Why $200 Oil Is Just Around the Corner

Since the demand for oil will increase extremely according to RUBIN of which I am of the same opinion, immediate solution should be the talk of the day.

The world supplies of oil will eventually be exhausted. When this happens, the world will change, drastically. Dimitri Orlovs' analysis of societal collapse paints a picture of what life could be like in the not too distant future. It is time to buy an electric car.

While there is NO doubt that peak oil significantly impacts the price of crude, while there is no doubt that ever-increasing demand in a finite planet will produce eventual massive hardship, while there is no doubt that interesting technological development can produce TEMPORARY "solutions" to the problems of mass hunger and epidemic, the FACT remains that the free market "conventional wisdom" championed by Milton Friedman and his disciples at the University of Chicago have exacerbated the problems worldwide by assuming that the "market" is "rational" and by practicing an unrelenting war against any genuine efforts to "regulate" the economies of various nations. The anti-regulation "movement" issuing forth from the University of Chicago has multiplied the pain and suffering across the globe for all but the very wealthiest. Galbraith was right, Friedman and Greenspan and Hayek and their ilk have been proven to be terribly WRONG!

Faulty data gathering and conclusions. The planet is awash in oil, easy and otherwise. The term "easy oil" is highly correlated with the state of technology; advances in drilling, piping and processing change the scope of "easy oil". Follow the statistics on proven reserves and you will get a better picture. The issue is geo-politics, not finite resource (at least for now). Active efforts in finding and perfecting the utilization of new energy sources will also change the equation. In summary, Rubin's analysis is simplistic.

Rubin's reasoning is quite appropriate and precise. I agree with him and future realities will prove it.

I like Rubin's analysis and conclusions. It corroborates my own more modest efforts. Now, if we can only survive the tumultuous times ahead, we'll be home free. Care to make any bets?

The price of crude will definitely continue to rise, in as much as more oil wells are being discovered and some other forms of energy are being discovered. This is because as the years goes on it brings about development and the rate of consumption of crude is increasing at a geometric progression while the rate of oil well discovery is increasing in an arithmetic progression.

Jeff's prediction is based on common sense economics, and I totally agree with him especially when his previous forecast came to pass. As a Petroleum Engineer, I don't believe crude oil is a finite resource. Economic considerations can make crude production to come to a halt not total exhaustion of this resource.

I used to believe in the peak oil theory, but now I'm on the fence. I used to believe the official 9/11 story and manmade global warming. Its obvious to me now that those are both hoaxes, so perhaps peak oil is too.

It is likely our crude oil price will enjoy a sharp rising in the near future. However, when everything comes to its peak, new alternative energy and tech would emerge and replace the traditional oil based economy.

As a petroleum equipments salesman for a leading Chinese manufacturer, I am pondering what will happen within next 50 years.

Jeff, like many of us "old hands" in the oil industry, sees oil supplies and world energy supply as synonymous. The question is not whether oil would go to $200 per barrel if current trends were extrapolated, but rather at what oil price other energy alternatives and conservation will displace oil.

It is inevitable that oil will form an ever decreasing part of the total energy mix. Although it has the great advantage of being easy to transport, oil is also one of our most polluting energy sources. If the total cost to the economy was calculated, oil may already be above $480 per barrel (Milton Copulus, National Defense Council Foundation).

A "pollution tax" which reflects the real cost of fossil fuels is the only way to fairly balance alternative energy sources (nuclear, solar, wind, etc.) and conservation (electric cars, more efficient homes, etc.). By allowing fossil fuels to pollute "for free", we are already subsidizing fossil fuels.

If we fail to convince our politicians to introduce such measures on a world scale, we may indeed see $200 oil, but the real price will be much higher.

More importantly about those new big deepwater Gulf of Mexico finds, even if it reaches the full expected production in 5 years, that future production volume is still only 1% of current US consumption levels! In other words, don't count on it -- it's anything but a reprieve.

This doesn't even address the cross-over in extraction costs -- back when Saudi fields were discovered, you'd get 10-30 barrels out for 1 barrel used to cover extraction. Post-Peak-Oil, that ratio inverts to 1 barrel out for 10-30 barrels used to cover extraction. The example of tar sands and bitumen are exactly cases of this. This is, unfortunately, a classic mathematical result of logistics curves that can't be magically escaped.

