(In 2006, when the interview was done)The World Economic Forum gave a 20% chance that oil would go above $80 per barrel in the next year. What do you think?
High oil prices can result in "demand destruction", such as after the 1979 oil shock. Oil prices steadily deteriorated for about six years and then finally collapsed when demand declined and supply caught up.
However, EU consumers have for years been paying the equivalent of about $250 per barrel for oil because of very high taxes, and yet the EU is still the world's second largest oil consumer. Given time to adjust, the world could clearly live with much higher oil prices than $75 per barrel.
An important point is that the EU countries have been benefiting from the taxes imposed. Is that fair? Will Russia (one of the EU's main oil & gas suppliers) someday demand that EU governments rebate part of their taxes on Russian oil back to Mother Russia? Stay tuned!
From the perspective of oil exporters like Saudi Arabia, the optimum price profile would be generally high with occasional drops to discourage investment in expensive alternative energy sources.
We should also note that oil exporters are unhappy because the declining dollar is costing them lost revenues. There is no assurance that oil prices will continue to be quoted in dollars, which could have a big impact on the value of the dollar itself.
