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High oil prices within six months predicts Roger Herrera
Randy Brutsche
It’s harder on them than it is on us, he says of the Third World countries that have increased production: They could “go up in flames” at any moment
Roger Herrera told PNA in a Jan. 11 interview that he thinks the price of oil will start to go up within six months and return to the $15-$20 per barrel range within a year.
“Unlike the public pronouncements of the major oil companies, I think this price trough is very short lived, a maximum of six months, if that,” said Herrera, an oil and gas consultant based in Anchorage. “Thereafter the price will go up.” In one year Herrera said he expects it to return to the $15-$20 level.
“It’s not all black now — we’re at our worst point in Alaska at this time. If you look into the future, short, medium, or long term, it’s going to get much better than it is now.” Why so optimistic? Oil prices are down because of decreased demand from a depressed Asian economy and a “relatively small increase in production” from Venezuela and several Middle Eastern countries, said Herrera.
Venezuela, he said, wants to capture more market share in the United States from the Middle East and is willing to harm itself, in the short term, to get that market share.
Some analysts believe this situation will not change. While they acknowledge that Asia’s economy is showing some signs of improvement, they say it will be years before it is bullish on energy consumption.
Herrera does not argue with that.
However, he said, people who use that argument forget several things.
First, America is always increasing its consumption while its production is declining. This, he said, has been going on for 10 years and it’s not stopping.
Second, they forget that nearly every producing country in the world, such as Saudi Arabia, Kuwait, Abudabi and Venezuela, is in desperate financial straits because of the low price of oil. If prices don’t go up, they go belly up Herrera maintains that while Alaskans see themselves as suffering, we are “not in the same ballpark” as Saudi Arabia which relies even more economically than Alaska does on the sale of oil.
“Their entire social structure is based on oil ... When their income is cut in half in a period of approximately nine months, it puts tremendous political and social strains on the whole hierarchy in Saudi Arabia. That country might go up in flames at any moment,” he said, “purely because of the depressed price of oil and the inability of the monarchy and the politicians to keep their citizens happy.”
The dangers these major oil producing Third World countries are facing are “orders of magnitude more severe” than what Alaska is facing, Herrera said. “And, their politics are more razor edged than ours. They do not have stable democracies like we do.”
He said that in looking at the whole oil price scenario, one has to consider that Venezuela and the Middle Eastern countries, sooner or later, will have to do something about the situation. Otherwise, he said, “They go belly up, or they have social upheaval, or they have a revolution. And none of them can afford that. To assume that Saudi Arabia is going to sit back and do nothing for the next year or two is absolute nonsense. It would die if it did that. The king would be deposed and the whole country would be overturned.”
They will “grit their teeth as long as they can, but after that, they have got to take hard action,” said Herrera. They have the where-with-all to bring oil prices up, he said, with production cuts because they are such large producers. Oil market muscle If Saudi Arabia announced that instead of producing 9 million barrels of oil a day, it was going to reduce its production to 7 million and it talked its Middle Eastern neighbors into reducing their production by 15 to 20 percent as well, the price of oil would move up in a week.
“The only reason they haven’t done that, in my view, is because of Venezuela,” said Herrera. Venezuela has “really thumbed its nose at the Middle Eastern producers. ... It has said, ‘We don’t care. We’re going to bankrupt ourselves and you, (if that’s what it takes) but we’re going to gain market share, and we’re going to be ruthless about it.’ ”
Sooner or later, and Herrera predicted that “it’s probably going to be very soon,” Venezuela and the Middle Eastern producers will sit down and agree to reduce production.
“Although they hate each other, they’ll do it because of the fact that they are both going belly up,” he said.
“Or,” he said, “one of them will unilaterally say, ‘To hell with market share, we’ve just got to save our necks now. We’re going to cut back on oil and push the price up.’ ”
Herrera didn’t know which of those scenarios — “or some other modified scenario” — would happen, but he was willing to bet that within the next six months something like that will take place.
“That’s why,” he said, “I think the people that accept the status quo with the price of oil simply are not reading their tea leaves objectively.”
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