Boo! Peak Oil Theory Nightmares Begin Now

October 30th, 2008 at 09:13am David Bush - Iasta

One of the things that is frustrating about commenting on oil markets, is the virtual guarantee that the price will significantly different between writing and publishing an opinion. That is true is this one, too. As I write, the price per barrel has sky dived to $65 and pump prices are below $2.50 in Indiana (inexplicably, one of the most expensive gas areas with Chicago and Milwaukee). However, in reading the thoughts of Matt Simmons about his Peak Oil Theory, it was shocking enough to bring attention.

The concepts that Simmons brings immediate attention to are disturbing at a minimum: $500 barrel prices, supply shortages, and World War III. Clearly, this goes well beyond strategic sourcing…

In a nutshell, he suggests (with an offshore platform full of documentation and statistics to prove it) that we have passed over the peak of the production curve for oil. He believes the Saudis are far overstating their reserves and the days of easy oil recovery, are over. Perhaps most prescient, is his statement that complacency will take over as oil dips in price. A short term lull helps to dull the focus on alternative energy sources such as wind, nuclear, solar and biofuels. Companies that are not disaster planning for their supply chains could be in for some very tough times.

Simmons has been right many times before, so I do not take his commentary lightly, especially with the shell shock of the credit crisis still reverberating loudly in my head. A couple weeks ago, I got an email from a wealth manager at a major investment company which tried to be a Friday silver lining to another crappy week. In it, he gave a quick comment that “at least gas prices are going down”. I never respond to these but couldn’t help it. I sent back an equally brief retort: the economy is in the tank, credit is gone, consumer spending is evaporating, global manufacturing is grinding down and the demand for oil is convulsing. Of course gas is cheaper. I consider the return to $4/gallon gas as a leader indicator of a recovery.

His response: good point.

Frankly, there are a lot issues going on right now that are frightening in ways that I have never seen before. This peak oil theory is no joke and will radically transform the global economy, and personally, I believe it to be true. My future, my boys’ futures, the country’s future and extended quality of life are all in jeopardy, if these issues are not dealt with effectively. I hope this is all is moot in 50 years because smart people made good decisions. Otherwise, watching Saw I-V will seem like a Willy Wonka marathon this Halloween.

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Entry Filed under: General, Global Supply Issues/Risk