'Age of scarcity' will drive oil to $225 US a barrel: CIBC
John Morrissy , Canwest News Service
Published: Thursday, April 24, 2008
OTTAWA - Prepare for gasoline prices to hit $2.25 a litre by 2012 and for crude oil to soar to $225 US a barrel as scant supply growth delivers us into the "age of scarcity," says CIBC World Markets chief economist Jeff Rubin.
"Our latest review of probable supply suggests oil production will hardly grow at all, with average daily production between now and 2012 rising by barely more than a million barrels per day, Rubin said in his report, The Age of Scarcity. "Despite the recent record jump in oil prices, the outlook suggests oil prices will continue to rise steadily over the next five years, almost doubling from current levels."
He said there has been no growth in oil supply over the past two and half years, contrary to popular misconception. Whereas total output has grown to an estimated 86 million barrels a day, the growth has been in related products known as natural-gas liquids, such as butane, used in cigarette lighters.
With many oil-producing countries subsidizing prices, demand for oil and gasoline has surged in the developing world as new affluence drives auto purchases.
Jin Lee/Bloomberg News
But those liquids - other than lightly used propane - are not transportation fuels, which now account for half of the world's oil use and more than 90 per cent of demand growth in recent years.
With many oil-producing countries subsidizing gasoline prices, demand has surged in the developing world as new affluence drives auto purchases.
But as prices soar in countries belonging to the Organization for Economic Co-operation and Development, where consumers not only pay full prices but excise taxes as well, demand is destined to fall.
"The point of the fact is that for every extra driver that gets a car and goes on the road in those (developing) countries in the next five to six years, somebody's having to get off the road in the OECD countries," Rubin said.
That situation will only be exacerbated by major oil-producing countries like Russia and Saudi Arabia consuming more oil themselves, thus reducing supplies available for export.
By 2012, more oil will be consumed in the developing world than in the developed world, "a virtually unthinkable prospect a little over a decade ago, when consumption outside of the OECD measured little more than half of the OECD's annual oil intake."
"The point is that the solution lies not with the supply curve, it lies with the demand curve," Rubin said. "It's not about finding new sources of energy supply, it's about consuming less energy, because ultimately, that's what we're going to have to do."
Oil prices have spiked in recent weeks as the U.S. dollar fell and supply fundamentals weakened. They eased $2.21, or 1.9 percent, to $116.09 a barrel US on Thursday.
Gasoline prices have been similarly rising and averaged $1.24 a litre for regular gas across Canada on Thursday, according to price-monitoring site Gasbuddy.com.
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