With better than expected unemployment numbers today, one would think that the supply and demand spread for crude oil would begin to narrow in upcoming months.  After all, economic improvement means more demand for oil, right?

But while the market celebrates the jobs report this morning, crude oil prices are dropping.  Oil traders do not appear to be moved by the new economic indication.  That should be a clue that crude oil prices are being driven by other ideas, namely, the idea of peak oil.

Traders have, in recent years, considered the suggestion of cheap oil scarcity.  Today more than ever, evidence is backing up the claim.  Oil production has noticeably peaked in all countries outside of the Middle East.  Even in the Middle East, the only potential bright spots seem to be  Saudia Arabia, Kuwait and Iraq.

Peak oil prognosticators have risen to a point where the idea of oil scarcity has become a permanent fixture of crude oil valuation for many traders.  Indeed, for OPEC to declare $80 to be the right price of oil, supply and demand along with inflation on their own can no longer be relied upon to justify the new prices.

But how do you value scarcity?  The trick will likely be in answering, at what point does crude oil become so expensive that a serious move into alternatives actually become economically palatable.  While the answer to that question is debatable, the fact that the answer will be higher than today’s price is not.