Peak Oil, again

World oil supplies are set to run out faster than expected, warn scientists but this turns out to be the usual suspects. Its in response to BP: BP’s Statistical Review of World Energy, published yesterday, appears to show that the world still has enough “proven” reserves to provide 40 years of consumption at current rates. The assessment, based on officially reported figures, has once again pushed back the estimate of when the world will run dry.

But the Peak Oil folk (well, Colin Campbell) say it’s quite a simple theory and one that any beer drinker understands. The glass starts full and ends empty and the faster you drink it the quicker it’s gone. Gosh, that was easy… but how about some numbers? (he also says When I was the boss of an oil company I would never tell the truth. It’s not part of the game – which leads me to wonder: is he telling the truth now?). The numbers: global production of oil is set to peak in the next four years before entering a steepening decline.

Um, well, who is right? Wiki says Economist Michael Lynch claims Campbell’s research data is sloppy. He points to the date of the coming peak, which was initially projected to occur by 1995, but has now been pushed back to 2007.[citation needed] However, Campbell and his supporters insist that when the peak occurs is not as important as the realization that the peak is coming.[citation needed]. Um. So maybe it won’t be the next 4 years after all.

[Update: hey, peak oil posts are popular, I must do more of them. Meanwhile, a reader writes: If oil is so abundant, why are we digging up bitumen and drilling several klicks below the Gulf of Mexico waters to sate our demand? to which I would reply: because oil is $60 a barrel and oil shale bitumen is economic at $30 (or whatever) a barrel.

On another note, I presume that there are people within the oil industry who really know what is going on. If there was a real scarcity of oil, it should be in the futures prices. OTOH the price went up from $10 to $60 without any great change in reserves, so trying to guess reserves from prices is tricky! -W]

[Another update: 2 people (plus a friend down the pub) picked me up on my economic illiteracy: I had assumed that futures prices would show a rise if future oil was going to be scarce. But D says it most clearly: You can always buy on the spot market and sell on the future market by paying the price of carry (cost of storage plus the opportunity cost of forgoing the best risk-free investment), therefore the future price can never exceed todays spot price plus the price of carry for the period in question. Which is pretty much what the futures prices seem to show… constant-ish at around $70. I assume its the “sett” column I should be reading? -W]


  1. #1 Peter Hearnden

    I went to an interesting evening in Totnes on Monday where peak oil was one of the subjects.

    This is a link to a .ppt talk about peak oil given by one of the speakers. It’s to my mind quite convincing in a ‘well, I can’t believe this will happen but something clearly is’ kind of way. It’s clear the (OK could be ‘a’) peak of discoveries was some time ago. That production is plateauing, and that no new large oil field have or look likely (this is a planet that been well looked over) to be discovered while demand continues to rise.

    On a different but linked tack, it seems the prices of wheat and skimmed milk have doubled in a year, but, like oil prices, people don’t seem to notice. Perhaps there wont be an oil price/food price shock, but perhaps there will…

  2. #2 Sami

    Though I tend to side strongly with the Peak Oil-folks, I have a problem with both BP and them with this particular issue.

    First, I agree that the realization that Peak Oil is coming is more important than the date. However, it’s counterproductive to try to pinpoint the exact moment of peak oil – whenever it’ll happen (and I’m betting it’ll be much closer to 2007 than 2047), it’ll be apparent only after the fact. Besides, extraordinary measures (both real and those on paper and reporting) might artificially push back the peak by a few years.

    As for the latest BP report – which I also agree is highly unlikely to be the “truth” – it’s quite naive to quote consumption on the current levels when demand is constantly rising.

  3. #3 Valdemar

    If you’re going to use Wikipedia as a source, at least don’t follow Lynch’s tired arguments. You can find plenty of numbers and in-depth analysis online, so quite why you expect a public newspaper, even a broadsheet one, to get that technical I don’t know. It’s achieved what it set out to do, which was raise the issue to the ignorant masses (though others have done so in the past, such as USA Today and National Geographic only to be ignored anyway).

    [Weeeeeelll… you don’t like Lynch, then? Are you saying that CC *didn’t* predict peaks in the past? seems to have 2000, for example -W]

    Frankly, if you want to believe Big Oil and the national oil companies, be my guest. Given Shell’s big scandal in 2004, the OPEC figure fixing of reserves and the constant claims of there being no peak in sight, yet all the investment is going into oil shale, tar sands and ultra deep-sea projects is telling enough. If oil is so abundant, why are we digging up bitumen and drilling several klicks below the Gulf of Mexico waters to sate our demand?

