Editor's Note: This article was originally published at 8:00 a.m. EDT on Real Money on Aug. 22. Sign up for a free trial of Real Money.
In 2005, Goldman Sachs oil analyst Arjun Murti wrote of an oil super spike, with prices reaching $200 a barrel. Murti was prophetic with that call, as oil topped $147 a barrel in 2008 and would likely have made his predicted $200 target had the general economy not suffered an historic meltdown.
Now I am seeing another opportunity for $200 oil, even though the current oil market looks more ready to drop to $75 first. It might do that, but then I can see the coming of the next major oil spike -- and I'm also looking for at least a $150 target.
What inspired the first super spike in 2008 was fundamental -- the new appetite for energy from the emerging markets of China and India -- but moreover financial, with the new drive for investment in oil, a phenomenon I outlined in my book "Oil's Endless Bid."
What will inspire this next one is somewhat different. Let's take 2007. EM countries did create a rapidly-increasing demand for oil barrels. But what we also, even more significantly, had was a rapidly expanding demand for financial oil barrels for investment that I posited entirely outraced the fundamentals.
Today, we have global energy demand that similarly continues to increase, but it is accompanied by a global risk of supply disruption greater than any I have ever seen in 25 years and an almost certain lack of production growth in the future.
Let's forget the United States for the moment, where it's been supposed that the supply from domestic shale oil will trump whatever shortages might emerge globally. Even if the US does obtain a high-water mark of 10 million or 11 million barrels a day (which I doubt), it still does not come close to counteracting the shortages in a 92 million (and growing) barrel-a-day oil market that are occurring everywhere else.
Iraq: Now pumping less than 3 million barrels a day. It was expected to supply up to 6 million in the next few years.
Iran: Sanctions will again slow their production increases as their nuclear program continues unabated.
Saudi Arabia: Ten million barrels a day today is likely full potential production.
Libya: Practically off line and likely to remain so.
Egypt: Civil unrest continues and slows production growth.
Nigeria: How long before current Ebola outbreaks cause quarantines and slowdowns?
North Sea: Fast running dry
Russia: Rosneft/Exxon Arctic project projecting significant forward growth in trouble with sanction war ratcheting higher.
Canada: Oil sands under continuing environmental/transport pressure.
There are other potential replacement reserves that might be developed -- particularly offshore the U.S. coast, in Mexico and Brazil -- but these are very expensive barrels indeed. The price of spot oil makes developing these reserves difficult. But even more, the price of future oil, represented currently by a deeply backwardated futures curve, makes most near- and midterm development of these resources economically impossible. You need only witness the continuing swoon of offshore drilling stocks to understand just how little new investment by the majors is being undertaken.
So, let's get the full 2014 picture. We have, I believe, an oncoming massive shortage of crude, but unlike 2008 we cannot get the financial markets to recognize it and incentivize necessary production. Instead of a financial market that's outracing the fundamentals, we now have a fundamentally at-risk market where the financials are unable to catch up.
What happens in a situation like this and when does it happen?
What I expect is a real global shortage of energy -- small to begin with, but fast growing more and more dire throughout 2015 -- until the system of fundamental and financial oil again break with each other, as they did in the run-up in 2008.
You will ultimately need a future oil price that incentivizes the development of the more expensive barrels to relieve this coming shortage and, knowing how markets always overdo their needs, I expect this to be a super spike not unlike the last one, perhaps finally reaching Arjun Murti's original target.