CNBC on whether Saudis could lower oil prices

I didn’t get much time to say anything, so I thought that most useful thing I could do for listeners was to let them know what is coming in terms of gasoline prices.


11 Responses to CNBC on whether Saudis could lower oil prices

  1. So, if it turns out that current high oil prices are induced by speculation and gasoline prices go below $3 before the end of 2008, would it be reasonable for us to have less confidence in your predictions about global warming and your proposed policies?

  2. Jon says:

    @Roger: How are the two connected? Oil prices are undergoing massive speculation based on the concept of “Peak Oil” which, simplistically stated, says that we’re on the downhill run to depleting our worldwide oil reserves.
    Only tangentially connected to the concept of global warming, through the mechanism of humanity using so much of it. Has nothing to do with the price of oil in NY or Chicago.

  3. Harold Pierce Jr says:


    Peak oil only refers to reserves of convential oil and not to unconvential oil which includes heavy crude oil, extra heavy crude oil, and oil from tar sands and oil shale. There are an estimated 15 trillion barrels of unconvential oil, which does not include liquid hydrocarbons prepared directly from coal. Google SASOl for info re coal to liquid hydrocarbons.

    The high price oil is due to speculators and profiteers exploiting the Iraq war and the high demand for military operations. When the war is over the price will drop to ca $US 40-60 per barrel.

    The demand for liquid fuels is essentially inelastic, and people will pay whatever price. They will just reduced discretionary spending. They will do this because a car is absolute freedom and that is priceless.

    When was your “freedom day?” For me it was Aug !, 1960, and it was sweet!

  4. Joe says:

    No one can predict the price of gasoline on a monthly basis. What I said is that Americans should get used to $4 a gallon gasoline and then five dollars. That said, I’m happy to take bets that the nationwide price of gasoline in this country stays above three dollars through the end of the year.

    I happy to have my long-term predictions on energy compared with anyone else’s. Start here:

  5. Robert says:

    I think it’s quite funny to see people running around panicking about the price of oil. Did they think it was going to last forever???!!!! Everyone agrees how inelastic demand is so it is inevitable the prices will just continue on upwards. “Current high oil prices” are going to look like “very cheap oil prices” when we look back in a couple more years.

    The graph below shows prices over the last 10 years. The vertical scale (price) is logarythmic, showing that the trend is above-exponential. How can anyone look at this graph and expect prices to fall to $US 40-60 per barrel?

    I have had an intermittent and long-running email dialog with David Smith who writes for the UK Times. This was his response to a prediction I made in April 2006 of $150 oil within 2 years:

    Dear Robert,
    Many thanks. Just to be clear, I don’t think there is any evidence we are at or near a peak in global oil production. To listen to the peak oil fanatics one would think oil production had not increased in recent years while I demonstrated it has, substantially.
    There’s no doubt, in my view, that the era of cheap oil is over, the question is: How expensive? History tells us that periods when oil has risen above $40 a barrel, in inflation-adjusted terms, are rare and tend not to last that long —- see the BP Statistical Review of World Energy and its 1861-2004 chart for inflation-adjusted dollar oil prices. On the other hand, there are clear reasons why oil has moved higher in recent years, arising from both supply and demand influences. In my judgment that justifies an increase in the long-run oil price from the low $20s to nearly $40. That’s a big change in the space of 3-5 years. What we’re seeing in the market, on the other hand, is a partly speculatively-driven overshoot.

    If oil were to go to $150 a barrel this would result in ” demand destruction” on such a scale that $20 a barrel would follow before too long. Supply concerns at present are geopolitical, not geological.

    Best wishes
    David Smith

    Economists seem more blind than any on the subject of Peak Oil. $150 oil seems very close at hand.

  6. I was too subtle in making my point, which was about Joe’s credibility. The correct answer to the question about gasoline prices 1, 5, and 10 years from now is that nobody knows. Why weld yourself to a position that is peripheral to your main concerns and take on even a 10 percent chance that your credibility will suffer due to events you can’t control, can’t foresee with certainty, and about which you don’t really care?
    I have expressed the view that we’re probably in a price bubble. But I wouldn’t bet the ranch on it.
    Good policy proposals should not depend on stable high energy prices but should work whether oil prices are high or low, because it’s likely that they will fluctuate.

  7. Robert,
    My 11 years in the oil industry (oil shale and refining) ended in 1983. So extrapolating from the last 10 years is alien to my mindset. Here is a graph of crude oil prices from 1861 (I wasn’t born yet).
    And here are gasoline prices from 1919 with a strong downward trend line.
    I’ve seen this movie before. Maybe it will end differently this time, but the arguments for a different ending now are same ones I heard in 1973 and 1981.

