Why OPEC Won't Rule Out $200 Oil

By Ian Cooper | Tuesday, April 29th, 2008

Much to the dismay of anti-recession voices, the U.S. economy "indeed has entered into a recession, even if the traditional indicators aren't showing yet," said Warren Buffett.

Sure, a recession is technically defined as two quarters of negative GDP, but "you can throw that model out," he says. "I think it's defined by the man in the street a little differently than whether there's been two quarters of reported (negative) GDP growth. We're in a recession, unless you want to stick strictly to the technical definition, which I think really doesn't have much meaning to the fellow who has lost his job or is facing a money market fund that isn't paying him out or whatever it may be."

Worse, this won't be your typical, average 216-day recession. "My general feeling is that the recession will be longer and deeper than most people think. This will not be short and shallow. I think consumers are feeling gas and food prices and not feeling they've got a lot of money for other things."

So, imagine what happens when and if record oil prices skyrocket to $200 a barrel and pump prices rise to $10 a gallon... By then, we could be talking about the early stages of a depression.

Wall Street Oil Prediction: More Record Prices

It was January 2008 when options to buy oil for $200 a barrel grew tenfold on the NYMEX.

The trade doesn't look so foolish any more.

If you thought T. Boone Pickens' $125 oil prediction was a shock, CIBC World Markets' chief economist Jeff Rubin is predicting $200 oil in the next five years.

Oil production, says Rubin, will "barely grow over the next five years, edging up barely more than 1-million barrels a day over the next three years, and only half a million barrels a day between 2010 and 2012." And those increases could fall short of demand, leading to $150 barrel oil by 2010, and $200 a barrel by 2012.

And Rubin isn't the only analyst calling it.

OPEC President Chakib Khelil won't rule out $200 oil, even though supply is adequate, because the market is driven by the dollar, as the world oil markets face their biggest supply disruption in years. "In terms of fundamentals, stocks are high, demand is easing, supply is satisfactory. Therefore normally, without geo-political problems and the fall of the dollar, the prices of oil would not be at this level," he said.

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Some parts of the U.S., including New York City are seeing $4 a gallon. One station is California is already charging a jaw-dropping $4.62. And here I was damning a $3.56 pump near my home.

New forecasts, however, say pump prices could reach as high as $10 a gallon.

Dune