Jim Rogers says oil is headed to $200 in a recent BBC interview (thanks to Global Economic Analysis). He doesn’t provide a specific timeframe on the surge, but we can be certain that this is an economic mess in the making if the timeframe is shorter than most might think.
If, as Merrill Lynch says, $120 oil is the economic “breaking point” then it’s safe to assume that the world simply can’t sustain prices as high as Rogers says. On the other hand, the Fed’s incessant need to keep “asset prices higher than they otherwise would be” practically guarantees that investors will continue to view it as a good hedge against other assets (via BBC):
Justin Rowlatt: So what about oil? I mean oil prices are pretty high, aren’t they? Almost $100 a barrel. Are they really going to go higher do you think?
Jim Rogers: Well, the surprise is going to be how high the price of oil stays and how high it goes, because Justin we have had no major elephant oil discoveries in over 40 years. The International Energy Agency is going around the world pleading with people to listen. Known reserves of oil are declining. It is not good news. Unless somebody discovers a lot of oil very quickly, prices are going to go much higher over the next decade.
Justin Rowlatt: How high do you think the oil price could go then?
Jim Rogers: Justin, the price of oil is going to make new highs. It will go over $150 a barrel. It will probably go over $200 a barrel.
Justin Rowlatt: Over $200 a barrel? I mean that’s a world record high, isn’t it?
Jim Rogers: Of course it is, but Justin, the world is running out of known reserves of oil. Maybe there is a lot of oil in the world, but if there is, we don’t know where it is or how to get to it.
Justin Rowlatt: You got the pre-salt deposits off the coast of Brazil, there is Arctic oil, I mean there are big reserves of oil yet to be tapped, aren’t there?
Jim Rogers: Justin, those reserves off the coast of Brazil are wonderful if you own them, but even the wildest and most optimistic estimates would only add one year’s reserves to the world. The world is using 86 million barrels of oil everyday Justin. Even if it stays static or goes down a little bit, those finds off Brazil will make somebody rich, but they are not going to solve the world’s problems. And, if you know of a lot of oil in the Arctic, please tell us where it is, but it is going to be very difficult to get it out of there.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.