Volatility in the Price of Oil since Hubbert's Peak and Investment Risk

A cause for the financial crisis is described that differs from the emerging conventional wisdom. It is proposed a shift in interest occurred within the global financial industry in the mid-2000s that altered incentives from protecting shareholders to promoting self-interested “cashing-out”. The underlying reason for this shift is suggested to be volatility in the price of oil and its downstream effects on investment risk.

Novel data is provided to demonstrate that a distinct series of pulsed spikes in oil price volatility initiated in the early to mid 2000s (see Figure 9). The price shock of 2008, when oil peaked at over $140 a barrel, is shown not to be an isolated event. Instead, the oil shock of 2008 is the largest of a series of 7 prominent spikes in oil price instability that initiated some 6 to 7 years ago. The multi-year pattern of spiking volatility in oil price appears to be unprecedented, is ongoing and may be a natural process that results from being on the down-slope of the production curve since “Peak Oil”.

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