Friday, June 27, 2008

Jeff Rubin of CIBC predicts $7 gasoline, $200 oil by 2010


Canadian economist Jeff Rubin predicts $7.00 a gallon gasoline in the US, based on a $200 price per barrel of oil by 2010. There will be 10 million fewer vehicles in America by 2012, he says.

The report PDF is here
and is available in a dynamic insert from CIBC World Markets, one of Canada’s largest underwriters, link here. The story spread rapidly this afternoon among news services and sites like AOL. Canada's currency has improved during the US dollar fall, and Canada might stand to gain from extensive development of oil tar sands in the prairies, now economically attractive.

But Rubin is pessimistic that Americans and Canadians can adjust to this without loss of standard of living, because the US does not have the public transportation infrastructure of European countries that makes car ownership unnecessary for many people.

Creative possibilities can be suggested: making many more hybrids quickly, and having automobile manufacturers lease them rather than try to sell them, to make them more affordable. Other ideas like Zip car may reduce car ownership in suburban areas.

Rubin doubts that meager Saudi promises to slightly increase production are meaningful. Oil markets have been distracted by negative comments from Libya and Nigeria. It seems like any rumor at all right now drives the price up. Maybe even a routine blogger can drive it up with a rumor, and then go trade (probably illegal).

Oil prices, and their economic consequences for standard of living, will stabilize only when markets have convincing evidence that demand can be met, with a variety of strategies: increased drilling (takes a long time), increased production of plug-in hybrids and the infrastructure to support them (may not be as difficult). Producing countries in the Middle East now have a lively debate about the future demand and what their real self-interest is going to be.

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