Oil prices to derail recovery?
The red ink hasn’t yet dried on the deepest global recession since World War 11 and oil is already trading at over $70 per barrel. If that strikes you as a bit odd, consider the statement from Saudi oil minister at the recent OPEC meeting to the effect that $70 was a ‘fair price for both consumers and producers”. Today’s fair price, in the aftermath of a brutal global recession was only three years ago an all time high.
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.
Posted by: NancyLovesFrank | Sep 29, 2021 9:55:28 PM
Prior to 9/11 and the massive injection of liquidity (debt fueled injection to stabilize Wall Street at 9/11 and subsequent CDO related leveraging and mulplier effect on liquidity globally) had money chasing commodities.
Current pricing probably reflects fear based on scarcity more so than rational assessments. Oil was around $20 range prior to 9/11. Has there been a three fold to 7 fold increase in the supply and demand fundamentals related to oil?
Has the cost of extracting the average (cheap and easy to extract plus difficult and expensive to extract oil) oil now and for the next 10 years, increased 300% or more? While cost to extract new oil may have increased, the cost tends to come down over time (look at cost of new technology). See what happened to price of natural gas due to recent advances related to shale based gas extraction.
Given the non demand & supply related fluctuations in the price of oil, I believe the culprit in the current high oil prices is excess liquidity (excess funds chasing limited opportunities for real returns)- which needs to be and most likely will be reduced through the yet to be finished process of deleveraging that is occuring.
Posted by: Bob | Sep 29, 2021 10:36:04 PM
To bad for the good old USofA, they survive on cheap energy and slave labour. It's going to be a long sled ride down and a past that will be in history books.
Posted by: Jim | Oct 6, 2021 4:18:08 PM
When the economy colapsed, the oil prices went down. Now that the economy is improving, oil prices are rising. If the oil prices rise too much, the economy will go down, bring the price of oil with it. There won't be $200 per barrel oil anytime soon - the economy can't sustain it. It turns out that unemployed people and closed factories don't use much oil. It also turns out that the Saudi's want to maintain their revenue flow so they'll drop the price to keep it coming if they have to. The last barrel out of the ground is only worth what someone can afford to pay for it.
Posted by: SP | Nov 26, 2021 10:38:16 PM
If only we had some kind of "natural gas" that we could run our cars and trucks on while we switch to telecommuting and electric vehicles. If only...
Pity there is no 'natural' gasses in North America. OIL WILL TOP $800/oz!!!! (or not.........)