What Happened to Peak Oil? [View all]

http://wallstreetpit.com/91434-what-happened-to-peak-oil/


Fears that the world is running short of oil aren’t going away, but judging by the latest figures on global oil production there’s no sign that the peak oil factor is an imminent threat. Global output rose to a new all-time high last December, according to data from the U.S. Energy Information Administration (EIA): 75.384 million barrels per day, or just ahead of the previous peak of 75.170 million barrels a day in January 2011.

A new high may ease anxiety over oil supplies for the moment, but it’s sure to be a temporary respite. All the challenges that have weighed on the outlook for raising production over the past decade are still with us. Discoveries of big, easily recoverable supplies are dwindling. Yes, U.S. consumption of oil has reportedly fallen 10% since 2005, but world demand keeps rising, mostly because of increasing growth from China, India, and other emerging markets that are rapidly industrializing and using ever larger quantities of fossil fuels.

Yet the peak oil theorists, if not wrong in the long term, seem to have been premature in warning that the summit for production was upon us. In 2009, for instance, one forecast for global oil production via The Oil Drum warned that output was set to fall by more than two million barrels a year. A decade ago, geologist Ken Deffeyes’ widely read book Hubbert’s Peak: The Impending World Oil Shortage opened by stating that “global oil production will probably reach a peak sometime during this decade.” The 2009 edition of the book makes the same forecast.


Seven years ago in the old Peak Oil forum I made a bet with two other DUers that the price of oil would be lower in three years time. It was at that point in time $70 a barrel. In the three years and three months that followed, oil fell to around $50 a barrel, rose to $145 a barrel and then plummetted to $30 a barrel. Unfortunately for me that last plunge did not happen quick enough, and three years after I took that bet oil stood about a dollar higher. If I had taken the bet a mere week later than I did I would have won, but those were not the terms. I pulled out the checkbook and paid up.

As both GliderGuider (one of the winners) and I would later say, the bet was instructive. The price of oil, we realized, is only partially determined by the supply of oil. The oil business is an extremely opaque, and therefore does not function according to the traditional laws of supply and demand which assume transparency. Trying to make predictions given the lack of data available is a foolish activity.

So what will happen? I have no idea. All I know is that I'm never betting on the price of oil again.