The peak oil crisis as summer ends

The price of oil at the moment is an enigma, are we at another peak oil moment? After falling from nearly $150 a barrel, which nearly throttled the world economy last summer, to circa $30 a barrel last December, prices have crept back to where they are now flirting with $75 a barrel. World consumption is down by about 3 million barrels a day (b/d), but this drop seems to be mostly in OECD nations where industrial activity has undergone a major decline. The developing nations such as China and India seem to be maintaining or even increasing their oil consumption.

This situation has left forecasts of future oil prices all over the map, with some predicting declines to last winter’s levels and others foreseeing spikes. While a price drop would help the US economy, a spike to $100 a barrel and beyond would be disastrous.

Keep in mind that for every 10 cents the price of a gallon of gasoline goes up, it currently costs US consumers $38 million per day, $266 million per week or $1.2 billion per month. A dollar a gallon price increase would cost Americans $14 billion each year that could not be spent on other retail items.  Giving the increasing restrictions on credit cards, it is unlikely that as much of the next price spike will be financed by Visa and MasterCard, so it is likely that gasoline consumption would drop more precipitously than it did last summer.

Numbers like this, of course are meaningless to most; annual gasoline consumption and the need to drive varies so widely in this country that while some would be devastated by much higher prices, others with larger incomes, more efficient cars and less need to drive long distances would hardly notice a many dollar price increase – but the economy would.

At the minute it is impossible to say just when the next price spike will be upon us – there are simply too many variables involved, particularly the course of the recession in major oil consumers around the globe. We do know that the world’s conventional oil production has not increased since 2005 and somewhere within the next five years, depletion from existing fields is almost certain to get ahead of new production and spare production capacity.

Unless the world’s economy continues to deteriorate and the worldwide demand for oil falls more rapidly than depletion, large price spikes somewhere ahead are almost inevitable.

Tags:  peak oil