Herrera sticks to his guns: says high oil prices here to stay

Alaska’s own oil price guru predicts prices may drop slightly in short-term but $40 oil on the horizon

Kay Cashman

Associate Editor

On Jan. 11. 1999, when the price of oil was at a depressing $9 a barrel, Roger Herrera predicted world oil prices would rise significantly within six months.

Skeptics roared.

But he was right. And he has been right ever since.

The long-time Alaska oil and gas consultant doesn’t have any special connections or new sources. He reads the same newspapers and financial reports that anyone on the United States has access to.

His secret?

“Dollops of common sense,” Herrera told PNA July 17. “You don’t have to be unusually clever to assess the world situation in a logical fashion.”

High oil prices are here to stay, he said.

“We might see short-term, small drops, but the trend is upward. ... “I expect we’ll see $40 oil in four or five years.”

What about Saudi Arabia’s intention to drop another 500,000 barrels per day on the market?

“I still have to suspect that whatever OPEC does — and its members have reverted back to their oil cheating ways, producing more oil than they said they pledged to — and whatever OPEC says has an immediate impact on the price of oil whether or not it has an actual impact on supply and demand,” Herrera replied.

“If Saudi Arabia dumps another 500,000 barrels on the market, I suspect there will be an instant psychological adjustment and the price of oil will ... temporarily .. go down. But the impact will be psychological. It won’t have a real supply and demand impact. ... The supply and demand will stay exactly the same as it was before the announcement. ...

“Five hundred thousand barrels is a minuscule increase when the world is consuming something like 74 million barrels per day. To say 500,000 barrels will radically impact the price of oil is not realistic,” Herrera said.

Why does he think world oil prices will “slowly and sedately” increase in the future?

“Worldwide demand is much higher than it was a year ago. It continues to steadily increase. ... Japan and a number of other countries are coming out of recessions, so demand should go up even more,” Herrera replied.

Another factor, he said, is that in the past, periods of high oil prices have resulted in a “huge effort on the part of western oil companies to find more oil. That reaction has not occurred this time around. ...

“While there is no doubt that Schlumberger, Halliburton and other service companies have been experiencing a bit of a boom, the oil companies have not gone gang-busters on exploration this time.”

So how will the world economy react to $40 oil?

“At some stage, demand for oil will level out or go down and other sources of energy will be found,” Herrera said.

“I am totally willing to be wrong (about oil prices continuing to increase to $40 over the next four to five years). ... But if I’m right, it’s good news for Alaska. So, I say, let it happen!”

Editor’s Note: In its short-term oil price forecast July 7, the U.S. Department of Energy’s Energy Information Administration said that it believes there is a probability of significant declines in world oil prices by yearend. The agency based its conclusion on the results of OPEC’s June meeting and the July 3 announcement by Saudi Arabia of its intention to push for an additional 500,000 barrels per day of new output. The EIA said it expects a decline of between $4 and $5 per barrel in average crude oil prices between June and December 2000. It also expects that increases in petroleum inventories resulting from the anticipated increases in output from OPEC would tend to bring oil stock levels in industrialized countries much closer to average levels by yearend than it projected in June. However, with world demand growing at between 1.5 percent and 2.5 percent per year through 2001, in terms of forward coverage of demand, the EIA predicted that oil stocks may still be assessed as relat