Look out everybody. Suddenly, the mainstream media is
talking about peak oil, as if they've been just as concerned all
along. This spells trouble for the world economy as this is a
significant change in behavior from the mainstream outlets.
It is absolutely true and we've been saying it for years - oil
production has hit its peak in most of the world. In fact, it
has hit its peak everywhere except for Iraq, Kuwait and the mother
of all oil producers, Saudi Arabia. On top of that,
production expenses continue to rise as it becomes more and more
difficult to drill for oil. But even many of us who have been
following these developments for years have been humbled by our
reduced expectations of oil demand due to the economic
collapse. It seems that $150 crude oil can turn around and
destroy the world economy, which in turn significantly drops its
oil demand to a point where we were suddenly looking at $30 crude
oil.
Now that oil has recovered to over $70, the media has suddenly
woken up again. And dare I say it, we may have created a
monster.
This story has yet to capture the attention of the mainstream in
America. This story has scared us inquisitive thoughtful
people for years. But what happens when more Americans really
know that, "it's running out," as Matt Damon's character said in
the Hollywood movie, Syriana.
What happens is exactly what happened in 2008: high priced oil
followed by an economic collapse. Welcome to part two of
America and the planet's new drama, the potential that investors
altogether jump into oil for safety and take it up to a point where
it once again cripples the economy and, ironically, reduces the
demand for oil once again. Perhaps we hadn't considered it
before and this cycle, happening over and over again, is the future
of how the world deals with its energy problem. Oil goes up
to high levels, the economy collapses, oil demand is reduced, blame
for the economic collapse goes elsewhere and people downplay the
previous oil runup, followed by a slight economic recovery, and
repeat all over again. This would likely result in, at best,
a long term stagnating economy which struggles to balance its
demand for oil with a constantly recovering economy.
For those of us who were thinking of a simplistic straight up
rise in oil prices, what the market psychology and underlying
effects of our fears are telling us is that we will likely actually
witness dramatic overreactions in the market, causing economic
instability followed by underestimating the underlying problem, and
then another overreaction. So buckle your safety belts
because it's time for another dramatic overreaction. If oil's
true value is $100, for example, don't expect investors to stop
there, not at least until the rest of the world economy begs for
mercy.