Wednesday, May 07, 2008

Oil at $122 and Predicted to Reach $200 - Deja Vu.

Friday, September 01, 2006

$200 a Barrel Forecast for Peak Oil!

Prompted by this morning's news item to the effect that the price of crude oil has risen above $122, my memory latched back to a previous posting of almost two years ago, as noted above. At that time the price was around $70 and the benchmark $100 was a figure that most thought was still a long way off. Accordingly, the estimate of $200 did seem alarmist. I also wrote an article "Hubbert Peak Oil" (Friday, October 26th, 2007) in which I aver that the cost of everything, driven by the underpinning price of oil, will double, and that once peak oil is reached, judging from the $100 figure as pertained at that time, this would correspond to the new magic "ceiling" of $200. Lord Oxburgh made a prediction at around the same time of a $150 barrel, and this now seems inevitable.

Guided mostly by hunch and more roughly by curves of oil production and depletion, I predict that the price of oil will reach $150 by the end of this year (2008) and $200 by the end of 2009, by when the world will be a considerably more fractious place with supply being increasingly stretched to meet rising demand; a tug-of-war contest the latter must ultimately lose.

The latest hike in oil price is blamed on supply troubles in Nigeria and a slow-down in Russia. Arjun Murti, an analyst for Goldman Sachs, noted that while Western nations are discussing the necessity to reduce oil consumption, and that of energy more generally, the excess production that is necessary to cool the oil-market is not evident. He said: "though predicting the ultimate peak in oil prices, as well as the remaining duration of the upcycle, remains a major uncertainty... a multi-year decline in global oil demand is needed in order to create a spare capacity cushion and bring about potentially lower energy commodity prices."

Fair enough, but this is an economist talking while the underlying problem is one of geology. There was only so much oil in the ground to begin with and we are getting through it too quickly. Mr Murti reckoned that the oil price could hit $150 - $200 within 24 months, which is about my prediction too. The OPEC member nations are now producing oil at near full-capacity, the increase in production in Russia is slowing and that from Mexico is in decline. Nonetheless, demand from markets such as China climbs relentlessly.

I suspect that the world production of oil is pretty much at the plateau of maximum output -" peak oil" if you will - and that soon, economics must give-way to geology.

Related Reading.
"Goldman predicts crude prices will 'super-spike' to $200 per barrel." By Stephen Foley:
http://www.independent.co.uk/news/business/news/goldman-predicts-crude-prices-will-superspike-to-200-per-barrel-822235.html?r=RSS

5 comments:

Anonymous said...

Hello,
I have been told that maybe the oil price rise follows he fluctuations of the €-$ exchange. In fact a litre of petrol in Europe is nearly 1.5€ and the € is nearly 1.5 €. A coincidence? That doesn't mean that we shouldn't start consuming a lot less oil, just maybe there could be economic reasons behind it.

Anonymous said...

sorry I meant a € is 1.5$

energybalance said...

A good point! My own opinion is that prices are forced-up by the underpinning price of oil, and hence I reckoned about two years ago that both would double - one following the other and this is where we seem to be now.

Only time will tell, and there are indeed various conspiracy theories, but I think the coincidence is that numerically the cost of a barrel of oil in $ is the same as that in (UK) pence) per litre, i.e. about $120 or £1.20.

Either way, it makes an interesting view as I go into the local garage!

Regards,

Chris.

energybalance said...

A good point! My own opinion is that prices are forced-up by the underpinning price of oil, and hence I reckoned about two years ago that both would double - one following the other and this is where we seem to be now.

Only time will tell, and there are indeed various conspiracy theories, but I think the coincidence is that numerically the cost of a barrel of oil in $ is the same as that in (UK) pence) per litre, i.e. about $120 or £1.20.

Either way, it makes an interesting view as I go into the local garage!

Regards,

Chris.

energybalance said...

A good point! My own opinion is that prices are forced-up by the underpinning price of oil, and hence I reckoned about two years ago that both would double - one following the other and this is where we seem to be now.

Only time will tell, and there are indeed various conspiracy theories, but I think the coincidence is that numerically the cost of a barrel of oil in $ is the same as that in (UK) pence) per litre, i.e. about $120 or £1.20.

Either way, it makes an interesting view as I go into the local garage!

Regards,

Chris.