We spend almost double what we did a decade ago on gasoline in terms of percentage of GDP. If this trend continues then gasoline and oil will be expensive if they are not now. The answers to these questions are all relative. Compared to the late 70's and early 80's things are cheap.

I thought Peak Oil always referred to peak production not peak prices. I would completely expect peak production not to be simultaneous with peak prices as it will take market hindsight to figure out that it has occurred, and then grasp the situation and react. I believe the "market" will go go so far out on a limb based on theory. To push the price higher would require that more buyers/speculators actually believe to that extreme extent the result will soon be higher prices. After all no one bids higher than they need to to buy the oil, so if not enough people believe in iminently higher prices then they aren't going to bid that. Reaching production peak does not entail that price peak will occur soon. Most players probably have no idea how long the plateau will be. When you bet you bet not just on price but on timing too. With commodities it's easy to get knocked out of a postion because you got the timing wrong and something caused a dip before the rise. In the end I thinkit's pretty darn hard to corelate market prices with physical reality as there is far too much irrational psychology involved.

I'm not sure what you mean by the price signal being a complete failure. It is clearly "up" and this is in line with what prices are supposed to do at some point with peak-oil.

You have to separate taxes from European prices before you compare them alongside American one's. If you want to relate prices to peak-oil, you should probably just be looking at wholesale prices. Gasoline is also only indirectly involved with peak oil, which is of course about oil.

As far as prices being "fantastically" higher, we just don't know. This is uncharted territory. We'll only have some of these answers looking back.

In your last paragraph, it is hard to answer these questions because I don't dont know what you mean by,"...maintained at this level..." Is that a high level or low level?

I think it is hard to artificially strengthen a currency on the scale you suggest for a significant amount of time. I don't think you can enforce the price militarily. I don't think markets are operating in the dark. Peak oil is a lot of different things to a lot of different people. When you give me a one paragraph definition, I'll tell you if I think you're right or not :-)

The price will go up until the bidding war finds winners and losers. Presumably the rich countries win and poor countries lose.

I don't think the oil markets understand peak oil yet. I don't think that there is a severe shortage of supply yet. We can't tell if we are at peak yet. There is probably the capability to raise production to over 90 mbpd as Chris Skrebowski's (optimistic) megaprojects update would suggest but I think it more likely that we never really get much higher than we are now.

I think we are in a waiting game to see what demand does, and what crisis happen in oil producing countries.

Its pretty horrifying to think of a few badly placed hurricanes and Iran even reducing production, let alone military action.

I think the price is somewhat detached from reality and when demand truly exceeds supply that it will escalate extremely rapidly.

We might be fortunate enough that somehow someday soon the US economy could take a turn for the worse and consume something closer to the global average of 4.8 bbl per person per year instead of 25. If US oil consumption could decline to maintain no supply shortage until they no longer import at all, that would suit the world just fine. If the US didn't import any oil and just consumed domestic production then they would consume the same per capita as the UK.

If I drive 40 miles a day to get to work and back, 5 days a week, 50 weeks a year that's 385 gallons of gas at 26mpg. Thats 9 barrels of gas per year already assuming nobody else is in my car, most of the people I know drive solo to work and back. Its so crazy to think that people elsewhere on the planet might be seeking this lifestyle when it just isn't gonna happen for anyone else. I don't know what the average distance is in the US for people to get to work but my friends here in KC drive at least 40 miles a day.

To your question of why prices are not already much higher then $70 per barrel.

After having been involved in the markets a great deal my vote would go to "C".  Most investors are in the dark to the full extent to which the gap between supply and demand for oil will grow.  

Secondly, because the market is made up of hundreds and thousands of individuals, the market does not sharply rise or fall with out BIG news to influence the crowd.  That is some Investors may be catching on to the facts about peak oil, however, at the same time if they are wrong about peak oil they do not want to be caught in a price bubble and lose money.  So most of them are playing it safe.  Testing the waters if you will.  

This is evidenced by the chart above with annual price comparison.  Investors will bid up the price of oil 20% then, back off for a while and take some profits.  After 3 to 6 months investors will test new record highs and push the price of oil up again, it goes in a fairly predictable cycle.  This just happened in the last couple of weeks.  The market had a physiological ceiling of $70 per barrel, however once this barrier was broken the price was free to rise to $75.  The price may dip down again however now that oil has crossed $70 per barrel, there is no longer the physiological ceiling.  A new ceiling might have just been created at $75 and maybe a couple of months from now in August investors will push it to $80 ceiling.  
In stock market theory this is referred to as the "Tea Cup Chart".  That is "A strong stock's price will Rise, Stabilize, Rise Higher, Stabilize, and Rise again Etc...

My central point is that prices will continue to rise as more and more investors test the waters of the peak oil theory.  This will allow the price to slowly rise, reflecting the growing understanding of the situation.  The only way I see a huge $200 price jump in a short period of time, due to knowledge of "peak oil". Is if the president called a oval office speech and explained the whole "Peak Oil Theory" situation to the American public on prime time TV.  Then he would need to call in a panel of Bi-Partisan oil experts to witness to a study of the theory they had just completed, finding it completely correct and more then that, they found it was far to late to do anything about it.  However I don't see that happening any time soon.

