The end of cheap oil?

IEA Confirms The End Of Cheap Oil, reads one blogger’s headline.

The end of cheap oil – and life as you know it, proclaims the Digital Journal.

Age of Cheap Oil Is Over: IEA’s Chief Economist, says MarketWatch.

Obama Cops to Peak Oil Reality, blares the Post Carbon Institute.

But a funny thing happened on the way to peak oil. As the Wall Street Journal reports:

If historical trading patterns are any indication, U.S. crude-oil prices should continue to fall after plunging 18% in May, traders and analysts said. Oil prices dropped in 17 of 22 trading days last month on the New York Mercantile Exchange, the highest number of losing days in any month since January 1997. That month was the start of a nearly three-year price slide fueled by the Asian economic crisis and oversupply from members of the Organization of Petroleum Exporting Countries.

And how low could it go? Pretty darn low:

Walter Zimmermann, chief technical analyst at United-ICAP, points to $80 a barrel as being the watershed price. U.S. crude prices closed down 3.8% at $83.23 a barrel on Friday. He said if the price can stay above $80, chart patterns suggest crude may be completing a bull-market correction—or a sharp downward move that doesn’t disrupt a longer-term trend higher in prices. But “crude oil is in deep trouble if it can’t hold $80,” he said. Such a breach would set up potential for unraveling down to $45 a barrel, Mr. Zimmermann said. That would be something of a re-enactment of the price collapse from a record intraday high of $147.27 a barrel in July 2008 to an intraday low of $32.40 in December 2008. He didn’t offer an opinion whether the $80 price level would hold.

What happens if oil slides to $45.00 a barrel? Well, aside from being a signal of a global economic meltdown, it would be a train-wreck for gasoline alternatives and alternative vehicle technologies. That ethanol we’re required to blend into gasoline becomes even less affordable than it is. The payback period for that Toyota Prius or GM Volt becomes considerably longer than the life-expectancy of the vehicle. And, the prospects for other biofuels, such as algae, are dire.

As energy guru Vaclav Smil has pointed out:

The modern tradition of concerns about an impending decline of resource extraction began in 1865 with Victorian economist William Stanley Jevons (1835–1882), who concluded that falling coal output must spell the end of Britain’s national greatness as it is “of course…useless to think of substituting any other kind of fuel for coal.” Substitute oil for coal in the last sentence and you get the erroneous foundations of the doomsday sentiment shared by the peak-oil catastrophists.

 

American.com