Was ‘Peak Oil’ a Multi-Billion Dollar Hoax?

Crude oil prices started their astonishing price rise in January of 2007 right on cue for a normal seasonal rise into the summer. By August, prices were accelerating and continued higher going into the end of 2007. The usual seasonal year-end decline was hardly noticeable.

As 2008 began, crude prices seemed to be a one-direction trade as prices accelerated even faster. Something unusual was taking place in this market. OPEC and the Saudis claimed there was plenty of supply on the market but prices were being bid up regardless. Many analysts revived earlier predictions about peak oil and the impending decline in production as the justification for higher prices in anticipation of supply shortages in the future. Then in the middle of the summer the selling began. Was peak oil just a multi-billion dollar hoax?


…Shortly after the Saudi Oil Summit crude oil peaked on July 11, 2008 at 148.60 per barrel. No doubt there are many factors contributing to the subsequent decline including the claim made by OPEC and the Saudis of excessive speculation in the futures market. If excessive speculation played a part in the price rise we would expect to see declining open interest in the futures market as long positions are liquidated. In November of last year, open interest was 1.6 million contracts, by the middle of May when crude prices were still rising it had declined to 1.5 million. At the price peak on July 11, 2008 the reading was 1.4 million and by this week they have declined to 1.1 million. So in the last 11 months open interest has declined about 31% with half of the decline in open interest occurring in the last 3 months since the peak in prices. We are seeing long liquidation in the futures market and with hedge funds under redemption pressure we think there could be more to come.

We are not claiming the entire price increase that began on January 15, 2007 at 57 and accelerated in August of