Alternative energy sources happen to have similar efficiencies to post-Peak-Oil which is why they are becoming competitive. However, the US doesn't have the capital nor the industrial base to invent the new Green technologies anymore -- we largely gave that to China. On top of that China is embargoing rare metals that are essential to Green technologies -' if the US wants Green tech, we'll have to buy from China and at any price they choose because we in the US aren't in a position to negotiate anymore.

It still scares the daylights of out me that the US per capita productivity is directly proportional to oil consumption volume, while every other developed country has per capita productivity still rising with reduced oil consumption -- i.e. there is no efficiency in the US economy while other economies are becoming more efficient every year.

There are only two other countries with a productivity-oil relationship like the US: China and India. Given the far higher population and lack of infrastructure, this actually makes sense for them to have this -- the masses of folks without infrastructure fueled by oil drag down the average productivity -- but for the US it makes no sense and is completely unsustainable.

The temporary factor is the deflationary forces of popping the real estate bubble is probably keeping oil prices low because our consumption has dropped from "shutting off the machine". Like how you'd have your demand to your gas station drop when your car is broken down. If they have to feed the kids, they'll have to keep prices where some folks can still give them a paycheck.

But our current financial situation is kind of like turning off your cars engine when you see smoke from losing a valve or ring -- without major restructuring, turning the ignition back on won't magically fix things and will likely make things even worse. If our economy returned to pre-crash levels like so many people apparently hope it will, the squeeze on oil prices would pop them up again and we'd start breaking economy but worse.

Mr. Rubin unfortunately lacks any common sense when it comes to understanding pricing in the oil industry because he obviously has no experience or knowledge of oilfield economics. The oil price actually hit $50/B in 2004 which I predicted in 2000 when folks like Rubin and Wall Street were saying the oil price would be $15/B for the foreseeable future. The IEA was calling for $15/B oil in 2001 and 120MMBPD world demand in 2020! A study by the EIA in 1996 has a chart showing the inflation adjusted value of oil reaching $50/B in 2004! Who is going to pay $200/B for oil and $8-$12/gal for gasoline? At $200/b oil prices, world demand will fall back to the 55MMBPD world demand of the 1973 world oil shortages created by the industrial nations collaborating to hold the average oil price at a non-inflation adjusted $3/B oil price from 1958 to 1973. And then, the oil price will start to reflect the costs involved to find and produce a barrel of oil at current inflation rates instead by moron academics advising the heads of the seven major industrial nations.

Oil is not a fossil fuel created by decaying dinosaurs. This theory that has been perpetrated on mankind is the biggest lie since government's edict that the earth is flat. Oil is created in the earth's mantle. There are no biological ingredients in oil. Ask an honest chemist. We have an abundance of oil in the ground. Prices are controlled by supply and demand much like that other corrupt commodity -- diamonds.

As a retired Exploration & Production Geologist, it is amazing that our country doesn't face the reality of oil demand and supply. Also, our government doesn't acknowledge that crude prices have been responsible for recession(s), present and in the past. There is so much misinformation out there, no wonder the general population has no idea what the world situation regarding crude oil is all about, but our government should know. We will eventually move on to alternative fuels, but it will be years down the road, and recessions away from today.

I believe this is the case as far as oil is concerned! I feel that the US, in particular, needs to make an about face and take advantage of natural gas. This is a resource that we have readily available -- it is the cleanest of the fossil fuels. The technology exists for implementation at the consumer level, if only we had the impetus to make it happen. Vehicles which are bi-fuel (capable of using gasoline and natural gas CNG) have been in use for years. I read that in Utah consumers pay 63 cents/gal equivalent for CNG at the pump. In Houston the price is $2, and only two stations are listed. I would pay that if it meant my money was returning to the US economy -- who would not? Why we continue to send our money out of the country -- when we have the ability to help ourselves is my question.

In S. Texas, we are gas country. We are hurting, but what really gets me is the aggressive nature that the IRS is taking toward oilfield service cos that got hit hard and fell short of capital because of the recession and no drilling. If I could collect I would be ok. You're right, but can the small business man last 'til that comes about. Is the IRS going to take all we have worked for and make us all homeless and broke?

The only ones that lose from high oil prices are the consumers. You can tack on the extra bucks at the gasoline pumps to gas taxes. Governments make money from the pumps and last year I did not hear any governmental body suggesting temporarily removing taxes at the gas pumps to help hard working Americans. We are fighting a war in a recession; the only new fresh money needed to fund this war are from the pumps, and in the near future, the new money needed to fund this 2 trillion pound Gorilla health care overhaul system will be gas taxes at the pumps. $200? Try $350 by the end of 2014.

