Those of us who have watched for the inevitable arrival of the peak oil crisis have been waiting for years for the day when we no longer had to fight for the acceptance of the idea, and could start getting on with the hard business of what to do about it.
And then, just like that, it happened.
Like a chorus line turning in unison from left to right, the media and the financial markets turned and embraced the notion of peak oil last week.
For convenience, let's call it Memorial Day, 2008.
CNBC devoted a whole day to peak oil coverage, allowing some in-depth discussion of the issue possibly for the first time. In the evening, it broadcast a special called "Oil Crisis."
Billionaire hedge fund manager and oil man T. Boone Pickens said he saw oil going to $150 this year, and this time, was widely quoted in the financial press. (Check out this excellent interview with him from the Milken Institute Global Conference 2008 in April.) He put the reasons behind rising oil prices plainly:
"They've got to go up, because the people that have the oil want it to go up. They're running out of oil. They're going to have to have—85 million barrels a day is all the world can produce. The demand is 87 million. It's that simple. It doesn't have anything to do with the value of the dollar. It's a fact of supply and demand. That's it."
While we might politely disagree with the legendary oil investor about the dollar part, in terms of the overall trend being about the fundamentals, he was spot-on. He took a 14 percent loss in the first two months of this year by shorting oil and natural gas, and quickly learned from the error to get long again and back into the black.
Goldman Sachs analyst Arjun Murti, the only major investment bank analyst who correctly predicted oil over $100 last year, said that oil could breach $200 this year, and $150 was very likely. Again, this time, Wall Street sat up and took notice instead of laughing.
In the last couple of weeks, when I talked about peak oil in my radio and TV appearances, I didn't get shouted down immediately, or dismissed for holding a "controversial theory." Instead, they actually listened to hear what I had to say next.
In an interview with CNN radio last week, I think the host was rather shocked when she asked me if recent predictions of $12 gasoline in the next few years could happen.
"Easily," I said, "easily." And then explained why peak oil means that prices will have to keep going higher as long as global demand continues higher, because supply appears to be maxed out. Even as demand in the developed world declines due to price-induced demand destruction, the red-hot developing economies of the world are more than making up for it.
And you could have heard a pin drop when I explained that "there are no supply side solutions to peak oil" to another radio interviewer last week.
The dialogue didn't shift because pundits suddenly understood the importance of flow rates, or because the data on reserve estimates suddenly became clear.
It was the price that did it.
Thursday, May 29, 2008
Memorial Day, 2008: The Tipping Point in the Peak Oil Debate
Full article here.