  4. #4 Jonathan Dursi

    I don’t generally rush to the defense of the Peak Oil folks, but:

    (a) The fact that there are 1208Gbls of proven reserves and the suggestion that production might peak in 4 years aren’t necessarily incompatible; one is an absolute number, and one is a statement about rates.

    (b) That there is 40 years of oil left, even with an `at least’ in there somewhere, is not an especially optimistic thought from a business-as-usual point of view. (Especially when based on current rates; surely China’s and India’s consumption won’t pick up much over the coming decades, right?)

  5. #5 Benjamin Franz

    Regardless of whether Peak Oil was two years ago (as some contend, based on not yet strongly convincing evidence) or will not happen for another 40 years (as the oil companies contend, based on known to be badly inflated figures for reserves in the Middle East), we cannot afford to burn oil at the current rate if we are to have any hope what-so-ever of keeping Global Warming from being a truely phenomenal disaster over the next couple of centuries.

    Whether you are a believer in imminent Peak Oil or worried about Global Warming the answer is the same: We need to seriously start to reduce our use of carbon polluting fossil fuels starting right now.

  6. #6 Valdemar

    Jon’s right here. Reserve numbers mean squat, but it is something that Big Oil is especially fond of talking about. Even if we did have another three trillion barrels left, rather than barely over one, it would still not stop PO because despite all the huge reserves in Canada and Venezuela locked up in sand and shale rock, if you can’t pump it out fast enough, it may as well not exist.

    We’ve never gone over around 85/86 mbpd, and that is worrying when population growth alone will require us pumping well over 100 mbpd in a couple of decades. It doesn’t help that people believe the bio-fuel or hydrogen economy folly too and when geo-political issues make even a gentle downward geological supply slope turn into a cliff.

    You’ll notice the likes of Lynch and CERA are quiet now, because their “$40 oil is the future again” claims in 2004 were shown to be so much bullshit.

  7. #7 Adam

    I suppose my question is, how far past a peak in oil would we expect BP (for example), to *stop* saying that there’s “at least 40 years of consumption” etc.?

    When, in the lifetime of oil usage, would they admit that the end the end is in sight?

  8. #8 Schloopy

    The folks over at The Oil Drum, on the whole, are actually not all that happy with this piece–too doomerish!

  9. #9 guthrie

    Benjamin- peak oil is when we are pumping the maximum out that we can, not when it runs out.
    Valdemar makes the same point.

    From what i have read, don’t expect Canadiam tar sands to save the day either. They pollute badly on being extracted, and even with the planned expansion won’t manege much more than something like 4 or 5 million barrels per day.

    Now, there are definitely some nutty peak oilers, who are half hoping that we hit a crunch and oil prices double every few months or something like that, but I think it much more likely that oil supply will get tighter and tighter over several years, and prices of all essential foodstuffs will increase. We will adapt, for starters with less travel, and hopefully the days of cheap plastic tat will be over.

  10. #10 Valdemar

    Actually, as a poster over at TOD every now and then and daily reader, I find that this is only slightly irritating as an article because of some minor errors that would otherwise hurt credibility, rather than being too doomerish. The title is a headline grabber, as usual, and slightly misleading because it’s not when we run out of oil, which we may never do anyway, but when we reach a limit whereby we can’t meet demand. Some don’t think that’s as much of an issue. How wrong they are,

    There are some posters at TOD who think a gently-gently approach will get the message to the public, but this has not had any effect and climate change today took the likes of Katrina before most people took notice. Even with record fuel prices and oil remaining high, people don’t seem to get it. This way of life is not sustainable and it WILL end one way or another, be it from oil or water or top soil. Just because this life is all you, your parents and grandparents have known does not mean it will last indefinitely now we’re in such a consumer utopia.

    And that is what makes the message hard to digest, as the five stages of acceptance here don’t even begin to get started yet.

  11. #11 analyst

    Instead of letting off half-assed remarks about other people’s comments…

    Study the data from the field.

    That is science.

    Rely on the power of observation, not on rhetorics, to make your hypothesis and to test them.

