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post #1 of 74 (permalink) Old 2008-04-24, 11:05 AM Thread Starter
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High gas prices are here to stay

High gas prices are here to stay - Canadian motorists should brace for $1.40 litre gas this summer and over $2.25 in 2012: CIBC World Markets

Tightening global supply will drive oil prices past US$200 a barrel in next four years

Quote:
TORONTO, April 24 /CNW/ - CIBC (CM: TSX; NYSE) - Increasingly tight oil supplies will continue to push the price of oil higher with the cost of crude hitting US$150 a barrel by 2010 and soaring to US$225 a barrel by 2012, forecasts a new energy report from CIBC World Markets.

This will result in skyrocketing consumer gas prices in Canada with the national average price topping $1.40 this summer, $1.80 in the summer of 2010 and $2.25 by 2012.

The report finds that current oil production estimates produced by the International Energy Agency (IEA) overstate supply by about nine per cent since it counts natural gas liquids in its numbers. The report notes that natural gas liquids, while valuable hydrocarbons, are not a viable substitute for oil and cannot be economically used as a feedstock for gasoline, diesel or
jet fuel.

"While natural gas liquids only account for 10 per cent of total supply, they account for virtually all of the increase in petroleum liquids production since 2005," says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets. "Stripping out natural gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why
oil prices have doubled over that period.

"In light of these developments we have re-examined our projected supply increases. The distinction turns out to be critical. Roughly 50 per cent of the increase in expected production is likely to come from natural gas liquids, leaving only small marginal gains in petroleum supply over the next two years."

The ratio of natural gas liquids to total "oil" production has been rising steadily in recent years and is likely to continue to rise for the foreseeable future. Whereas these hydrocarbons represented only about four per cent of total oil production back in the 1970s, CIBC World Markets expects them to account for over 10 per cent of total production by 2012.

This increasing ratio is coincident with accelerating depletion rates in many of the world's largest and most mature oil fields. While natural gas can occur on its own, much of it is "associated" gas-found together with oil. As an oil field matures, the resulting loss of reservoir pressure releases dissolved natural gas. The released gas forms an expanding cap over many mature oil fields, resulting in a rising ratio of natural gas to oil and hence a rising ratio of natural gas liquids to oil production.

Given this trend, Mr. Rubin finds that the global oil market is much tighter than the IEA forecasts. He believes oil production will hardly grow at all with average daily production between now and 2012 rising by barely a million barrels per day.

"Whether we have already seen the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity," adds Mr. Rubin. "Despite the recent record jump in oil prices, oil prices will continue to rise steadily over the next five years, almost doubling from current levels."

The report also notes that while production increases are at a virtual standstill, global demand continues to grow. While higher prices and a weak economy have seen demand drop in the U.S. - as it has in other OECD nations - this has been more than offset by demand growth outside the OECD.

"Car purchases in Russia, for example, are exploding as U.S. sales stagnate," says Mr. Rubin. "While in India the advent of the TATA, a car that will sell for as little as US$2,500, will allow millions of households in the developing world to own automobiles when they otherwise could not. Millions of new households will suddenly have straws to start sucking at the world's rapidly shrinking oil reserves."

Car sales in Russia grew by nearly 60 per cent in 2007, 30 per cent in Brazil and 20 per cent in China. During the same period, car sales declined in the U.S. and were flat in Europe. Transport fuels now account for half of the world's oil usage, and have driven over 90 per cent of demand growth in recent years.

Mr. Rubin adds that this new and growing market for oil will see world crude prices continue to rise and kill demand in the more price-sensitive OECD markets. This has been the case since 2005 where a virtual doubling in pricehas led to declining consumption, a phenomenon not seen since the early 1980s. He predicts that by 2012, consumption in the rest of the world will exceed
OECD consumption, a virtually unthinkable prospect little over a decade ago, when consumption outside of the OECD measured little more than half of the OECD's annual oil intake.

"In order to accommodate more drivers on the road in Russia, China and India, there must be fewer drivers in the U.S. and the rest of the OECD. And so there will be. U.S. oil consumption is likely to fall by over two million barrels a day over the next five years as retail gasoline prices rise from their current $1.20 a litre mark to $2.25 a litre.

