Future Forecasts - The Price of Oil and Peak Oil

Regular readers know that I have long predicted the current price of oil and that we are now moving through Peak Oil These subjects were included in my “Forecast for 2008”. To quote from that January 9, 2008 column:
“In 2008, gas will, for a period of time reach $4 on the national level. A year ago I predicted that oil would rise above $80. Three months ago I predicted that the price would rise to $100 and that the trading range for oil will be $80 – 125 a barrel for the next year…but there could be several situations that could drive the price above $125.”

Well sure I was right about the rapid run up in the price of oil and the price of a gallon of gas. At the time I was one of the few voices with this forecast. The interesting thing is that when I made the predictions they seemed outrageous to many people and yet they have turned out to be conservative. In a follow up column on April 27 titled “The Short and Long Term Price of Oil”, I revised my price predictions upward:
“I now think that the core trading price range of oil for the next 18 months will be $95 – 135. I seriously doubt it will ever dip below the lower price, and if it does, it will be temporary. I do however think that that there are any number of scenarios that could provoke a rapid price run up to the $150 range.”

I went on to say:
“The long term price of oil will continue to go up for many of the reasons I sited in a column two months ago. It is entirely possible that prices in the range of $150 -200 a barrel over the next 4 years will occur”.
So on the topic of the price of oil my forecast was correct, hard for many to believe at the time and ultimately conservative. I absolutely believe that there will be $150-200 barrel oil in the years ahead. Oil will be on a generally upward trend for the next few years.

Peak Oil
I firmly believe we are moving through Global Peak Oil. Peak Oil was predicted 50 years ago by M. King Hubbert. Peak Oil was defined by Hubbert and others as being the time when half of all petroleum in the earth had been extracted and that this time would be marked by a rapid increase in price, volatility and a clear view that demand was outpacing supply. Sound remotely familiar? The subject has been a heated topic of conversation among energy professionals, scientists and futurists. In my “Forecast for 2008” column I wrote:
“2008 will be the year when the concept of “Peak Oil” moves from the scientific, energy and futurist communities into the mainstream culture in the U.S. and other developed countries. This will have the effect of further accelerating investment in and development of alternative, renewable sources of energy. It will also begin to force government officials and policy makers into facing the truly dire consequences of anything less than an urgent national initiative to cut consumption of petroleum by 50% as soon as possible, certainly with in the next ten years”.

Well, I have heard the words “Peak Oil” mentioned many times on the cable news channels and have read them in a number of newspapers and magazines this year. So it has become part of the mainstream media conversation about energy. In addition the run up in oil prices has triggered a tsunami of investment by VCs and corporate R&D labs in renewable and alternative energy. Many VC firms now agree with what I have written here, that the field of alternative energy will be one of the greatest wealth creation opportunities in history, rivaling and perhaps even exceeding all the wealth created around computers. So the first two parts of my prediction concerning Peak Oil have proven true.

The third part of this prediction has yet to be manifested. When two of the three major Presidential candidates think it is a smart idea to suspend the gasoline tax for the summer, it is clear that we have a long way to go. Congressional outrage and investigations into speculation in the petroleum futures market also shows a complete lack of wanting to face the real issue. There is no more than 5-10% of speculation in this market. The upward price is driven by the realities of Peak Oil. What politicians are facing is the huge reaction and behavioral changes brought about by $4 a gallon gasoline Pain at the pump will be manifested in the voting booth. That might empower a true and real look at the need to wean our country from oil and to do so as quickly as possible. Barack Obama, while still far from the goal of cutting petroleum consumption by 50% within the next ten years, is making statements that the problem is systemic and cannot be solved by the quick fix, the blaming of anyone but ourselves, or the non-solution of opening up more offshore drilling lease areas. So there is at least hope that this third part of my prediction about Peak Oil might have a chance.

(By David Houle, Scientific Blogging / Reuters, 28/07/2008)