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.