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Oil and gasoline have most certainly not bottomed. This is a little speculative blip following the Saudi announcement of enormous cutbacks. The perceived urgency will pass and oil prices will drop again. They will fall into the mid 30's and remain there for approximately three quarters. Over that time, gasoline consumption will return to pre-2008 levels. People will ecstatically fill their tanks and drive, drive, drive with a feeling that all is well in the world. Meanwhile, the oil companies that over-leveraged during the boom will downsize and some will die. There will be an enormous disincentive to develop oil prospects. Focus will move to natural gas. Companies that calculated their economics for producing assets at $100 oil will find that it makes more sense to shut the fields in rather than sell their oil at a 1/4 of what it was worth over the summer. The oil flowing from upstream will stop. We will experience a supply crisis and oil will hit $120 by 1st quarter 2010 and $200 by new year's day 2011.
Oil and gasoline have most certainly not bottomed. This is a little speculative blip following the Saudi announcement of enormous cutbacks. The perceived urgency will pass and oil prices will drop again. They will fall into the mid 30's and remain there for approximately three quarters. Over that time, gasoline consumption will return to pre-2008 levels. People will ecstatically fill their tanks and drive, drive, drive with a feeling that all is well in the world. Meanwhile, the oil companies that over-leveraged during the boom will downsize and some will die. There will be an enormous disincentive to develop oil prospects. Focus will move to natural gas. Companies that calculated their economics for producing assets at $100 oil will find that it makes more sense to shut the fields in rather than sell their oil at a 1/4 of what it was worth over the summer. The oil flowing from upstream will stop. We will experience a supply crisis and oil will hit $120 by 1st quarter 2010 and $200 by new year's day 2011.
I'd put money on that scenario, or something similar. The only thing is that I'd extend your dates by a year or two, as this recession is going to take a bit more time to work through.
I'm also not sure we'll hit $200 either (maybe $140 again). Alternative energy and fuel efficient technology investment will pick right back up again. And it will happen faster this time around, as the knowledge and experience gained during the recent explosion in oil prices hasn't actually gone anywhere. Alternative energy has simply been put on hold, and there are most definitely people who will want to pursue it once it becomes economic, which it will once oil heads north of $70.
Eventually, we will reach a tipping point where alternative becomes permanently cheaper than oil. And then, we'll be free from supply and price shocks - the next big breakthrough in economic activity.
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