Home > News & Commentary > The Peak Oil Debate (USO, USL, OIH, DIG, DUG)

The Peak Oil Debate (USO, USL, OIH, DIG, DUG)

The Oil Drum blog has a great article summarizing the story behind the Peak Oil Theory (here).

When oil prices were rising spectacularly over the past decade (since the low in 1998), the peak oil debate was growing in intensity until it reached a crescendo as oil prices peaked.  Since then, oil prices fell dramatically and the debate was making fewer headlines.

The thing about the debate is, as this article says and the part that confuses most people, we have plenty of oil left.  Its just that the “easy” and cheap oil is running out.  The most recent major find was off the coast of Brazil, in extremely deep water.  Very few companies  have the equipment to extract at those depths.  Add to this the oil sands as mentioned in my previous post, and you quickly see that the cheap oil is running out.

I still hold by my previous statement: oil cannot sustain a price level above $80.  For further evidence of this I again defer to the article posted above:

Dave Murphy of The Oil Drum has shown that if the oil price goes much above $80 or $85 in inflation adjusted terms, the economy tends to go into recession.

The recession that follows higher prices weighs down on the price, bringing it back to a level of normalcy.

As firms realize that they cannot economically extract oil at a level above $80, they will be less inclined to go for big discoveries in hard-to-extract-from places, and supply will be wounded.

-AH

Disclosure: Long RIG, BP, KMP

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  1. August 30, 2010 at 12:43 AM

    AH any comments on the other side of the argument whereas oil is going back over $100 as Jeff Rubin does here: http://turnkeyoil.com/2010/06/10/why-jeff-rubin-still-sees-triple-digit-oil-prices-by-2011/ ?

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