$220/bbl oil someday, but not just around the corner

Michael Lynch: Game is changing fast

Jeff Rubin at CIBC World Markets in Canada predicts $200/bbl coming very soon. He correctly predicted the price of oil reaching $50 in 2005 and $100 in 2007. The year 1966 was the peak for discovery of new oil fields. Production declines by 4 million bbl/day/year because of depletion. The industry must discover reserves over the next 5 years that will add 20 million bbl/day of capacity. A new oil sand project in Canada can carry a price tag of $90/bbl. Demand/depletion will push up price.

Without question, the basic facts presented in this report are correct in every detail. Still, the worldwide financial crisis of 2008, now lessening somewhat in Europe and Asia, still grips the U.S.A. like a vice. Demand for refined products will remain low for at least a year and possibly longer. More importantly, when a fuel category suddenly becomes inexpensive and plentiful at the same time and if that substance can be adapted for new uses, the potential to change the primary structure of the energy market exists. Pipeline natural gas and liquefied natural gas (LNG) both meet that requirement. Both are being thrust forward as it becomes more and more evident that electrically powered vehicles will be expensive with lengthy refueling conditions. The move to compressed natural gas as a transportation fuel is well underway in southern California and Utah and is beginning to influence the market in Oklahoma. Crude oil shows no real ability to move out of the $70/bbl range and can easily linger there for months. Further pressure on consumption of crude oil based refined products is coming from gas-condensate, the by-product of LNG.

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