I called it in December 2007 – Oil hit $140 by mid-year
by Glen Hiemstra on 27/06/08 at 3:10 pm | 
On December 21, 2007 the price of oil was in the $90 range. As we recorded “Outlook 2008” on that day I predicted a price of $140-150 by mid-year. And, yesterday on June 26, 2008 I was proven right, as oil climbed above $140 for the first time.
Looking ahead, let’s put to rest one misconception. Wishing devoutly for the oil age not to be entering the second half of its life, many commentators promote a notion that the high price of oil is “all speculation.” Having seen investment bubbles come and go in IT and housing, they have convinced themselves that oil (and gasoline) today are overpriced by 25-50%, and would come down that much if only the speculation were to end. But they are wrong, spectacularly wrong, as Paul Krugman notes.
In 1999 oil was at $10 per barrel. That was the year that production from the North Sea peaked. Now, production from Mexico is past peak, and oil exports are falling gradually as oil producers use more of their own product. The simple and stark fact is that the world produces about 85 million barrels a day, and uses about 86 million barrels. There is no slack in the system, and this is what drives prices, not speculation (though speculators play).
There are over-optimistic scenarios for increasing oil production, going so far as to suggest that production will increase by 50% in the next decade. Drill, drill, drill scream the pundits and the Republican presidential candidate, none of whom have considered that the oil age is at the beginning of the end. Search the history of oil discovery, and all the really big discoveries are decades in the past. The highly touted “huge” fields of the future, off the Brazilian coast, in Alaska, on the continental shelf, and even in the Arctic ocean of our dreams, are for the most part either unproven, or where known are tiny by historical standards, usually amounting to a few months of global consumption at most. So, we are not going to produce our way out of high prices.
My prediction now? Oil will fluctuate between $130 and $150 for the summer months, fall back toward $110 or a bit lower as demand moderates in the face of high prices and the industry attempts to influence the election. Then will begin the climb to $200, where oil will settle by year’s end.
Glen Hiemstra is a futurist speaker, consultant, blogger, internet TV show host and founder of Futurist.com. To arrange for a speech contact Futurist.com.
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Outlook 2008 at Futurist.com
Jun 27th, 2008
[...] [Second Note: Oil hit $140 on June 26, 2008.] [...]
Chia Yew Heng
Jun 28th, 2008
Why is the pace of change to alternative sources of energy, like solar, nuclear, biogas so slow to come by. Are we living out out hedonistic tendency – enjoy first suffer later philosophy, rather than – “The future is creatable, so we have choice.”, it seems people are just living opposite of your core belief, “The future we have already created, few choices we have left”.
Bill Hawkins
Jun 28th, 2008
Glen,
Congratulations on your accurate forecast related to the price of oil. Your analysis of the present and future is persuasive.
Bill Hawkins
PredictionBoy
Jul 9th, 2008
Yes!
But, how much higher? Is $140 an easy step to something even higher?
And when will it come back down, Mr. Hiemstra?
PolyGuy42
Sep 15th, 2008
One question I have is if oil hits $200 a barrel, how long do you think it will stay there? I mean how sustainable is 200 $/BB (1 year, 5 years)? I would think that $200 a barrel would be the threshold before government finally steps in and does something, that is if there is anything to be done. Any ideas?
Glen Hiemstra
Sep 15th, 2008
Responding both to PredictionPoy and to the comment today from Polyguy42, it does seem that when oil hit the $140-range we did, finally, hit a global price threshhold that began to impact demand. Until that point, it had not been clear what that price would be that would drive down demand.
Eventually, given population growth and energy consumption growth in consuming nations such as China, India and the U.S., it seems likely that the price will rise again. Matt Simmons, whom I often quote, argues that $300 is an eventual price. The recent market experience calls that into some question. The situation becomes more murky when you consider the cost of producing new supplies, which is so much greater than old supplies, a factor that argues for eventual higher prices.
What might government do if they “step in?” Nationalizing supplies (which is happening in many places outside the U.S.), setting price standards, supporting increased exploration are all possible. Best would be investing in the 21st Century, as Tom Friedman of the NY Times argues, but this is harder when fighting entrenched interests. In the end, all governments are likely to do, in terms of oil, is engage in delaying tactics, attempting to kick the problem to future leaders.
PolyGuy42
Sep 15th, 2008
Thank you for your response Glen. I agree that we finally saw demand impacted when price was creeping towards $150. But do you think if it keeps climbing towards $200 like you predicted, we will see demand consistently drop? Even with the progress being made in renewable energy, society will not be able to turn off its oil dependence over night. What could the average person do if they find themselves stuck paying for gas when oil is at 200 $/bbl? How plausible is it to think that renewable energy will catch up and start having a significant impact on energy demand?