The myth that pushes oil prices up plays into the hands of speculators

PEAK Oil, the invention of a retired oil industry executive, has for years now fuelled a healthy conference circuit and at the same time played havoc with the oil markets. A simple enough doctrine, it states that Peak Oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the

rate of production enters terminal decline.

The theory is a global application of an original piece of work from the 1950s. This original theory was developed in the US and gave a date for maximum US oil output as lying somewhere between 1965 and 1970. Since then it has been all downhill.

Applying this to the global industry, we are told, will give us a date of maximum output which lies somewhere around 2008 — we are currently experiencing it and are about to enter a period of terminal decline.

That much is fine. The problem emerges with the application of the theory to the markets. By creating a climate of hysteria speculators have been allowed to drive prices up wildly. It could even be argued that the oil market has become dysfunctional. It used to be that speculators brought not just liquidity but also useful information as they placed bets on whether a commodity would rise or fall in value.

Irish Independent