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November 2, 2010
The other day when I was refilling my car with gas I noticed that the charge exceeded $50.00. I have had the same car for quite some time and it had been a few years since it cost $50 to fill up, so my curiosity was tweaked.
I checked the business gauges and noticed that the price for a barrel of crude has reached $82.55. Not quite were it was in late 2008 when oil topped out at close to $150 a barrel, but considerably up from the February 2009 price of $31.04 a barrel. Supply, demand and the relative value of the dollar are all contributing factors in the crude oil price equation.
The recent global recession and decline in demand, curtailed oil production by its’ largest percentage since 1982. BP estimates that global oil reserves at year end 2009 were 1,333bn barrels. What is remarkable is that reserves are 23% higher than a decade earlier, despite 300bn barrels of consumption during the period.
Hubbert’s Peak, when oil reserves begin to fall, and prices begin to rise relentlessly, however has not been reached. M. King Hubbert, a geologist, predicted US oil production would peak in 1970, and it did. What Hubbert did not predict or account for however, was the growth of global trade or the improvements in oil industry technology and geological knowledge. Iraq recently disclosed that it has 25% more proved oil reserves than the last time it looked. Brazil says that one of its recent discoveries could be 8bn barrels, twice what was originally estimated. Hubbert’s Peak will no doubt be reached some day, but it remains a moving target, continuously delayed by new discoveries and data.
Oil industry concerns today are different: the rising cost of extraction, the impact of the recent BP Gulf of Mexico accident and resource nationalism. Seven of the top 10 source countries have shut out western oil companies (Canada, Iraq, Kazakhstan are the exceptions). The demand for oil shows no sign of peaking according to the International Energy Agency which forecasts that daily demand will increase by 20m barrels a day by 2030. Fundamentally though, the rising price of oil can be attributed to rising Chinese consumption and to the rising investment demand of extraction. More peak oil scares are most likely on the horizon.