(October 5) – Jeff Rubin, chief economist at CIBC World Markets, sees the price of oil at US$50 a barrel in the not-too-distant future.
Rubin says that, “With only about two million barrels of spare OPEC capacity left, the global economy is hurtling towards an oil supply wall at alarming speed.”
Unless demand slows, current prices will look like a bargain in a couple of years, he suggests. “Even with the recent spike in energy prices, annual growth in global petroleum demand is still running at about one and a half per cent. If that pace is sustained, demand will exhaust potential global supply of around 80 million barrels a day in two years. When it does, oil prices will not only rise, but explode.”
Rubin says it is unlikely that the world will run out of oil but prices will have to rise dramatically to subdue demand. He says that global demand growth could run at a rate of 0.5% , exhausting supply by 2006, rather than 2002. In that time, energy demands could be lowered by technological advances and policy action. “In the short run, there is limited scope for large-scale substitution.”
Rubin says that the White House’s decision to release 30 million barrels of oil from the Strategic Petroleum Reserve and calls for energy tax cuts in Canada and elsewhere are merely masking the pain, bolstering demand that needs to moderate. “There are lots of reasons for cutting the overall tax burden in Canada. But the cuts shouldn’t be aimed at bolstering gasoline demand at a time of growing scarcity.”
In the end, Rubin predicts crude will rise next year to $40 per barrel, and that the price will likely continue to rise over the next three to four years. “An orderly path for decelerating energy demand which avoids huge swings in global GDP suggests that crude prices may ultimately have to rise to as much as $50 per barrel,” he says. “Reality, of course, may not be so orderly.”
-IE Staff