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Yergin: Oil price should settle at $30 price floor Herrera challenges CERA chairman’s assumptions, says OPEC produced 8 billion barrels more than members discovered in 2004 By Kay Cashman Petroleum News
Daniel Yergin, chairman of Cambridge Energy Research Associates, believes oil prices will fall sharply in the next two years, settling in at a $30 price floor.
In a May 27 interview with CNBC, Yergin said current high prices should lead to an increase in global oil production, which in turn will cool the market, Dow Jones Newswires reported, noting that Saudi Arabia alone has said it will boost its oil production by 1.5 million barrels a day by the end of the decade.
“I think two years from now, we’ll look more with $30 as a floor than what we’re looking at today,” he said in the interview. Yergin challenges peak oil Yergin challenged the peak oil theory, saying global production is expected to rise as much as 16 million barrels per day over the next decade.
“This is about the fifth or sixth time that the world has run out of oil, and at least in our study we see adding about 16 million barrels a day net of oil between now and the end of the decade, which is in fact very big number,” he said.
Some analysts agree with Yergin, Dow Jones Newswires reported. Crude prices having risen sharply over the past two years due to increasing global demand. Because the upsurge has “eaten into the spare production needed to cushion supply disruptions,” some industry observers see producers increasing exploration to boost production to meet demand, thus reliving the pressure on prices.
However, other analysts believe oil prices will “progressively” reach new highs as producers struggle to meet rising demand. Matthew Simmons, president of investment firm Simmons & Co., who spoke on the same program with Yergin, said production may have already peaked,” Dow Jones Newswires reported.
Petroleum News’ favorite oil price guru, Anchorage-based oil and gas consultant Roger Herrera, also takes issue with Yergin’s prediction.
If the world does find an extra 16 million barrels of oil a day as Yergin suggests, “then his postulated price floor could well be right,” Herrera said on May 28 in correspondence with Petroleum News.
“However, I have to question his optimism. Last year non-OPEC oil producers produced 8 billion barrels of oil more than they discovered. OPEC countries, to the extent that we can trust their figures, appear to have produced 8 billion more than they added to their reserves also. That hardly suggests that a miraculous extra 16 million barrels of oil a day is soon going to be found.” Herrera will put his money on Simmons Herrera does “accept that the high price of oil is an incentive to explore for new oil, but new oil in large quantities is obviously very difficult to find.”
In regard to the possibility of increased output from Saudi Arabia, he said he’d rather put his money on Matthew Simmons who has spent more time investigating Saudi oil capability than anyone.”
And “the peak oil theory is not a theory. It is a fact in all producing nations except for five or six which haven’t yet reached that plateau,” Herrera said, noting that ‘peak oil’ does not indicate the world has run out of oil, but rather that about half the world’s oil has been used.
“The other half is one hell of a lot of oil,” he said.
“I personally, would be very happy if peak oil is delayed by a decade or two, but the geologists who are studying it most closely are extremely capable, experienced and level headed. They are in no way a bunch of pessimists.
“Geology, especially oil reserve estimation, is a very inexact science, but most of the available evidence from non-political geologists suggests that peak oil is probably imminent,” Herrera said.
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