Concur, the oil peak has been reached and fossil fuels will/are becoming unsustainable by free market. The human race can go forward or backward. Where is or is there leadership (governments) to transition to energy balance through proper use of fossil fuels, solar, hydro, wind, Nuclear, electric, geothermal...such as all electric vehicles in urban environments and fossil fueled vehicles for long haul rural transportation (land, water, air).

"I hope things will change because friends and I have been working in the oil and gas field for 10 years. Had work for years and now I have been out of work for 4 months and some friends out of work for 10 months to a year. Something needs to break."

Ken, the fact that you have been in the oil and gas industry for only 10 years has given you a sense of security in the industry. The last 10 years have been relatively good for oil and gas, with the recent downturn being the hardest period. Those of us who have been in this industry upwards of 20 years have seen more than one of these downturns and have no doubts of the volatility that this industry lives with. We know that things may look bleak at the moment, but that they will turn around. That turn around may be slow in coming, but it will come. Also, this is the "best" downturn I've ever seen. I remember when $30.00 a barrel oil was only a hope.

The price of crude will definitely continue to rise, in as much as more oil wells are being discovered and some other forms of energy are being discovered. This is because as the years goes on it brings about development and the rate of consumption of crude is increasing at a geometric progression while the rate of oil well discovery is increasing in an arithmetic progression.

$200 oil may well happen, but it would most likely trigger such severe economic fallout that it would reduce demand that same oil, leading to a price fall: economics 101.

As we all know, we must find a better way to fuel our cars, trucks, ships, airplanes, and substitutes for all the industrial uses of petroleum.

In the meantime: get used to riding your bike and getting off the grid so when any shock does come it won't disrupt your life so much. Good luck everyone!

I absolutely agree with the author with this prediction. Last December, when we had an SPE meeting in Singapore on the same issue I was forecasting that by mid-summer the price for oil would bounce back to around 70USD/barrel. I do not believe in the speculations related to the supply/demand balance. As one can see from the global oil supply/demand studies, the margin was fluctuating around 1% all 2008 long. The drop-down is a pure result of speculations at the financial market. The exploration drilling was put aside significantly and at the same time the demand went just an inch down. So, in few years time, this disbalance will hit the production cost. And then, the prices will come up. Good news -- same will our salaries do. Bad news -- we will have to switch to push-bikes.

Of course, oil pricing is not just driven by supply & demand economics but by many other factors. More than ever oil pricing has been politicized by world and climate activities. When MEND blows up a pipeline in Nigeria or a hurricane hits the US Gulf Coast the price is immediately affected. In fact, suffice to say, a hurricane lurking in the Gulf of Mexico is about the only factor that will help the current Nat Gas pricing in North America.

With the burgeoning LNG liquifaction plants being built worldwide the natural gas industry is headed down a similar road (regarding price manipulation/politicalization) as oil although it will probably take the next 6-8 years for it to become fully realized.

While Mr. Rubin's interview/analysis borders on the speculative, the hard facts of a depleting oil supply globally cannot be denied. What cannot be denied also is the upsurge of gas discoveries and rapid acceleration to commercialization of the same in the form of LNG infrastructure in Australia,South East Asia, the Middle East, South Americas, Canada and Europe.

If only our scientists and engineers can rapidly put the technology viable for large-scale conversion of gas to DME, side by side with infrastructures for CNG for cars, trucks and buses, then the scenario of usd200/barrel will disappear forever.

As a result of high oil prices, we'll be into the post-industrial stone age by 2020. Sooner would be better for non-industrial humans, non-human species, and all future generations of humans on Earth. If you care about any of these, as I do, you'll welcome the stone age.

Bring sustainable living back to Earth. Bring on the stone age.

I predict this guy is wrong! I predict that it will hit $300 or more in the near future -- when Israel hits Iran!!!

It was neophyte economist analysts like Jeff Rubin that told us dotcom stocks would keep going up even after PE ratios were over 50. These technical observers base their decisions on momentum ... not fundamentals and don't care about sustainability or who gets caught buying at the top based on their "advice".

Rubin had a good teacher with the oil sector in Matt Simmons. As an investment banker, Simmons told gullibles like Rubin that oil had Peaked in 2007; the price is going to $600/barrel; and it will cost the sector $100 Trillion for infrastructure by 2015. So Rubin wrote a book.