    Then come back and say what you think of peak oil theory.

    [Which data would that be? The data in the BP report? If you have something different, feel free to post a link to it. Otherwise, vague remarks are not helpful -W]

  12. #12 Schloopy

    and actually there is a great summary post over at TOD today, which is basically an update on the latest production numbers from the EIA along with graphs/charts of different oil production forecasts from different scholars and oil jocks.

  13. #13 Ron Kling

    Good. When the oil is gone, I guess most of the [manmade] global warming threat will be over, huh?

    [No, there is lots of coal -W]

  14. #14 Ricardo R. Rivera Fernandez

    On follow up to Peter Hearnden’s comment, it is no surprise the price of just about everything has inflated, since all its production and distribution depends on oil. The fertilizer for growing wheat depends on its source and energy of manufacture on oil, and just like wheat, milk has to be hauled in trucks and such, usually powered by diesel. So to summarize, forget the price of other stuff and focus on the main inflationary variable: oil. Cheap oil, cheap production.

    Second, we’ve known how to extract the oils from sand for a long time now, this is not some recent major discovery. Why are they exploiting the cheap $30/barrel alternative(as Hearnden claims) as resource these days, when they could have done so many years before? They were looking for a challenge? Give me a break. The net energy loss from producing a conventinal barrel of oil is 2.5% its energy content. The average of the tar-sands region is 33% its caloric content. Do the math. You don’t make more money when you spend more money to make the same amount product. Same goes for energy.

    Hubbert was right; and the people extending his analysis converge on world peak-oil within the next five years. I really could care less if others listen; more food and energy left over for us “alarmists.”

  15. #15 cliff wertz

    Colin Powell is backed up by the US Office of General Accountability, National Academy of Science, National Academy of Engineering, and the overwhelming majority of independent research organizations. It is sad to see your ignorance, which will result in millions if not billions of deaths in the coming years. Deal with reality, or reality will deal with you.

    [Do you mean Colin Campbell? If you think the NAS is backing him up, please provide a URL -W]

  16. #16 SCM

    The reason for taking the BP energy review figures with a pinch of salt is that they use only publicly reported reserves figures for this publication, many of which (especially for the middle east) are known to be dubious – see for instance recent leaks from Kuwait indicating actual reserves are half the official figure.

    BP themselves and other oil companies don’t use such “official” data for making their own investments but instead pay through the nose for proprietry data from companies like IHS and energyfiles (the latter who predict peak around 2015 by the way). Even this data is not that reliable and no real info is available on the middle east, which given the majority of remaining reserves are supposed be there, is a significant “known unknown”.

    Given good data on discovery trends (declining since the 60s), recovery rates, and the past performance of all known fields it is possible to make a fairly good forecast of future production. However, this data is hidden behind an inpenetrable wall of politics and industrial intrigue. This makes the job of those trying to do forecasts pretty difficult, however there are very good reasons to be skeptical of claims of future long term growth in oil production.

    What is happening is substitution. Oil sands, NGL, “unconventional” oil and biofuels are increasingly coming into the “total liquids” stream. It may be that conventional crude has already peaked (too soon to tell), but the alternatives are bridging the gap and are currently providing much of the growth in liquids production.

    The problem from the point of climate change is that many of the alternatives – and the increasingly hard-to-get-at conventional crude – are more energy intensive to produce. This means more carbon emissions per unit energy supplied to the end user. This will be true regardless of the timing of peak oil.

    The oil companies, however, can’t wait for an ice-free arctic – there’s oil in them there waters!

  17. #17 guthrie

    I am potentially worried about the 40 years of oil left, because I should be just retired by that point. Ideally I will have family around as well. Hence we have less than 40 years to work out something else to replace oil.

    Which is proving much harder than people would like.

  18. #18 Thomas Palm

    New Scientist had some interesting data on metal reserves and prices in the May 26th issue. We’re not just talking about a possible peak oil, known reserves of many important metals are getting pretty low too. Maybe there is more to be found, maybe substitutes can be found, but there are a lot of maybes and could be a bumpy road ahead. The good thing with a global economy is that it can prevent local shortages, the bad thing is that when you eventually do get a shortage it will be global in extent.

  19. #19 Andrew Dodds

    My 2c (as a petroleum geologist who has been following this for a while..)