  8. Thanks to David Smith for the citation to a BP report on crude oil prices since 1861. Its most recent update (through 2006) is on page 16 of this big PDF. I’ll be using this instead of the wiki link I posted earlier.

  9. Robert says:


    I have only really taken an interest in oil since about 2003 when a barrel fetched about $28 – $30. Sites such as and were warning darkly that oil could hit $50 and this would signal global catastrophe – the end of the growth economics model etc etc.

    In some ways the dire predictions of 5 years ago are turning out to be remarkably accurate. Price has rocketed and it is leading to recession, pressure on food supplies and so on. But what the peak oil sites seemed to miss was the effects of the transfer of wealth from consuming to producing nations.

    The US imports over 13 mbopd. At $126 this equates to a $600 billion trade deficit. If the exponential price trend shown in the freecharts link above continues for another five years where does this leave the US and Europe? The major oil producers are already swimming in so much cash that they don’t know what to do with it and the US trade deficit will rise to the multi-trillion range. Bush knew what he was trying to do when he invaded Iraq but he may have been a decade ahead of the game.

  10. Robert,
    I share your concern about these huge transfers of wealth. Nothing good will come of that. IMHO, high energy prices are not the solution, they are the problem.
    A sound US national energy policy would clamp down hard on the demand side and (maybe) do nothing to stimulate supply. That would bring down all energy prices dramatically, and when prices go up again we won’t be hurt as much because we’ll be using less. This worked beautifully in the 1970s and there is enough new technology that we can do it again. After meeting the CAFE standards in the 1980s, the auto companies continued to improve technical efficiency, but they used the gains to add more weight and horsepower to the vehicles (because that’s what we wanted to buy). They could quickly improve fleet MPG by going back to lighter vehicles with less power–not what we car buyers want, but there’s a lot at stake.

  11. Rod Adams says:

    One of the main differences between the oil price behavior of the 1970s through 1980s is that there were some relatively large supply insertions available. As oil prices rose in lurches through the Arab Oil Embargo and then during the Iran Hostage Crisis, the North Sea and the North Slope of Alaska were being developed. As oil prices reached their peak, these new sources entered into a market where demand growth (but certainly not demand itself) had slowed. That shifted the supply demand balance.

    Those two sources would not have been enough, by themselves, however. There was also a major new energy supply – atomic fission – that was not controlled by either OPEC or the major oil and gas companies that also captured markets previously supplied by oil and gas. In 1970, the world’s nuclear power plants produced the energy equivalent of about 500,000 barrels of oil per day. By the time that the growth in new nuclear power plants slowed in the late 1980s, the world’s nuclear plants were producing the equivalent of about 9-10 million barrels of oil each day. In many markets where nuclear power succeeded, they replaced oil burning electrical power plants. That much can be deduced from the BP Statistical Review numbers, but there is another piece that is missing.

    Nuclear power also replaced oil as the propulsion source for a number of large naval vessels in the fleets of the US, the UK, and France. I have not been able to find a good source of data to illustrate just how large that effect was, but I know that the US Navy was the oil industry’s single largest customer during the early 1970s and gave up that status by the end of the decade.

    Interestingly enough, the oil burning power plants and ships constituted a major market for heavy, sour crude oil.

    It is inconceivable to me that the leaders of the world’s oil supplying countries and the world’s major oil and gas companies failed to see the threat to their margins that was coming from nuclear power. Since those people are paid big money to protect the interests of their stockholders and others that benefit from the fossil fuel industry, I also find it very difficult to believe that they would fail to act in the face of a strong competitive threat. Finally, I know for a fact that many of the decision makers in those organizations – both governmental and industrial – have been trained in military strategy and know the dictum “The enemy of my enemy is my friend.” (In other words, follow the money and figure out why many anti-nuclear organizations have seen substantial increases in their financial contributions in the past 30-40 years.)

    Unfortunately, it is going to take 10-25 years of sustained effort to rebuild the nuclear infrastructure to the point where it can grow like it did 30 years ago. Rest assured, the road will not be easy and it will see lots of opposition from people who stand to lose a great deal of money and power if it succeeds.

    My only consolation is to keep reminding myself that there are far more energy consumers in the world than there are energy producers. If we can recognize that our interests are not the same as those that push oil and gas and want to keep us addicted, we have a real chance to fight our way through the inevitable withdrawal symptoms that will result from pulling out the needle.