Rubin did not expect oil to hit a world record in 2008. He does not understand that oil over $70/barrel causes Recessions. And he missed the IEA study showing infrastructure will cost only $4 Trillion by 2030.

Rubin is correct; having worked in the middle east the last 20 years, I know the water is drying up. Correct on Dubai also. Cost to build new rigs goes higher ever day. The price of oil will go up; might not be 2012 but it is a good call. Natural Gas drilling is on the rise and will continue in the US.

Our problem with this whole oil supply/demand issue is our government. We import billions if not trillions of U.S. dollars every year for foreign oil, while our domestic companies get strapped down with facing more taxes, more regulations and red tape to contend with. People wake up it is not just the oil companies that make money from oil. We must remember that out of the 16 million unemployed at least 1/2 are either directly or indirectly related to the production/exploration of oil. Give tax credits to domestic oil producer to find and produce domestic oil and pay for it with the savings from NOT importing.

I have been in the transportation industry for 25 years with most of the majors (air and ground freight) Our volumes are half what they were a year ago, we are laying off staff and there is no end in sight. As the dollar continues its slide, and it will continue, oil will get more expensive for America and not the rest of the world. You do the math.

Hard to be impressed by someone stating the obvious. Try to raise capital to take advantage and you really find out about the what the market really thinks.

I hope the price of gasoline goes to twenty bucks a gallon just to clear all of the suvs and pickup trucks off of the roads and into the junkyards where they belong.

Right on target! The timeline may vary by a couple of months, but the end result is a lock. The author is a genius.

Why is it you ignore stupid calls? Rubin published his estimate last fall that oil would be $130 by year end. It fell below $40. Get the whole story. Rubin has no more idea what oil prices will do than the postman.

You must be expecting an Alien invasion arriving with gold pocket books. Earthlings are broke. $200 oil won't ever happen and inflation won't drive it there with 16m unemployed.

$147 oil sucked the tide of wealth out.

One point that escapes most people. It's not just a fuel. It is in every object you can touch in your home, car, and work place. The average car today has 500lbs of plastic in it verses 25lbs in 1966. It is used to produce and move these projects.

$200 OIL MEANS a LOCKED ECONOMY. A self canceling prophecy.

No, what is coming is BEANS AND FRANKS. And we stupid Americans getting off our 100lb overweight bottoms and producing something to make a PB&J Sandwich with.

Good luck with that.

Cliff Pratt wrote: "Nuclear energy is the only source which is clean and can provide the power which could supply an urban (not country) grid of power to run electric cars. The military has been using nuclear power safely to run its subs and ships for many years. The French have supplied most of the power for Europe, as well." Nuclear energy is clean? Say what? Yeah, if you discount all the things like nuclear waste, uranium mining, reactor construction, the inevitable decommissioning. The French are destroying their rivers!

Surely you don't think that privately run plants can be anywhere nearly as properly run as nuclear subs do you? Comparing a handful of subs to what will likely end up being hundreds, if not thousands of nuclear plants is ludicrous. Those subs are totally subsidized by all taxpayers; their operation isn't FOR-PROFIT!

NO MORE TAX CREDITS FOR ANYTHING! It only distorts the markets! REMOVE existing credits from everything first before even beginning to contemplate giving more away.

China is revving up its idled manufacturing plants as we speak, and they're powering them with the dirtiest fuels on the face of the earth -- coal and tar sand oil.

In Revenge of the Ghia by Dr. James Lovelock, a period is examined in the Geological record of the Earth where a volcano erupted under a deposit of 200 billion-billion barrels of oil. The scientific data reveals that the result was an epochal 6 to 8 degree rise in global temperature. The plants the herbivores fed on died and were replaced by other plants that they could not eat. Hence they died as evidenced in the die-offs at the tail end of that period.

The GW deniers have never even tried to challenge these findings, so the geological record of the earth has stood unchallenged for many years. But don't let the record species extinctions occurring all around us keep you from hoping for an oil-based economic recovery. After all, the human race is immune to the forces of extinction, right?

Furthermore, don't let the fact that our industrial revolutions has consumed just about 200 billion-billion barrels of crude oil bother you either. This six years of steady reductions in world grain production can't possibly be that proverbial canary in the coal mine can they?