    First – ‘Reserves’. The BP study is (as they say) not even wrong. Why?

    There are many different ways of getting at reserves. A simple classification is:

    ‘Proven’ (P90) As in ‘There is a 90% chance we will recover more than this number’. This is the number western companies give publically. It is in effect a chronic under-estimate – hence oil company reserves usually seem to expand, or shrink less than production.

    Note that a small oil company can easily arrive at this figure by just multiplying last year’s production by 10, which typically gives a similar number.

    ‘Proven+Probable’ (P50) As in ‘There is a 50% chance we will recover more than this number’. This is the actual estimate of how much recoverable oil is left.

    A heavily developed oil province (North sea for example) can recover about 5% of this number per year.

    The one thing that ALL of the estimates given to the BP stastical review have in common is that NONE of them are genuine P50 estimates! Yet these are the only numbers that can legally be added to gether – P10 gives a massive under-estimate, leading to the idea that reserves always expand, and P10 gives a massive over estimate.

    ‘Proven+Probable+Possible’ (P10) As in ‘There is a 10% chance we will recover more than this number’. Basically, ‘if we are amazingly lucky…’.

    If we use the ‘production capacityx10’ method worldwide, we get a worldwide P90 estimate of about 300 Billion barrels. This already shows that BP’s estimate of world oil reserves – if taken as a proper estimate that they would be required to release to the markets – is exaggerated by a factor of 4.

    This is why some major oil producing countries (USA, Norway, UK) with strict reporting requirements report tiny reserves (20, 8 and 5Gb respectively), wheras OPEC countries report whatever they feel like. It is very misleading.

    So we have a serious lack of data. The pre-nationalisation data we do have from the middle east, extrapolated to the present day, does not look too pretty, and we know they haven’t found a lot since then. The deepwater boom is already petering out. This tends to support the peak oil arguments, as well as the fact that oil prices seem to rise relentlessly.

  20. #20 Rod Campbell-Ross

    Picking a historic peak depends on what you are looking at. C+C, or Crude + Condensate peak was May 2005. All liquids was July 2006. There are other combinations of liquids Peaks as well. In fact current variations from these recorded Peaks are statistically insignificant and well within reporting and stock movement errors. I wouldn’t interpret lower production now as being anything worrisome in itself.

    The real point is that production has been flat for nearly 3 years and the International Energy Agency is getting rattled; and is calling on OPEC to produce more in Q3 and Q4 or prices are going to shoot up. In response OPEC is saying the world is well supplied; and anyway, why should they invest in more production when the world is scrambling to invest in biofuels? I personally think these two points are a smoke screen because they are pumping as much as they can.

    While a single months result means nothing, the May 2007 OMR from the IEA reports a production fall of 565k barrels. That is quite a lot for this time of year, when production should be increasing. Saudi Arabian production has declined by nearly 1m barrels per day since Q3 2005. If that trend is maintained things will become clear. The world will have passed Peak Oil. We will know definitively in the next 6-12 months.

    [Nonetheless, oil futures prices look rather flat: Am I reading that right? The market says no steep increases out to 2015? You can currently buy options at $70/bbl – so if the price is going to rocket, why not inveest? -W]

  21. #21 Rod Campbell-Ross

    Andrew Doods makes an excellent point above about reserves, especially as reported in the BP Statistical Review. The figures are worthless; and give one no idea about anything. The R/P ratio is one meaningless number divided by another meaningless number. The R/P is probably the number Douglas Adams used as the answer in his book Life, the Universe and Everything.

    For instance UK reserves as reported by BP were unchanged, yet production was down. This demonstrates neatly the usefulness of this reserve data and the idiotic nature of the R/P ratio. With static reserves and declining production the R/P actually increases for the UK! They can maintain current production for longer! Actually production will be down next year and down again the year after. That is the tyranny of declining production, it is relentless.

    Much more important than reserves is the issue of flows. How much is being produced? How much can be produced? It matters not if you have reserves the size of the moon if you can only produce them at 100 barrels per day. That is all that can be produced. If you cannot produce them at all because they are at 28,000 feet deep under 5,000 feet of water they are worthless. If you cannot produce them because there is a war, or it is too cold, or because all the oil engineers have retired, or because there arn’t any rigs left or for any one of a million other reasons they can’t be produced, they are useless. Finished product at the point of use is what counts, not reserves. The supply chain is getting longer, more complex and more fragile.

