Oil price: where next?

A reduction in global oil production capacity will mean that higher future oil price will be attained at a lower level of demand than in 2008. Is another oil price spike on the way?

One thing that was anticipated in the run up to peak oil was that the oil price would become volatile. Volatility leads to uncertainty creating difficulties for national governments, economic planning agencies and oil companies to plan ahead. One consequence of this has been the postponement of many large new oil field developments creating concern that future supplies may be insufficient to meet demand leading to a new oil price crunch in the years ahead.
So what is the right price for oil? To what extent can market mechanisms be relied upon to strike the right price? Is it possible to make sense of the volatile price signal shown in Figure 1?

The Oil Drum: Europe