posts have moved for world oil prices consider that last year was the first in a quarter century that world oil demand actually fell. That’s how severe the recession was in the major oil consuming economies of the world. The last decline, in 1983, ushered in a flood of new relatively cheap oil supply from the North Sea and Alaska. Today, the only new supply we can count on is over five miles below the ocean floor or trapped in tar-like bitumen.
Of course, its always easier to find culprits that to face facts. Congress will blame the speculators, customers will blame oil companies for price gauging, oil companies will blame government for restrictive drilling policies, and traders will blame the falling value of the greenback. But at the end of the day all will have to face the simple fact that conventional oil supply (i.e. the type of supply you can afford to burn), has not grown since 2005 and may never grow again.
That constraint is about to become painfully evident even in the early innings of an economic recovery no matter what shape or velocity. Within a year of any broad based rebound in world crude demand , oil prices will vault once again back into triple digit territory. That much is certain.
What remains to be seen is whether the economy will be any better prepared to deal with those prices than it was the last time around?
I’m Jeff Rubin and I believe your world is about to get a whole lot smaller.
By Jeff Rubin, author of Why Your World is About To Get a Whole Lot Smaller
Jeff Rubin was the Chief Economist at CIBC World Markets for almost twenty years. He was one of the first economists to accurately predict soaring oil prices back in 2000 and is now one of the world’s most sought after energy experts. His book, Why Your World Is About to Get a Whole Lot Smaller, is available in stores now.