The complete CIBC World Markets report is available at:
http://research.cibcwm.com/economic_public/download/pdf.
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post #2 of 74 (permalink) Old 2008-04-24, 11:59 AM
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Gee in January Rubin said "That's a recipe for $150 US-a-barrel oil within five years." So in four months the predication has gone from $150 a barrel to $225 a barrel. That's a 50% increase!

I'd like to know how they could have been so far in their estimates 3 months ago and why this one is anymore reliable!

Why don't they just come out with a press release saying,
Quote:
We think Gas prices are going to go up because oil prices are likely to go up. We really don't have a clue how much but today our guess is $300 a barrel in ten years, although we may change that guess in a few weeks to anywhere between $100 and $500 a barrel. The truth is that CIBC or any other financial institution cannot predict the future and we just take last weeks number and extrapolate 5 to 10% a year to come up with this guess. All the rest of our comments are simply window dressing to make our guesses sound authoritative.

Honestly, does anyone ever hear an economist from academia predict future prices?



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post #3 of 74 (permalink) Old 2008-04-24, 12:37 PM
 
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Anybody notice this?

http://www.pbs.org/wgbh/nova/car/

Interesting, but not much new for anyone who has been following this topic. One tidbit that gave me pause, though: "one quarter of all the petroleum products ever consumed were used in the last decade". And predictions on the fantastic rate of growth in the number of cars. Dramatic increase in the number of cars coupled with reaching the oil production peak means higher and higher prices. Sure, there will be future peaks and valleys in gas prices. But the overall trend has to be up, up, up.

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post #4 of 74 (permalink) Old 2008-04-24, 12:57 PM
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Quote:
But the overall trend has to be up, up, up.
It certainly would appear that way and I certainly wouldn't bet against the trend.

Having said that, if you put it into perspective, oil prices have only recently got back back to 1980's levels. At that time, financial analysts were predicting U.S. $100 for a barrel by the mid-1980's ($200 to $250 by today's standard) but the truth is that we hits $10 a barrel in the 1990's.

In "real terms", I would not be surprised if a barrel of oil is around the same price in five years as it is today. (assuming 3% inflation, todays $120 a barrel might be around $140 a barrel in five years)



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post #5 of 74 (permalink) Old 2008-04-24, 01:28 PM
 
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I don't see oil prices dropping... The Chinese auto industry has been growing exponentially. There are 1.3 billion people coming into the 21st century. They're trading in their bicycles and donkey carts for cars... In just one single Chinese city (Beijing), an average of 1350 cars per day are added to the streets. http://news.xinhuanet.com/english/20...nt_7972343.htm

The Chinese aren't driving hybrid's either... SUVs and Caddys are the vehicles of choice: http://ap.google.com/article/ALeqM5j...XNmJgD906DMP00

The gas we don't burn will be burned by the Chinese. They will continue adding to the world demand raising prices. They will continue to cancel out any efforts the west makes to reduce gasoline consumption and CO2 emissions. There is no gain for our pain.
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post #6 of 74 (permalink) Old 2008-04-24, 02:21 PM
 
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Perhaps we need a study on how accurate the "crystal ballers" in the economic sector are. From my own involvement I can tell you they miss the mark far more often than not.

This may be a great story for the headlines but no one can predict what will happen in 5 years, and all these guys generally do is extend existing trends. Once and a while one of them will put themselves way out there and get lucky, then the media hail them as brilliant genius's.

Also, lets look at the billions of dollars that CIBC has lost on lousy investments over the last 10-20 years, pretty significant.

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post #7 of 74 (permalink) Old 2008-04-24, 02:40 PM
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The beauty of being a "crystal baller" in the economic sector is that you will never lose your job because of a wrong forecast. Stability even a government job can't provide.
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post #8 of 74 (permalink) Old 2008-04-24, 03:36 PM
 
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Very true, and if you get gutsy and consistently put your predictions out there, and just happen to nail one, your set for life. You may even get on Oprah to promote your book!!

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post #9 of 74 (permalink) Old 2008-04-24, 06:40 PM
 
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True, most economists and economic forecasters simply extend current trends, or at least that turns out to be the effect of their models. And if there's no "information" in their data about FUTURE conditions, their predictions aren't really worth much.

