Take a look at oil prices over the last couple of months and you’ll see something interesting: its been stubbornly high over the last four months (> $100) despite the incredible $40 a gallon we saw just three years ago. Could it be market manipulation? Some people seem to think so, including the US Congress, which just unveiled a plan to increase penalties for market manipulation. Others seem to paint a much direr picture – that we have reached peak oil.
The concept of peak oil is a simple one. It states that global crude oil production has reached or is closely reaching its peak. And yet, this is clearly not a unanimous opinion. New sources of fuel such as fracking for American shale gas, biofuels like ethanol, hydrogen power, and several other sources. Canada’s oil reserves are greater than that of Saudi Arabia’s, and may suddenly become more accessible with breakthroughs in reservoir technologies. Despite the apparent sea of energy in the world, however, it seems that only the traditional fuel (Oil) from its traditional place (the Middle East) will continue to reign on the world’s energy prices. Alternative energy is vastly inefficient compared to Oil given that much of it takes more energy to create than it generates. Furthermore, many oil exporting nations have turned oil importers. Britain, Indonesia, and Egypt all fall into the recently converted. And one Petroleum Review’s contributing authors, Chris Skrebowski, has argued that spare capacity in the oil market could be eroded by 2015.
Several economists have tried to predict what might happen to the price of oil. Buttonwood, of the Economist, writes:
the conference Michael Kumhof, an economist at the International Monetary Fund, presented the findings of a forthcoming working paper which showed that adding the idea of a “Hubbert peak” to energy production greatly improved the ability of a model to forecast oil prices. Based on an expected 0.9% annual increase in production over the next decade, the model predicts that real oil prices will nearly double over the same period.
So is the era of cheap energy over? As the industrial age was built on new and innovative uses of coal, the time after WWII relied on cheap oil to stimulate the transportation industry as well as revitalizing factories. The answer to this question may not be an easy one to bear.
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