Jack, List,
One school of thought suggests that the financial markets have just grasped the reality that we are dealing with a globally essential commodity which has started to decline at a rate of about 4.5% per year, and has no easy substitute.
Whilst we can "fix" the food supply problem, with additional planting, selective growing of essential crops and improved agricultural practice, the future for the oil supply industry, does not look so rosy.
If the world is using 85 million barrels per day (31 billion per year) and the price has doubled in the last 12 months from about $68 to $135, then there is a considerable amount of extra money flowing into the pockets of the oil producers.
How is this money being invested? They ought to be buying new high-tech drilling plant, to maximise the oil extraction from the declining fields. However they could always be using some of the additional funds to fuel price speculation in future oil production.
If we have reached the "bumpy plateau" of approximately 85 mbpd, then this is as good as it gets. If every producer is pumping as hard as they can to maintain the supply - ie remain level, then this is bad news and the plateau will soon change to a rapid, irreversible decline. There will be nothing that we can globally do, to slow down the descent into absolute oil poverty.
With the commodity plateaued and the only possible outcome being future decline, then its not surprising that we are seeing significant price rises. Oil for 2016 delivery is being traded for $135. What do you consider will be the price of oil in 2016? Clearly the speculators are going to make a lot of money from this - and they know they are on to a winner. The "myth" of peak oil has been busted and the speculators are moving in to clean up.
With the IEA (or is it the EIA?) stating that reserves stand at 1255 billion barrels, - dividing this by 31 billion annual consumption, gives only 40.5 years of remaining production - and all those barrels will be harder and costlier to extract than any have been up to this date. At some point the energy expended in their extraction will be so great, that it will be an act of global desperation and suicide (similar to the Kamikaze missions of WW2) to continue extraction.
As oil gets tighter in supply, attention will be turned to natural gas and coal, and the various conversion processes of gas to liquids and coal to liquids. This will speed up the decline of these fossil fuels accordingly and push up the prices to make them comparable with their oil equivalent. I would hazard a guess that we will be out of oil, gas and coal in about 40 years.
By way of an analogy - If the electricity supply was following the same peak/plateau behaviour, you could guarantee that we would be paying increased tariffs - with every powerstation spinning at full capacity, the interconnector with France running at full capacity.
If under these conditions we were seeing an increase in demand for electricity (all those plasma screen TVs and digital set top boxes, PCs and ) and the natural wearing out of old generating plant, then we will see an unavoidable rise in our domestic fuel bills.
I suggest we don't get too used to oil at $135, it will probably be $140 by the end of next week and $150 within a fortnight. - Have you noticed that it normally reaches a new peak by Thursday/Friday?
We are in for a bumpy ride followed by a painful crash - biofuel "lifejackets" will be useless and parachutes not included.
Ken
