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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

The Solution to Peak Oil – A Crude Oil Super Spike!

Commodities / Crude Oil May 29, 2008 - 12:44 AM GMT

By: Nadeem_Walayat

Commodities Best Financial Markets Analysis ArticleWe may be witnessing a possible solution to the Peak Oil dilemma in the formation of an unsustainable speculation driven crude oil price super spike. The impact of which will be to shock corporate and private consumers into making the necessary changes in the near future to be able to better adapt to the real impact of Peak Oil which will mean the reduction of crude oil supply and hence fuel shortages.


Despite crude oil prices having doubled in a year, the fact of the matter is as the Saudi's aptly pointed out last week that there is plenty of supply to meet current demand. Therefore the doubling in price IS to large degree speculator driven.

The plus side to the price rise is that it now sets the scene for a cap on oil prices for several years if not for decades, as we have witnessed when past bubbles burst they tend to deflate for many, many years. Whilst peak oil will continue to support crude oil prices in the long-run, the effect of a bubble mania driven super spike is to deliver two key changes to the oil market.

  1. With the aid of government incentives to fast-track investment and plans for further exploration of crude oil fields and to develop new technologies to extract more from existing fields.
  2. To shock consumers into making drastic changes in the way they use fuel, this includes consumers being more likely to accept higher taxes under the 'Green' banner.

The impact of the shock tactics is for these trends to persist long after the crude oil price spike passes, where even a decline over several years to half its current price will still exhibit consumer's who are psychologically averse towards excessive fuel consumption in anticipation of possible further price spikes and fuel shortages just around the corner.

This sets the seen for a peak in the crude oil price at a shockingly high level to impact on the psychology of consumers. Already crude oil $130+ is making near daily headline news, and consumers are definitely feeling the pinch and starting to make the necessary changes. However, it really may take a super spike in crude oil towards $200 to really inflict major psychological damage upon consumers that will make their stomachs churn at the gas pumps, thus forcing near permanent behavioral changes. The SUV's will increasingly end up in the scrap heap boats headed for the asian recycling ship yards, to be replaced by far more economical vehicles. As another incentive towards smaller cars, governments will aim to further penalize owners of gas guzzlers through taxation, for example the UK governments proposed implementation of changes to the Vehicle Excise duty (VED) will bring huge car tax rises to the owners of big co2 / gas guzzling vehicles.

This suggests to me that a crude oil spike peak this year will not be bettered for many years, even decades. In fact, we will gradually witness a slow ‘QUIET' decline in the price of crude oil over many years as consumers continue to make cut backs as technology and exploration continues to bring more oil supplies on stream. Therefore 2 years from now crude oil could well be trading back below $90 without any accompanying headlines of cheap oil is back, as the gas guzzlers will have in most cases been replaced by more economical means of transportation.

The key benefit of this apparent 'strategy' is for Sustainable Oil Supplies for the Continuation of Economic Growth, and therefore DEFEATING the Peak Oil doom and gloom scenarios. Conspiracy theorists may even see a hidden hand at work as they decide to pour over COT reports.

Current technical outlook for crude oil - My last analysis of 20th May 08, suggested the possibility of a near time spike straight through $130 and to above $140 before crude oil would correct towards $110 for another possible accumulation opportunity. The spike did occur and carried oil through $130 to above $135. Having now fallen back to $130, crude oil may give it one more shot at $140 before the correction towards $110. My target for 2008 is $150, this now looks set to be breached during a super spike.

Your optimistic analyst watching for the benefits of a Oil Super Spike!

Now what else could benefit in the long-run from painful super spikes?

By Nadeem Walayat

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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

kenneth
30 May 08, 15:00
Techology to Save us from Peak Oil ?

here we go again! the markets and technology much like the calvary of old will ride in to save the day. i'm interested in hearing about these new technologies so i can invest in them, because all i am hearing about is that there isn't even enough drilling rigs offshore to even explore for oil, let alone producing it. surely prices are rising, which would lend one to believe that companies would want to produce more to reap this bonanza, but costs are rising faster. the economies of the world need to grow to keep their populaces out of revolution. the countries that are experiencing slower growth will require less energy, but will be more than balanced by countries growing much faster. i can't see waiting for demand destruction, or some world-saving technology in the pipeline as the answer to peak oil.


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