Rubin is right. The US & the world economies are still driven by hydrocarbons, and will be for the immediate future. We are held hostage to the OPEC countries, and this is primarily due to the lack of our government to support our oil finders. Solar and wind power are insignificant sources, at the present time, due to lack of widespread transmission grids.

Nuclear energy is the only source which is clean and can provide the power which could supply an urban (not country) grid of power to run electric cars. The military has been using nuclear power safely to run its subs and ships for many years. The French have supplied most of the power for Europe, as well.

Don't count out natural gas which is cheap, clean burning, and the US has abundant supplies. Cars can safely be converted to this source of power. I don't know why the Government is keeping this from happening? Large tax credits should be given immediately for this conversion.

Prepare yourself for the next upswing in oil prices.

Rubin foretells $200 oil and a vastly transformed global economic picture coming into focus very soon.

Yes, of course, because the US dollar is coming down rapidly. The US is bankrupt. Sorry guys.

A rebound in oil and gas prices is a no-brainer. What was incredibly stupid was not keeping the price of gas higher by taxing it to pay for green tech.

Solar, wind, water and better ways to distribute and store electricity is where we need to put our money. Allowing the price of gas to get to $2 should have never happened. Granted, $4 is a bit hard to take, but anything under $3 was idiotic.

I'm in your camp. I have a lot of oil stocks and won't sell them! The world is growing, not just the USA. And everyone needs oil at this point in time! Other sources of energy are still too much for the world as a whole. Black Gold in my nest egg!

Interesting article from a legit source. I'm curious though. The article fails to mention the potential of natural gas, oil shale, and human innovation, and their impact on technology, price, economies of scale, etc...Let's not forget, we once used whale oil as a source for fuel, and we haven't run out of them.

I can see Rubin's forecast due to unpredictable storms in the Gulf of Mexico. Cost of exploration increases cost due to expendable materials used in drilling fluids, as well as technology in finding rich fields to drill, is going to be harder to find to make profits for investors.

Cost of fabrication of new rigs, being retired and construction cost of replacement rigs, expendable parts doubling and delays in deliveries become costly.

Loss of shipyards, fabrication yards in the US since the downturn of demand since the 1980s, such as IDECO, IR, Skytop, and others for land rigs and offshore.

Oil prices in the triple digits by 2012, probably. $200/bbl. oil by 2012, doubtful unless a middle east military conflict occurs. There have been several new discoveries that are projected to contain huge amounts of oil and many more out there to be found. This article (did not read the book) contains some strong points but is still speculation.

I hope things will change because friends and I have been working in the oil and gas field for 10 years. Had work for years and now I have been out of work for 4 months and some friends out of work for 10 months to a year. Something needs to break.

Agree completely. $60-$65 going into 2010, then a panic.

Rubin's assessment will prove to be largely correct in the very near future. He is one of the very few to tell it like it is.

The role of nuclear power as an alternative source of energy is missed in this. Cheap natural gas and oil have been limiting its development. If you look at the horsepower of nuclear submarines, there is ample technology for the development of nuclear powered marine transport and rail transport already in place.

Rubin may very well be correct about the price of oil reaching $200 in the absence of another deep recession before 2012. That may be the outlook for energy in the short term. In the intermediate term, (present-2030), these price shocks will probably provide incentives to replace petroleum use with natural gas, which still seems to be quite abundant. Coal, nuclear and renewables may also play a much larger role in the overall energy mix during this intermediate period. After 2030 things look really bleak, because by then we will be facing shortages in most natural resources that we use today, including water and food. Of course I am assuming that the global economy, and the world's population will continue to expand in the next two decades. If that assumption is wrong for any reason, then there might not be such an acute shortage of raw materials after all. We live in very interesting times.

I hope you are right. I have worked in the oil industry for 19 years and never have been out of a job. Now I have been unemployed for 3 months and don't see work this year. I hope and pray every day you are right.

Crude prices are up and may go up further because of the artificial manipulations of the cartel of producers and intermediaries. If you believe the recession was a result of excessive crude oil prices, then with this gradual increase of crude prices (may be to $80/90 per barrel in the short term), I do not believe we will be completely out of recession. So, Folks, tighten your belts. In the future you will work more for less pay unless and until someone discovers an alternative cheap source of energy.

Excellent article and sounds very plausible...

I hope that Jeff can get some more mainstream media exposure for his great book. Thanks to Rigzone for doing a great post.