Here we go again.
Thanks to uncertainty regarding the proposed U.S. Government bailout of the financial sector (which, by the way, is looking more like a band-aid on a bullet wound), the dollar having its single worst day against the euro and other currencies, and commodity traders covering their short sales, the price of crude oil climbed over $16 per barrel today – the single largest daily price increase on record.
And it could have been worse.Â At today’s peak, the price of oil was up over $25 from Friday’s closing price.
While this may end up being a one day phenomenon, the fact remains oil is still very much in a bull market, and what we thought was the commodity bubble popping might have been nothing more than slight correction during an extended upward trend.
WHY OIL PRICES ARE UPWARD FROM HERE
As you’re probably well aware from reading many of the posts on this site, I think we are in the midst of a long-term bull market for oil.Â Does it mean that prices will hit $500 within the next several years?Â I’m not sure.Â That being said, there are ample reasons to believe oil prices have nowhere to go from here but up:
Oil is a finite resource.
While this may be the most fundamental cause of the “problem” for some reason I think it’s the one most often overlooked.Â in the most simplistic terms, for every barrel of oil we pump out of the ground, that’s only less barrel of oil we have left.Â It’s not as if we can make more of this stuff.
For the time being, the only way to delay the inevitability of running out of oil is to hope to find previously undiscovered oil fields, but…
New oil discoveries have fallen.
Worldwide discoveries of new oil fields have been on a downward track since the 1960s.Â Considering worldwide demand has been on the increase, this certainly doesn’t bode well for the future.
For the time being, we’ve been able to get by thanks to more efficient methods of harvesting oil from currently know fields, but, as you know from reading the previous section, the known fields will eventually run out.Â And from the looks of things, there’s not much in the pipeline (pun somewhat intended) to replace known fields once they go.
But, the biggest problem has clearly become the fact that…
Demand for oil continues to increase.
According to the International Energy Agency, a mostly independent organization founded in the 1970s, the worldwide demand for oil will climb to 116 million barrels per day by 2030.Â This is nearly a 40% increase over the 87 million barrels per day we currently need.
So, based on basic supply and demand economics, if we don’t see a substantial rise in oil production between now and 2030, we should expect the price of oil to shoot sky high.
WHAT WOULD PEAK OIL MEAN?
Here are just a few examples of what we can expect from peak oil, should we not adjust in time:
- Increased geopolitical tension as countries clamor over one another for the remaining drops of oil
- Out of control inflation, as prices for EVERYTHING – not just petroleum based products – shoot through the roof
- Transcontinental travel becomes a thing of the past
- A dramatic decrease in lifestyle, especially in “advanced” nations
None of this is too appealing.Â But thankfully, these things might be avoidable.
WHAT CAN WE DO ABOUT THIS?
While this whole oil fiasco may seem like a hopeless scenario, if we act now, we might be able to avoid the worst of the predictions.Â In fact, there are some very simple things you can do:
- Demand the Government focuses on this issue.Â Write to your elected officials and let them know that it’s uncalled for that they appropriate $700 billion in emergency funding to bailout Wall Street and international banks.Â This economic crisis will pass.Â They all do.Â However, the peak oil issue not only isn’t going to pass, but it’s only going to get worse as time goes on.Â This money needs to go towards alternative energy and not towards bailing out bankers who couldn’t manage risk.
- If your elected officials don’t act, use the power of your vote. As I’ve said before, I think our energy crisis should be the single most important issue in this Presidential election, but unfortunately it’s getting swept under the rug thanks to our current economic problems.Â So, if your elected officials don’t take our energy policies seriously, use your vote to get them out and put someone in who will actually tackle this issue.
Obviously, this is a worldwide issue and isn’t something that the U.S. is going to solve on its own.Â That being said, since we are the world’s largest consumer of oil, the solution to peak oil should start with us.