    “It is profitable to produce oil shale at $30”. Yeah right. The problem with this statement is that it attempts to sidestep the tricky laws of thermodynamics. Kerogen, or oil shale, as it is known, must be gently cooked at the right temperature to get oil. The problem so far has been that it takes more energy input than you get out of the oil produced. Maybe that is OK. Using nuclear energy to turn kerogen into oil maybe useful. The problem then is that $30. Because oil is embedded in everything we do that $30 will increase as we try and build the infrastructure to cook the shale. It will be like chasing your own shadow, you never quite get there.

    [The problem so far has been that it takes more energy input than you get out of the oil produced I find this implausible, as the product wouldn’t be commercial -W]

    That brings us back to oil. It is valuable because of the energy it delivers to society measured in joules or BTU’s, not because its liquid volume is worth $x per gallon.

  22. #22 Dave Cohen


    I will point out only a few of the errors or omissions you make in your blog post.

    1) >[Update: hey, peak oil posts are popular, I must do more of them. Meanwhile, a reader writes: If oil is so abundant, why are we digging up bitumen and drilling several klicks below the Gulf of Mexico waters to sate our demand? to which I would reply: because oil is $60 a barrel and oil shale is economic at $30 (or whatever) a barrel.

    Oil shale is not economic at $30/barrel. If this were true, operators would be making serious efforts to produce the shale now. When the reader talks about mining bitumen, he is talking about the tar sands of Canada, not shale. Right now, there are no plans whatsoever for commercial shale production in the U.S. Shell is still testing their in situ heating method, but has made no decisions on using it for actual production.

    2) An omission. The BP reserves numbers for the Middle East — where most of the proved reserves supposedly are — are simply copied from the OPEC numbers (or the Oil & Gas Journal). These numbers are not subject to independent audits. See my recent article on Qatar at BP’s numbers never change much year to year, despite the fact that the world produces about 29 billion barrels per year. This produced oil is never counted against reserves, which magically increase each year to cover almost exactly what was produced.

    By the way, Michael Lynch has been quoted as saying that there is “no visible peak” for oil. Not even CERA, Saudi Arabia and ExxonMobil believe that. In other words, Lynch represents an extreme position that nobody else would buy into. So, quoting him is not credible. It’s like me quoting Michael Crighton on climate science — which I would not do.

    Stick to climate change, William. Stick to what you know.

    Dave Cohen

  23. #23 Rod Campbell-Ross

    Oil from shale is not commercial. There are no commercial plants producing oil from shale. It will never be commercial unless a way can be found to solve the energy issue and a number of other issues besides.

    [Like I said, thanks for correcting me to bitumen. The point still stands, though (we do agree on the point, I hope? The question was, why are we using oil-from-bitumen? The answer, because its worth it). On oil shale, disagrees with you somewhat -W]

  24. #24 Rod Campbell-Ross

    Good point on the futures. I personally do not expect prices to shoot up because peak oil will not manifest itself in the market as a sudden massive increase in prices. 10 years ago oil was $10. Now it is $70. Lots of poorer people in the world no longer have access to as much oil. It will be some other bigger number in another 10 years and more and more poorer people will have been out bid. In other words prices will continue to trend upwards and people who cannot afford oil will leave the age of oil for ever.

    Anyway, I am not sure the markets factor much of the medium and longer term guesswork in. They factor in what they know and short term factors such as social strife in Nigeria, but no one knows for certain what is happening in Saudi.

    All we do know is that production is down and we haven’t seen a production profile like this from Saudi before. Production has previously increased and decreased dramatically as they have performed their swing producer role. Trending down by a million barrels a day, right up to and through the highest nominal prices ever, not only doesn’t make sense, but it is out of charachter too.

    [So… given that you know oil prices will be trending higher over 10 years, why not buy oil futures? -W]

  25. #25 Rod Campbell-Ross

    Oil from bitumen is worth it because natural gas is cheap at the moment. But natural gas production in North America is past peak and they are planning nuclear power to generate the heat they need to upgrade the tar. I am not sure the economics will work with nukes.

