The New Peak Oil: Peak Demand

…Lost in the bullish talk of $200 oil was Goldman’s notes about demand destruction. The same report which predicted the super-spike also said that by 2012 the price of crude oil would fall to $75 normalized. Goldman expects the current euphoria to lead to a spike in crude oil prices, which will spur new supply development and also lead to permanent demand destruction.

OPEC has been using volatility in the oil market as a tool to limit the development of new oil fields. Volatile oil prices discourage investments in new oil fields if the cost of extracting the oil is significantly more than the current fields. Volatility keeps the average price of crude reasonably high, but the sharp dips in oil price make big investments in more expensive fields risky.


However, with oil projected to remain close to the $100 mark, a lot of these undeveloped fields will now become financially viable. Advances in technology also mean that oil sources like oil sands, shale oil and deep-sea oil, which were once considered too risky can now be harvested at a competitive cost.

In this article I shed some light on how high oil prices are resulting in a dramatic change in the energy industry and politics. High oil prices are accelerating the adoption of alternative energy resources and may signal the emergence of a new kind of peak oil fever: Peak Demand.

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