$200 a barrel oil? $75 is more likely

Jeff Rubin, the guy who sees oil rising sky-high, is chief strategist at CIBC World Markets, has consistently predicted much higher oil prices in recent years, and has been right.

But Clement Gignac, chief economist at National Bank Financial, and skeptic about the ability of oil and other commodities to rise forever, has bragging rights of his own. He was far ahead of most others in making the most important economic call of recent years: that the U.S. housing market would crumble, bringing a recession.
If I were to make a bet, however, it would lean toward Gignac’s view of the world. Rubin’s depends rather heavily on a belief that the lessons of history just don’t apply today. Anybody who’s lived through a financial bubble like the ill-fated tech boom is skeptical of such logic.

However, over the past few years , Rubin’s view has been a very profitable one for those placing market bets, with commodity prices – whether for oil or metals – shooting up farther and for longer than in any previous such boom.

There have been two reasons: poor supply and soaring demand.

Supply, whether for oil or for industrial metals, hasn’t grown very much, even in an environment where prices grew by several hundred per cent, creating enormous profits. Yet demand just kept growing year after year, fuelled largely by the growing appetite of industrializing nations like China and India.

History tells us that this can’t keep going forever.

Eventually, demand will taper off as prices become unbearable for some consumers, while supply will increase as producers seek to take advantage of the big new profits available.

Montreal Gazette