$100 oil could be a reality by end of next year
Increasing consumption and slowing production in developing countries support steady ascent in oil prices, says new CIBC World Markets report TORONTO, July 18 /CNW/ - CIBC (CM: TSX; NYSE) - Triple digit oil prices are on the horizon and may be permanent as major oil-producing countries in the developing (non-OECD) world reduce exports to meet soaring demand at home, according to a new report by CIBC World Markets. The situation is intensifying the world's oil supply gap which shows no sign of being filled anytime soon by new supplies or by rising prices that normally choke demand, says Jeff Rubin, Chief Economist and Chief Strategist at CIBC World Markets. "All of a sudden, major oil-producing countries are becoming major oil consuming countries," notes Mr. Rubin. "One has to look no further than price to see why," he adds, pointing to Venezuela, Iran and other Middle Eastern countries where gasoline is sold at 20-80 cents a gallon, a fraction of the world price. That cheap and abundant gasoline is fuelling "some of the fastest growth in domestic demand anywhere in the world." The report states that declining oil production in developing countries coupled with increased consumption by newly-empowered consumers in those markets is eating into export capacity and will reduce crude oil exports by as much as 2.5 million barrels a day between now and the end of the decade. "It's far from obvious who will fill that supply gap," says Rubin. "What is obvious is that if that gap isn't filled, not only are triple digit oil prices on the horizon, but even more problematic, are here to stay." The report predicts new record highs of US$80 a barrel this year and reaching as high as $100 a barrel by the end of 2008 as soaring oil demand outpaces growth in global supply. Past assurances from Big Oil that technological advances in the oil patch would help ramp up oil supply and that today's higher prices would choke demand and limit price increases are now giving way to warnings of depletion and rising prices as the steady ascent to $100 oil continues. With the exception of the Western European countries where carbon conscious economies have successfully reduced oil demand, countries around the world have continued to consume oil at record rates. This is the case not only for developing countries with massive energy appetites such as China, but also for oil producing countries themselves. Together with Mexico and Russia, daily consumption in OPEC countries last year was in excess of 12 million barrels a day, over 60 per cent more than the level of Chinese consumption. Faced with this evidence, the oil industry admits demand for oil may be less price elastic than previously acknowledged. "An apparent acceleration in world oil demand this year in the face of a doubling in prices over the past three years has left International Energy Agency (IEA) economists scratching their heads," Rubin says. The full CIBC World Markets StrategEcon report is available at: http://research.cibcwm.com/economic_public/download/sjul07.pdf CIBC World Markets is the wholesale and corporate banking arm of CIBC, providing a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world. We provide innovative capital solutions and advisory expertise across a wide range of industries as well as top-ranked research for our corporate, government and institutional clients.