    The laws of thermodynamics always apply. It currently takes about 3/4 barrel of oil equivalent (BOE) in natural gas to make one barrel of syncrude. There are also massive environmental problems with water, both in its quantity; and in contamination of the water table. The Canadian tar sands operation is unlikey to exceed 3m barrels a day; and even that will be a stretch. The Venezuelan tar operation is more likely to run into engineeering difficulties brought on by unstable politics.

    As for using natural gas to make oil: natural gas is the premium energy source. It is like turning gold into lead.

  26. #26 Luna_the_cat

    Speaking as a former BP employee, it might be helpful to point out a couple of things. I don’t know if this is the first time or if I’m repeating what other people have said before, so apologies if I’m covering old ground.

    First, “proven reserves” does NOT always mean what people assume it means, that those reserves are currently recoverable with current technology. ~One of the reasons why “peak oil” keeps getting pushed back is that recovery technologies keep improving, making formerly inaccessible reserved accessible. BP seem to take the attitude that recovery technology will continue to improve at the same pace as it has in the past few decades; they seem to work on the model that, if they aren’t planning on tapping a reserve until 2015, then by 2015 the technology will exist (and the prices will exist) that will make it economically feasible. While there is a case that technology will certainly continue to improve, I don’t know if the full extent of their official assumption is warrented. I’m not a drill engineer, so I don’t know where the limits of improvable technology are even likely to be. But I do know that the assumptions behind “proven” do vary from one company to another, too, and that BP is rather optimistic.

    Second, I don’t think this makes much mention of discovery, and I think that’s rather an important topic. Up until recently, the discovery of new reserves was a major source for revision of estimates. However, the unique-in-the-history-of-petroleum situation is that in the years since 2002, so far as I know all of the “big five” companies (who do the vast majority of the world’s seismic mapping and discovery process) have spent more money looking for new reserves than they could recover from the reserves they have found, even if those new reserves were fully recoverable, and in response have scaled back discovery efforts drastically. In other words, there’s not much out there that we don’t know about any more. Which means, in turn, that advances in recovery technology are the only thing pushing peak oil back.

    So…my take, from having watched this whole issue for a while, is that it is not nearly so dire as Campbell says, and not quite as optimistic as BP has it. But then, you hardly need to be a genius to work that one out.

    My $0.02, however you want to take it.

  27. #27 Luna_the_cat

    Sorry, I should read before I post. I see that Andrew Dodds, Rod Campbell-Ross, and SCM have covered a lot of this far better than I could.

  28. #28 Eli Rabett

    Futures don’t go very far out. If you keep reinvesting you risk getting caught in short term fluctuations and you have the premium someone is going to charge you for selling it to you. In short, it’s a mugs game unless you dig up Julian Simon.

  29. #29 Etienne

    >>>Rod Campbell-Ross said : Trending down by a million barrels a day, right up to and through the highest nominal prices ever, not only doesn’t make sense, but it is out of charachter too.<<< So, let's make a litte computation, assuming that it is a full million barrels/day that Saudi didn't pump to put on the market. One millions times 365 times let's say $65/baril (the average from june 2006 to june 2007) equals 23.75 billions dollars. As they produced 10.86 millions barrels/day in 2006, their yearly income for last year is arround 258 billions dollars. Decreased production means a 9.2% fall in oil revenues. That hurts baby ! Let's play Alex Jones game (that Big Oil bad boys want to make big money and all that joke) : Saudi 'saved' 365 millions barrels, what's next ? They know that, if they wait another year to sell them, they can make more money than today but, as the dollar is falling since euro's birthday, they wont be able to buy more yachts and gold palaces, because the oil price goes up whereas the dollar value goes down. So, that doesn't make sense. I may be wrong somehow, but I doubt I'm far from the truth.

  30. #30 Chris O'Neill

    “As for using natural gas to make oil: natural gas is the premium energy source. It is like turning gold into lead.”

    Not in Australia which, as you might guess, has a lot more gas than oil. I expect the same applies in Iran which IIRC has the world’s largest gas reserves. The disadvantage for gas is that it costs a lot more to transport than oil. If you ignore this problem then the logical thing to do is to consume the gas directly rather than to turn it into oil first.

  31. #31 Mark

    Why do you think futures are relevant William? Let’s say you belive in peak oil and want to make a killing. Why would you pay a premium for futures when you could buy the oil at today’s prices and then pay a few dollars per barrel per year to store it. The point is that futures max out at todays price plus storage for the relevant interval. I belive oil futures are close to their maxima based on the current cost of oil and therefore you can only conclude that not many people believe the price will be going down in the next few years.

