Triple-Digit Oil Prices: Rubin vs. Yergin

I know where I'd place my bet between Daniel Yergin and Jeff Rubin with respect to the outlook for triple-digit oil price, but here are their respective cases nevertheless:

Jeff Rubin: Very soon. "We'll be back to triple-digit oil within 12 months. As soon as a recovery begins, very early in that cycle I think we'll see the return of $100 barrels of oil. It's inevitable. We can only hope it doesn't have the same devastating impact on the economy, and the only way to prevent that is by going back to local economies and away from globalization."

Daniel Yergin: Not for a while. "The only way we'll see the return of triple-digit oil in the next year is if there's a very dramatic event. The reality is there's a tremendous overhang of supply. We have 6.5 million barrels of spare production capacity. Compare that to the 1 million we had in 2005. Global demand remains well below its peak in 2007, and I think will stay that way for a while."

[via Newsweek]

Comments

[Prudent Man...:]

Unfortunately, much of the oil we use is produced by people who don't like us. Consequently, political considerations, in the short-term, could very well trump economic.

May 27 02:16 PM

[Hot Richard:]

Yergin said no, so you can bet that oil will soon be at $100+.

Yergin is always wrong, mostly because he's a hack.

Let me check my oil investments. Yup, up dramatically.

May 27 02:32 PM

[Jasper M:]

If read carefully, Both may be right -

Rubin: "As soon as a recovery begins, very early in that cycle I think we'll see the return of $100 barrels of oil".
Yergin: "Not for a while."

The current, near worst-case trajectory we are seeing in government policy means we won't be seeing a recovery for many, Many years. So, yeah, Rubin's scenario may play out just so - in 6 Years. In the meantime, Yergin is right.

May 27 02:46 PM

[MJJP:]

I agree that both may be right but not for the same reasons. Oil will spike and in short order because many rigs have and are being taken out of production. It takes a long time to bring them back into production once the economy starts to rebound. Just about everyone is ignoring that peak production has been reached and many older fields are not producing as much oil especially in Saudi Arabia and Mexico in particular. It is said that Mexico is probably in its last year or maybe one more as an oil exporter.

May 27 03:09 PM

[blu:]

I'd be in Rubin's camp. Yergin is a historian.
We have not previously seen what is happening in the energy markets currently. The markets are making new history due to the peak oil scenario that is unfolding. History won't help us here.
I pay particular attention to Pickens when he speaks. He has a grasp of the energy markets that most can not match. Yeah, he's been wrong some, but he's been right a lot more.

May 27 03:11 PM

[dw57:]

well it depends. we will see $100 oil as soon as the speculators can get it there. since demand has been crashing for 2 or more years, the support for it will be minimal. when it was over 100, it didn't push gas up to match. and considering that demand won't be going up any time soon, if it does hit 100 again, it won't be because of supply and demand. about the only reason it might besides our friendly speculator, is if Venezuela stops selling us oil.

May 27 03:14 PM

[TurtleTrader72:]

The price of oil is rising because the real buying power of the U.S. dollar is decreasing, not because there is a turn around in the economy? If you overlay charts of oil and the U.S. dollar you can actually see the inverse correlation. If the U.S. dollar keeps losing value, the cost of oil will ultimately rise. However, if the U.S. dollar starts to gain some strength, you will see oil pull back. This is a U.S. currency issue more than anything else.

May 27 03:17 PM

[Fighting Yoda:]

Rcent oil price rise is green shoot speculation. The inventory over hang is too high: since Oct OPEC production cut announcements:

- Inventory increase from 57 mi brl -> 100 mi brl
- days supply 52 –> 62/63
- 1.35 Mi decline in demand projected for 2009

May 27 03:33 PM

[xgi:]

So where would you place your bet Mr. Kedrsosky?

May 27 04:10 PM

[doubleguns:]

Oil spike from previous production cuts and china/india demand not from american demand. After the spike economy continues to go to $hit and prices come back down. Next year could be just like 2008 prices soar up, market carshes, oil plunges.

Time frame subject to change based on nuke tests, actual nukeings, other civil unrest, the banksters really screwing things up and finally the administration changing the rules...again!

So there you have it.

We have no clue what tomorrow will bring.

May 27 04:38 PM

[asaf123:]

I would go with Yergin. According to estimates from both Exxon Mobil and the US Dept. of Energy, 2007 represented the all time peak in demand for US Motor Gasoline usage.

Hence the huge overhang in supply vs. a declining demand picture

May 27 05:29 PM

[Tranquilmed...:]

Daniel Yergin was a little blindsided by $147 oil last summer but his research at CERA over the years has been thorough and thoughtful. That is why so many large institutions rely on his analysis. To his credit, Mr. Yergin predicted that $147 oil was speculative and that it would have to come down, which it did.

Jeff Rubin strikes me as being a peak oil cheerleader. It makes great headlines (and sells books) when you predict $225 a barrel oil like he did and still does. He did not see the drop in oil to $35 a barrel coming at all. Following his advice, you would of been buying oil at $147 and been totally wiped out.

My hard earned money would follow the wise counsel of Mr. Yergin.

May 27 07:21 PM

[Anandakos:]

China is ramping up vehicle production at an astounding rate. Fortunately, they have pretty draconian CAFE standards, but they'll soak up the decrease in motor fuel demand from the US within a year and a half to two years.

Certainly a good part of the peak price was speculative fluff. The market clearing price without USO gumming up the works was probably about $100 at the peak. It will get back there within two years.

The poster who talked about the inverse relationship between the Incredible Shrinking BushBuck and the oil price run up in 2007/8 was also correct. Since the Fed and the administration are spending like -- well even sailors can't get that drunk -- we will see a decline in dollar valuation. That will help push oil prices up, too.

I'm surprised the Saudi's haven't said something like: "we're selling you an irreplaceable commodity. We want to be paid in something equally tangible. Oil is from this time only for sale at one tenth of a Troy ounce of gold, delivered to Riyadh."

May 28 02:51 AM

[pockyclips ...:]

Sadly, the price of oil in the ground (or in the tanker) has nothing to do with the price at the pump. Fundamentally, it should take at least 12 to 18 months to break the $100/barrel mark, but I'm willing to bet that speculators will jump on the bandwagon early.

May 28 08:35 AM

[john s. gordon:]

the arrival time of 100$ oil will depend on how hyperactive the speculators & hedge funds are (july 2008 style).
> jack

May 28 08:40 AM

[Boubou:]

I am frustrated and outraged ( as usual).
Experts are always equal and opposite and cancel out.
And yet they all get very well paid not to know what's happening.
So picking your guru is as difficult as picking outcomes in the first place.

Lucky experts who design bridges and airplanes do a bettr job. Of course, they get paid a LOT less.

May 28 08:59 AM

[fran:]

good[excellent] response!


On May 27 02:46 PM Jasper M wrote:

> If read carefully, Both may be right -
>
> Rubin: "As soon as a recovery begins, very early in that cycle I
> think we'll see the return of $100 barrels of oil".
> Yergin: "Not for a while."
>
> The current, near worst-case trajectory we are seeing in government
> policy means we won't be seeing a recovery for many, Many years.
> So, yeah, Rubin's scenario may play out just so - in 6 Years. In
> the meantime, Yergin is right.

May 28 02:53 PM