My Peak Oil Call

On 3/10/08 I wrote:

Gordon's Notes: Oil price speculation: is it rational investment or a bubble?

...So here's my proposal for deciding if Peak Oil is on the way.

If the price of oil craters ($65) in the next 6 months then we're living in an energy bubble today and Peak Oil is more than 10-15 years away.

If the price of oil is above $105 a barrel in August of 2008 then Peak Oil is on the sooner rather than later, and the world I grew up in is shuffling away -- sooner than I'd expected....

Today a barrel of oil costs $115 or so.

I believe that's above $105/bbl. True, the price is falling, but that doesn't matter. I'll stick to my criteria.

I say Peak oil is here.

I say that despite, in my 1979 chemical engineering class, being told that peak oil was coming in the late 1980s (I think we reviewed the 1957 Rickover speech back then). I say this despite remembering Jimmy Carter's peak oil prediction in the 1970s.

Of course I'm really talking about Peak sweet light oil, and I don't mean "Peak" in absolute, or even demand > supply, I mean Peak in terms of rational market expectation of a > 70% probability that demand > supply within 5-8 years.

Basically I'm claiming that the price increases of this past year were due to praiseworthy speculation on the fundamentals rather than salacious speculation on psychology.

This means I'm expecting oil to go to Dyer's $200/bbl limit at least once in the next five years, though may transiently fall back to $80 along the way. After 5-8 years it will be very apparent that oil will be a shrinking percentage of our energy supply, and that in the absence of a severe carbon tax (or the equivalent) we'll be baking the plane with burning coal and burning tar sands.

It also means that it's now rational to invest in conservation, and to expect real estate prices to reflect increased commuting costs.

More on Peak Oil later, but I was overdue to make my promised call. (It's been a busy month!)