    [Hi, thanks for this, I also spoke to someone more versed in economics in the pub who also pointed out my naivete. Yes, I agree, futures are limited by current+storage. Therefore… if lots of people anticipated the price of oil going up in the future that would have to raise todays prices -W]

  32. #32 mark

    It does seem reasonable that futures should reflect expectations about the future, and they do on the negative side of prices. In general, I think it is a mistake to look at the markets for visions of the future. Even if you knew peak oil was in a few years, you would not be able to anticipate the reactions of governments (price controls, nationalizations, etc) or the extent of conservation and demand destruction, even at modest price increases. I read Deffeyes’ Hubbert’s Peak books some years ago and his arguments seem perfectly reasonable, but I also understand that there is considerable uncertainty because the data is poor and the future is hard to predict.

  33. #33 Steven Reynolds

    Hello all,

    We here in the Midlands have been discussing the coming consequences of the “unsustainable” lifestyle that we have created in the UK, and also when I say “we” I mean the developed(ing) human race! Anyone that is reading these blogs and who has not read James Kunstler’s book, ” The Long emergency”, please do so. Tell you what. Buy the book read it and pass it on. Donate it to the local secondary school and get anopther copy for the library! I am not promoting his book, per say, so much as I am the material and the concise and “no holds barred” way that he explains it to the layman reader.

    In addition, there is a growing acceptance and realization that energy consumption reduction or energy conservation is going to become a more important part of the coming decades. There are technology out there that can be implemented NOW. My chiropractor’s brother, for example, installed an energy conservation system in his recycling factory from a Company from the USA called Enercon International. He had met the lead engineer of the company on an airline flight about a year ago and was intrigued enough to investigate further. He has reduced his electric consumption more than 20% while actually increasing his working hours, his brother told me.

    Again, I am just trying to give people options/hope? You can see more of the company at and also they have a more “informational” site at

  34. #34 Dunc

    On another note, I presume that there are people within the oil industry who really know what is going on. If there was a real scarcity of oil, it should be in the futures prices.

    Two problems there:

    One, nobody, but nobody has access to all the necessary data. The ME NOCs are notoriously secretive, the publicly available data on proven reserves are notoriously junk, and have been since about 1988.

    Two, the future price of a commodity cannot reflect looming supply discontinuities, even if they are known exactly and with 100% certainty, because of what’s called the “arbitrage cap”. You can always buy on the spot market and sell on the future market by paying the price of carry (cost of storage plus the opportunity cost of forgoing the best risk-free investment), therefore the future price can never exceed todays spot price plus the price of carry for the period in question.

  35. #35 Luna_the_cat

    Thrown in for comment/perspective:

    The US DOE figures —

    Not only can you get an idea of how the official estimates have changed, you can get a look at how natural gas stacks up against oil, and how BP’s figures have historically fit with a couple of other sources. What I find disappointing is a lack of any update of the USGS 2000 survey anywhere.

  36. #36 Munin

    William, the post by Steve Reynolds above looks an awful lot like spam to me.

    “My chiropractor’s brother”? My arse.

    [I think you’re right. Its now unpublished -W]

  37. #37 Rod Campbell-Ross

    $81 oil. I wish I had bought those futures! Goldman Sachs have oil at $85 by end 2007, with possible spikes over $90 during 2007 and $95 by end 2008. Production remains flat with total liquids excluding biofuels down by 1m barrels from peak at mid 2006.

    If it looks like a duck………….

  38. #38 uBeR

    Dr. Levitt, a famous economist compares peak oil with shark attacks: shark attacks stay mostly constant, but fear of them go up when the media decides to report on them (which is true for most things). We have an increase in reporting on peak oil, even though nothing fundamental has changed in the oil outlook in the last decade.

    The idea behind peak oil is that we’ve been consuming so much oil that we’re soon to see triple digit prices for a barrel of oil and much doom and gloom because our reserves are dwindling.

    Levitt, of course, is an economist and knows that people respond to incentives. When prices of a good or service go up, people demand less of it, the producers (of gas) figure out how to make more of it, and everyone else tries to find substitutes. (Free) markets have a way of dealing with situations like this.

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