For decades now, speculators in oil have justified their bidding up oil futures with the concept of peak oil: to wit, we have discovered all the major fields that there are and soon there will be no new oil, and this will lead to wars and exorbitantly high prices, and so although not now, but SOMEDAY oil will be scarce and so we should pay more for it TODAY. (No kidding: this is the rationale.)
What to make of the fact, then, that in this year alone, hundreds of new fields — some sizable — have been discovered?
Oil has been discovered by big companies, little ones, national oil companies. It’s been found in expected places (Brazil, Nigeria, Iraq, the Gulf of Mexico), places thought defunct (Norway), and completely unexpected places (Uganda, Sierra Leone).
How does Economics 101 (supply and demand (greater volume available now and in the future), diminishing demand (the current recession, green energy, staggering quantities of natural gas globally)) account for the fact that oil is hovering at $70 a barrel instead of falling?
“Peak oil” has been around since the 1970s. Last week I heard it promoted again, this time at an event featuring Peter Maass, author of the new book, Crude World: The Violent Twilight of Oil. To the average layman, the idea sort of makes sense — doesn’t everything non-renewable have to have a limit?
But peak oil is a myth for speculators. Why oil companies and others keep pushing it? For the speculators and investment houses, it’s a way to make money —so much so that the Commodity Futures Trading Commission has considered limits on the futures contracts available to them.
For oil companies, who reap the rewards of high prices, it means large profits, but it also means capital.
What is true is that oil is not and cannot be as cheap as it once was, no matter how plentiful. A lot has changed since the first oil well in the 1850s Pennsylvania was found just dozens of feet below the surface. Now oil is tens of thousands of feet down in terrible conditions, like the Arctic Circle or off the Continental Shelf. Governments and landowners now want more money for their treasure. And drilling is not cheap — offshore drilling costs between $500-600 per foot.
So what is the conclusion to draw? The world isn’t running out of oil, but don’t think for a minute it will ever be cheap again. It’s amazing what enough money will find.
