Everybody Has A Prediction

Jim Brown
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Jeff Rubin, former CIBC World Markets chief economist, has updated his forecast calling for $90 oil this quarter and $100 by year's end. Rubin has been credited with accurately predicting $100 oil all the way back in 2007. I feel like Rodney Dangerfield. I can?t get any respect. I predicted $150 oil in 2008 back in 2004. Guess that is why Rubin gets the big bucks, he has a better press secretary.

Rubin says accelerating demand in India, China and the Middle East is going to overshadow geopolitical problems like Iran, Nigeria and Venezuela. Growing demand is going to force the world to rely on more expensive sources of energy like oil sands and ultra deep water wells. He wrote a book in 2007 called "Why your world is about to get a whole lot smaller." The point was that transportation as we know it was about to change drastically.

According to Rubin the industrialized world has already peaked in demand but the emerging economies are going to explode on to the scene with vastly increased appetites for oil. Rubin also predicted last summer that oil would hit $200 by 2012. Dang, Jeff, are you always late to the party?

Because of the expected ramp in oil prices as demand begins to return he is warning about global economic challenges as the milestones like $100, $120, $150 are reached in 2011 or 2012. He believes the global economy will become very challenged by the high prices.

Jeff if you would read more you would know that peakists call this the "undulating plateau." Instead of a bell shaped curve with a nicely rounded top where oil production begins to decline and everyone just learns to live with higher prices and less supply the peak oil community believes that each price spurt will produce fiscal rationing. That means consumers, businesses and governments won't be able to continue business as usual as oil prices hit new highs. There is a recoil effect where everyone drives less and complains more. Prices decline on the sudden drop in demand.

After a few months the consuming public gets used to gasoline 25 cents higher than they were used to paying and that becomes the new normal. Months later the next price spike pushes gasoline prices higher and the entire cycle repeats. There are periods where economies are growing followed by a price shock, recessions appear, growth rebounds and the cycle repeats.

Each time as demand reaches the limits of production the sharply rising prices quickly cuts demand and there is an uneasy balance until production finally declines to the point where the plateau begins to fall off the other side of the hill. Plateaus only last so long. Just think of it as a wide top.

This entire decade is going to be unpleasant for the consumer. Those with the biggest transportation bill and the longest commutes are going to suffer the worst. We are actually at the point where the lost decade we just exited will look like a picnic compared to the decade we are entering.

With peak production expected in 2012 and the traveling public still driving their vans and SUVs there is going to be a sudden and painful realization around 2012-2013 that life or transportation as you know it will no longer exist.

I suppose Jeff will have another book in 2012 warning us that gas will be $5. Jeff you better start writing now given time needed for editing, ghost writing, manuscript approvals, publisher delays and actual printing. Depletion is not waiting for anyone and it has no delays. 2012 will be here before you know it and if you have not prepared you are going to be sorry for a very long time.

Jim Brown