But sometimes, there IS information about the future in data from yesterday and today. Take, for example, demographics data. We have some information about the effects our current demographic distribution and low birth rates will have on, say, health care costs. It's a simple matter of supply and demand. Of course, someone could discover a cure for cancer or cardiovascular disease, reducing (or maybe delaying?) the demand for health care services. But generally, we know where this is heading. Anyone disagree?

OK, is there any information in today's data about gasoline availability that suggests prices will drop, stay the same or increase? Yep, I think there is. Demand in China and India is likely to increase at a furious rate. There's no data I'm aware of that suggests supply will increase at anywhere near the same rate as demand . . . or increase AT ALL, for that matter. So the data we have right now suggests prices will be higher in the future, not only in nominal terms, but also in real terms.

Anyone care to bet against that? It's easy -- go short in oil futures, big time! ;-)

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post #10 of 74 (permalink) Old 2008-04-24, 10:43 PM
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Quote:
Originally Posted by Ricketty Rabbit View Post
Of course, someone could discover a cure for cancer or cardiovascular disease, reducing (or maybe delaying?) the demand for health care services. But generally, we know where this is heading. Anyone disagree?
I do. I think, health care costs will precipitously start to decline as the medicine is becoming an information science and the advances will be exponential. Soon (on an historical time-scale) all illnesses will be preventable through genetic engineering.
Quote:
Originally Posted by Ricketty Rabbit View Post
OK, is there any information in today's data about gasoline availability that suggests prices will drop, stay the same or increase? Yep, I think there is. Demand in China and India is likely to increase at a furious rate. There's no data I'm aware of that suggests supply will increase at anywhere near the same rate as demand . . . or increase AT ALL, for that matter. So the data we have right now suggests prices will be higher in the future, not only in nominal terms, but also in real terms.
I would bet against that (in the long term - 10 to 15 years), because, as prices will go higher the demand will decrease and alternative energy sources will be explored. I just hope that prices will go high enough and stay there long enough so that clean sources will become mainstream. I hope that oil price will get to $500 and stay there for 5 years.
I would also bet against oil because I see people more concerned about pollution and the effects on human well-being of it. People are also concerned by the fact that oil production is helping countries with theocratic/medieval dictatorships to maintain those systems.
I am also betting against oil because I want it to stop being used as an energy source.
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post #11 of 74 (permalink) Old 2008-04-25, 12:05 AM
 
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Wow, is this the same CIBC World Markets that failed to predict the subprime mess that ultimately resulted in CIBC being the most adversely affected Canadian bank as a result of subprime writeoffs? The truth is there is really no way to predict oil prices for such a long term.
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post #12 of 74 (permalink) Old 2008-04-25, 05:18 AM
 
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Quote:
I do. I think, health care costs will precipitously start to decline as the medicine is becoming an information science and the advances will be exponential. Soon (on an historical time-scale) all illnesses will be preventable through genetic engineering.
I believe Health Care costs will increase. People have to die from something, and the incidence of dementia increases with age. Were mo all going to live to 101 and die peacefully in our sleep.

The future price of oil is impossible to predict, just like prior to the collasp in oil prises 1981-1982.
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post #13 of 74 (permalink) Old 2008-04-25, 07:17 AM
 
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Count me among the ones thinking health care costs will eventually start to decrease. Not in the short term, of course, but gradually.

We're already seeing cultural trends towards better nutrition and personal fitness, with once-common habits such as smoking and fast-food being demonized. Self-induced conditions such as obesity and its related effects, such as diabetes, heart disease, and many forms of cancer, should decline as people make better food and lifestyle choices. "Health" is becoming the new "wealth".

Of course, this is my hope, not necessarily what will come to pass...

Gas prices jumped + $0.07 overnight here in NS. Just great...
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post #14 of 74 (permalink) Old 2008-04-25, 09:49 AM
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Guys this thread is about oil not health care costs.

POSTS discussing health care costs will be deleted



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post #15 of 74 (permalink) Old 2008-04-25, 09:51 AM
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Quote:
Anyone care to bet against that? It's easy -- go short in oil futures, big time! ;-)
or buy ETF Short Funds.


One side note to my earlier post. Not one private sector economist in the 1980's predicted Oil would be at $10 a barrel in the late 1990's. And frankly ten years ago, no private sector economist predicted $100 a barrel for oil.

If you had listened to those guys and invested, you'd be broke now!



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