Daniel Yergin and James Burkhard Statements on ‘$100 Oil – More or Less’

Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA) and author of The Prize: the Epic Quest for Oil, Money, and Power, made the following statement today with regard to the rising price of oil:

“The oil market is demonstrating both ‘fright and flight.’ Instead of the proverbial ‘flight to the dollar’ in times of economic uncertainty, we’re now seeing ‘a flight to oil.’ The strengthening of oil since August is responding, in part, to the weakening of the dollar. For the last few years, the force behind rising oil prices has been strong global economic growth. Over the last several weeks, the market focus has shifted to economic weakness in the United States. At the same time, tension over Iran’s nuclear program will continue to recharge anxiety on a continuing basis in the oil market.

“Oil prices at this level will themselves be a negative in conjunction with everything else going on in the U.S. economy. While $60 or $70 oil had little effect on the economy, that does not mean the same will hold true for $100 oil. One point is obvious — we’re much more likely to see an impact on demand at this higher price level, especially in the context of a slowing economy. Right now, as dollar pain persists, every country holding large reserves of dollars, including petrodollars, is rethinking its allocation among currencies and considering how much to diversify away from the dollar.

“A continuing downslide for the dollar will put oil on an upslide.”

James Burkhard, Managing Director, Oil and Gas Group, Cambridge Energy Research Associates, and director of CERA’s Dawn of a New Age: Energy Scenarios to 2030 study, added:

“Prices in the high $90s and $100 and over push both the economy and geopolitics into uncharted waters. The unprecedented $30 surge in oil prices since August — from $70 to $100 — reflects a sharpening mix of concerns about the value of the dollar, the adequacy of oil supplies and economic weakness — combined with an Iran premium. A potential pressure valve — a reduction or even softening in demand — has not yet become apparent. But in the $90 to $110 range, it becomes likely.

“The reaction to oil prices varies much around the world, owing to differences in income levels, taxes, subsidies and the relative use of oil in a national economy. But, if oil prices were to average around $110 for six months or more, it would increase the world economy’s vulnerability to a serious downturn of the early 1980s’ type. But even prices in the $90s have negative impacts on the economy and consumer spending. We just haven’t seen the full effects yet, for the year-to-date annual price for oil this year has been $70 — not $100!

“CERA’s Break Point scenario demonstrates that $120-plus prices would not only have major economic impact, but would lead to much stronger conservation policies among consuming countries and would greatly accelerate innovation and efficiency and a move away from oil, even in transportation.”

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