Cheap oil is history. But why?

The stampede in the oil market is making billions of dollars for a lucky few and leading others to wonder whether the world is finally starting to run dry. Until recently, the notion that international production was about to reach its limits – the so-called “peak oil” theory – was the preserve of cranks and crackpots.

The orthodoxy was that we had decades of growth left to come. Now peak oil conspiracy theories are passing into the mainstream. Even the prestigious International Energy Agency is preparing to slash its estimate of how much oil is left.
A gradual decline in global production might last for decades, but the laws of supply and demand move much faster: as the giant economies of China and India demand ever more energy, the pessimists claim only a dramatic change in our lifestyles will avoid further skyrocketing oil prices.

“Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million,” says T Boone Pickens, a US hedge fund trader specialising in oil. “It’s just that simple.”

But the facts are not that simple. Just as the theory of peak oil is gaining ground in the trading rooms of London and New York, other conspiracy theorists are winning over politicians and commentators with a rival explanation for soaring prices.

They point to anomalies in the oil market, which mean there are actually surpluses building up. Iran has 25 million barrels of excess crude floating around in storage ships.

Telegraph