The Peak Oil Crisis: $80 a Barrel

Last week oil broke out of a months-long trading range and surged to $82 a barrel. For many of us who remember $140 oil from the summer of ‘08 this might not sound impressive until you are reminded that every time oil (adjusted for inflation) broke $80 a barrel some sort of economic recession occurred.

In the wake of the breakout to the upside, the financial press is full of stories talking about $95 or $100 oil this winter.

The general theory behind all this is that an economic recovery led by China is occurring right now. To hear Beijing tell the story, their economic stimulus and loose lending practices worked like a charm so that China will soon be leading the world to self-sustaining growth.

The international forecasting agencies are already talking of a jump in demand for oil next year which will put worldwide consumption back in the vicinity of where in was in 2008. Given that the world has only 2 or 3 million (or if you are optimistic 4 or 6 million) barrels a day (b/d) of spare oil production capacity and that it is taking all the industry can do to keep up with the roughly 4 million b/d that depletion is taking away each year, we will see tight oil supplies on of these days.

Falls Church News-Press