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Russian Predicts $250 Oil
Recently the CEO of Gazprom predicted oil will sell for $250 in the near future as described below. An analysis of that idea from a former Bank of America person leads him to conclude that the recent oil run up to $147 is a bubble that will burst and that the oil price will stay low for five years.
OK, everyone is entitled to his opinion. To me, the Russian prediction led to my thinking about what conditions have caused and may in the future cause a sustained rally in the oil price.
As Chris Skerebowski noted recently, it is exactly a continual failure of supply to satisfy the level of demand at the prior price that causes the price to move up. But as prices move higher they cause demand conditions to change and over time to diminish as substitutions and efficiencies are initiated. We may be seeing that work out right now.
My sense is that only a sustained decline in oil supply can lead to a future sustained price of oil that the Russian envisions. If the megaprojects data are correct, that condition should begin to apply after 2009, perhaps in 2010 or perhaps not until as late as 2012.
Here is the first part of the essay referenced above:
Crude oil at $250 per barrel?
18 Jul, 2008, 0145 hrs IST,Arun Duggal,
You should never make predictions, especially about the future”, advised Samuel Goldwyn. Forecasting future price of oil is even more hazardous. Yet, in this article we gaze into the crystal ball to guess where the price of oil is headed.
Last month Mr Alexei Miller, CEO of Russia’s and world’s largest gas company OAO Gazpron predicted that the oil price would shoot up to $250 per barrel in the near future and the gas prices will follow similar upward trend. The new Russian President Dmitry Medvedev also commented, in a manner gentler than his predecessor’s but quite clearly, that the world has to get adjusted to the new reality of stronger Russian and weaker US economic power in view of high oil and gas prices.
Tags: peak oil energy investments
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5 responses so far ↓
1 KV // Jul 20, 2008 at 5:55 pm
Russian economy bounced back because of oil and gas. It is not in Russia’s interest for oil to drop. Remember, Saudis were nearly going broke because their spend rate had gone up while oil revenues kept going down. Russia could be in the same predicament if the oil drops.
I think what we really need to monitor is demand destruction in oil. Anybody knows if there is way to do this?
2 paultaut // Jul 20, 2008 at 7:26 pm
Many people are now using credit cards at stations, it may be possible to track them on a weekly/monthly basis if the credit card companies group these transactions and pool their findings.
I don’t know if any legalities would be infringed but think this would be viable in the US.
Gazprom has offered to buy all of Libiya’s? oil and gas production. I think they are seriously making an effort to control oil’s future price.
Remember that all of Opec is powerless to increase production by more than 3 million brls, maybe 2.5 for export for the foreseeable future. If Russia were to decrease production by 3 million, down from roughly 10, the price of oil will certainly go to $250 next year.
Sounds like a plan to me. “We will bring America to its knees” will occur, later than forecast, but patience is a virtue.
The Plan would be to get the world to pump as much as possible to keep Oil low. Then the Russians would be the “swing” producers.
3 opus1 // Jul 21, 2008 at 7:01 am
additional significant decline in the value of the dollar would get oil par headed towards $250/barrel without causing a lot of demand destruction in countries other than the US.
4 Tony // Jul 22, 2008 at 8:00 am
Interesting concept ($250/bbl oil). Along the way to Russia trying to make that happen, and it will take time, they will have to slow their production and exports to a crawl. That does not bode well for the greedy politicians in Russia since they need the oil revenues to sustain their existance. Plus, as oil prices go up, additional (costly) supplies will come to market. What Russia has to worry about is losing market share in an effort to control prices.
That said, alternatives will really be replacing that costly oil (biodiesel, ethanol, wind and solar power). Also, the US population can conserve and reduce dependence on motor fuel, especially if hard pressed. I know we can and I have a 45 MPG VW diesel now.
5 Robert Essian // Jul 22, 2008 at 12:45 pm
KV, I don’t really know how we could do that with the information at our disposal or rather dis-information. If you figure it out though I think you would be a very wealthy man. You know how to contact me.
I’ll add this though if we do not get our financial house in order like housing, Fannie Mae and Freddie Mac we will take the World economy to its knee’s. That would cause demand destruction and you can take that to the BANK! If its open.
I do not believe it is in anyones best interest to take down the United States by controlling the price of oil to our detriment. We do buy so much and consume so much that it wouldn’t be good for business.
They have the oil, it is scarce and they should milk the cow for all its worth with market fundamentals not with price manipulation. They will get rich enough and buy all that we have without having firing a shot.
What’s up with China and Exxon over Vietnam? Russia too with Venezuela and Warships in the Arctic? Looks to me like positioning for the future and a World where oil is truly in demand…
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