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Providing coverage of Alaska and northern Canada's oil and gas industry
September 2008

Vol. 13, No. 39 Week of September 28, 2008

Oil Patch Insider

Canadian bank economist: Oil prices bound for $200 per barrel

He’s done it before and he’s at it again.

Jeff Rubin, the outspoken and highly-respected chief economist at the Canadian Imperial Bank of Commerce (one of Canada’s Big Five banks), is — as he has done previously — betting oil prices will hit $200 per barrel within four or five years.

But his prediction is contingent on sanity returning to the financial markets.

Rubin told a Global Business Forum of international decision-makers that the fundamentals of oil remain strong because supply has not grown over the past three years, while low-cost conventional output is being replaced with high-cost unconventional oil from the Alberta oil sands and deepwater plays, such as the Gulf of Mexico which he believes is headed for sharp and substantial decline rates.

“Every year the marginal cost of the new barrel of oil goes higher and higher,” he said.

Meanwhile, demand is soaring in the Middle East and Third World, where consumer and industry prices are far below world market prices.

Rubin said demand and consumption in countries outside the Organization for Economic Co-operation and Development is on track to overtake OECD demand, meaning overall consumption will climb higher.

Because of dramatically higher energy costs, a sharp rise in transportation costs is destined to remake the world economic order, as a result of which “we’re going back to a world where distance costs money,” Rubin said, noting that trend has already seen U.S.-produced steel return to competitiveness against Chinese imports.

He said the underlying indicators show the global economic crisis is close to ending, so long as investors and corporate leaders don’t make ill-advised decisions amid what he believes are fleeting conditions.

“What is happening out there is a giant head fake, that could easily put you running in the wrong direction,” Rubin said.

“By the first quarter of next year the world is really going to change, because instead of deflation and Wall Street, we’re going to be talking about inflation and energy,” he said.

When it came to the economic outlook, Rubin was almost a lone voice at the forum, with other speakers warning of a global recession that could stretch over three years.

—Gary Park






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