Oil’s Wakeup Call

…If you want to dream about oil prices long term, the go-to guy is Matt Simmons, chairman of Simmons and Company International. Simmons’ thesis called “the Peak Oil Thesis” is awesomely simplistic: The elephantine oil fields of Saudi Arabia peak out in a few years. Unfortunately, this is only a working hypothesis.

Saudi Aramco technocrats won’t let Simmons near their reservoirs or seismic research data. They claim a reserve margin of several million barrels a day. Simmons’ competition, Cambridge Energy Research Associates in Massachusetts takes the Saudi side of the argument, but the market these days is siding with the bears on net worldwide incremental production possibilities.


The next five years will tell the story. I’m leaving out the demand side of the U.S. equation. If you believe our next president and the Congress will draft a cohesive energy policy that curbs demand and successfully encourages new energy sources, you don’t want to play in this game. Just be mindful that we have over 100 million cars on the road, gas guzzlers, and they’re going to hold the road over the next 10 years.

Oil now accounts for 95% of transportation energy, and Simmons and others believe future growth in oil demand is inexhaustible. I never knew anyone who could predict the price of oil accurately for more than six months. The consensus historically runs wide of the mark, expecting demand to peak and prices to collapse from supply sources. The classic magazine cover story in The Economist in March 1999 projected $5 a barrel oil, that the Saudis would flood the world with cheap oil and demand would peak. How wrong can you get it?

Forbes