Oil Prices - Fresh Bullishness For The Long Term? | Emptyend

25th Mar '11 by emptyend

23 comments 14227 reads

The FT publishes today an interesting article that quotes from Barclays research. Paul Horsnell from Barclays appears to be going for an oil price of around $185 by 2020. And to give some credence to that view, the FT quotes (somewhat selectively) some details of his previous forecasts.

I remember commenting previously on Horsnell in 2005 when oil prices hit $60 - which, as I noted at the time, was beyond the expectations of virtually everyone when oil prices had been below $20 some 5 years earlier (myself included - though I had certainly expected oil prices to get into the $45-50 area when I first invested in the sector with oil prices under $12).

I now find it very difficult to think that oil prices won't get somewhere in the area Horsnell suggests by 2020, especially given the geopolitical upheavals of this year and the continued sway that the environmental lobby holds over policy ...for example in the US (offshore drilling bans, new environmental rules etc), UK (this week's Budget moves were supposedly "Green") and underdeveloped parts of Africa (eg SOCO's problems on Block V) .......all of which has been driven by a combination of pandering to popular opinion (post the BP spill) and blatent fund-raising opportunism by the environmental lobby (see the Block V link above!). And the net effect is that marginal production of oil is being ceased prematurely and that exploration is being deferred, disincentivised or cancelled.

Incidentally, IIRC the late Matt Simmons' estimate (5 years or so ago) for the longer-term oil price was also around $185....though I guess he wouldn't have factored in the potential for regime meltdowns in oil-producing states.

I suspect we are heading into a world that will look radically different in terms of the shape of economic and political power structures - and in terms of economic opportunities for the world's population. And it seems to me that this could be a very messy and protracted transition. Perhaps $185 oil may only be a small part of a much bigger and rather worrying picture?

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siestainvestor

25th Mar '11

Perhaps $185 oil may only be a small part of a much bigger and rather worrying picture?

And maybe some new opportunities will arise. This is provided the new world political order has some respect for property rights as much of the new value will be outside Western jurisdictions. Who will own and be able to take a rent from the water, food production and energy that we will all be competing for?

Emptyend has posed a good question: be nice to see some answers here.

marben100

26th Mar '11

Well... one factor is surely that governments like the UK's would be forced to review their positions long before the POO reached $185 on a sustained basis. They're banking on (and undoubtedly advised) that the current $100+ price is a "temporary blip". 1p/litre off fuel duty wouldn't look very helpful at $150 oil! £2/litre, anyone? The threat of blackouts would also likely cause a rethink on energy policy.

Sustained prices at those sort of levels, without countervailing action, would likely cause social unrest here - and especially in the US. Mind you, I dread to think what sort of government could get elected in the US under those circumstances... our investments could be the least of our worries. :(

Canada and Australia are two jurisdictions that are likely to respect property rights and that have plenty of natural resources themselves. As such, their currencies are also likely to be more resilient than most, if we're faced with a resource squeeze.

Cheers,

Mark

macroeconomix

I dread to think what sort of government could get elected in the US under those circumstances...

Atlas Shrugged will be showing in Cinemas April in the US. Quite Timely IMO. Hopefully riding a wave of support behind one of the Pauls (Ron or Rand) for 2012.

The US are lucky in that they have a wonderful document in the US Constitution. It is just a shame that adminstrations over the last 100 years have time and again ignored it and treated it with contempt. Had they obeyed their oath, and followed this simple document, the US would have remained a great nation. Instead the Fed has taken on the role of central economic planning and its citizens are sheep-like comsumer debt serfs to a corporate oligarchy. When this central economic planning and money finally dies there will be a painful transition, this could be dangerous, but if they remember their roots, the Constitution, and approach the situation philosophically, rather than with kneejerk spitefullness and envy, they'll be fine.

What I'm most worried about is a jackbooted police state attempted maintenance of the status quo.

Peak oil will mean a transition (at least in the short/medium term) to a world with less social complexity. This means less government function, less tax (hopefully - once "they" figure this out!), larger private sector and lower growth. A lot of parasitic vested interests will not like this, and it is they who we should be concerned about.

If a dangerous animal is backed into a corner it is likely to lash out, and this is why this present period of history wil be worrying in many parts of the world, where tyrants and oligarchs (including some of the western vested interests) wont want to lose their grip on power.

Just who is John Galt BTW? ;)

Oil prices - fresh bullishness for the long term?

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Emptyend

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