In a way it could be argued that public and investor ignorance of Peak Oil is the only thing saving us from a panic reaction that would crash the markets and destroy any chance of a transition to coal liquidation, shale oil, and massive amounts of solar power.  The economy can not handle a shock of $300 per barrel over night, however if you spread that same rise to $300 over a 10 year period the impact is manageable and it gives time for businesses to adjust to a new model.  

Of course this means that the sellers of Oil are not getting, what the oil is truly worth in the long term, however this is a better alternative then a Great Depression to end all depressions, in the next 10 years.

And I thought  "ignorance is bliss" was just a cliché saying.  

I vote "C."  Enron-style accounting.  

Price only reflects the true supply if the buyers and sellers have perfect knowledge.  Which they most definitely do not.

Re:  ThatsItImout

Following is an excerpt from my Energy Bulletin article on the MSM and Oil Prices
http://www.energybulletin.net/15126.html

Why Aren't the MSM Discussing the Import Situation?

I think that we are seeing an "Iron Triangle" of sorts defending the status quo concept of ever expanding energy supplies: (1) most housing, auto, financing and related companies; (2) Most MSM companies that are selling advertising to Group #1 and (3) some major oil companies, major oil exporters and energy analysts that are working for the major oil companies and exporters.

The housing/auto group wants to keep selling and financing large homes and SUV's.

The MSM wants to keep selling advertising to the housing/auto group.

In my opinion, some major oil companies are afraid of punitive taxation, and some exporters are afraid of military takeovers. This group of oil companies, exporters and their analysts provide the intellectual ammunition for the other two groups, i.e., promising trillions and trillions of barrels of conventional and nonconventional oil reserves."

Referring to the 70's and how gasoline was more expensive then

I never paid more than 79 cents for a gallon of gas in the
70's..

The Peak in the Seventies in crude
was short lived.

The Bottom 80% of America were never better off
than in 1974.

And since then thru various mechanisms
Ex-the Reagan Social Security Tax increase
their purchasing power has steadily eroded.

The Only thing keeping the bottom 80% in the game
has been the ability to extricate wealth from homes
and a gallon of gasoline costing
less than a dollar.

Those days are over.  America's
saving's rate is negative.

We are $15 Trillion dollars in debt.

I will argue that this $15 Trillion
dollars would be the exact amount needed to
pay for all the Hydrocarbons we have imported
since 1980, when, happily for us,
not so happily for them,
the Iran/Iraq War started.  What a coincidence,
that's when Reagan's Happy Days started.

Well, there are no more happy days. The till is empty. We can no longer borrow on
the Internationaal Stage to finance our addiction.

From now on it's how many BTU's did you earn this week, honey.  Did you earn more than you did
in 2000?

I don't think so.

As a Nation we are 6% of the World's Population, using 25%
of it's Hydrocarbons, and borrowing 85%
of the cost.

Our Military is the only thing keeping the wolf
at bay.

Oh yeah, when the oil markets actually start reflecting the
real price of gasoline, they will be shut daon.

James

1973 Oil Embargo on less than average wage and Differences from now
Having lived in the NYC area through the 1973 oil embargo--and, at the time, I was making less than average salary--I found the rationing and long lines the most irksome. The embargo lasted maybe six months. I did not find the price particularly onerous. Additionally, the brevity of the embargo prohibited any kind of deep effects on the economy.
The back-to-back problems with Nigeria and Iraq dwarf the magnitude of the 1973 disruption or any other disruption, according to the EIA.

US Energy Intelligence Administration reports that during the first week of April, the disruptions in Iraq and Nigeria were estimated to have resulted in the loss of 2.7 million barrels per day (mbd)of oil exports to world markets (gross disruption size prior to offsetting production from other sources). These disruptions came just as the previous one of almost the same size - the loss of 2.5 mbd of Venezuelan exports in December 2002 - was declining. The occurrence of two oil market disruptions of this magnitude in succession is unprecedented. Prior to these disruptions, there had been only six large disruptions (other than quota cuts) during the past half-century...

http://www.intertanko.com/tankernews/artikkel.asp?id=5715
The above article has a good chart on the magnitude of disruptions since 1951. A couple of points are worth mentioning:
1. The U.S. is much more dependent on long supply chains for its goods. Consequently, rising oil prices will impact the price of goods, especially imported ones. And, yes, the U.S. is a net importer of food stuffs.
2. The U.S. labor force is under pressure from cheap labor abroad.
3. If the dollar tanks (yuan rises), then we will see prices sky-rocket.
4. The growing disparity between the have and have-nots is growing--in the U.S. and elsewhere. Consequently, the greatest effect on rising prices is on those least able to afford it.
5. A long squeeze--such as the one we are in--is harder to deal with than the short jolt of 1973.
6. A policy of preemptive war makes everyone jittery, as does the possibility that peak oil is within our attention span. In other words, PO is between now and ten years out.

Just to make some (maybe obvious) points about the markets where oil prices are set:

Futures are very highly leveraged. For a few thousand $$ margin you can buy a thousand barrel contract, so for each contract and each $1 move in price, you gain/lose $1000. Futures contracts expire into delivery/receipt of the actual commodity, so they must converge with the spot market, the market for the commodity RIGHT NOW. Which is what makes the market so short-sighted.

For example, if your belief in peak oil led you to buy december crude last summer, when oil had pushed up to $70, so as to get in before everyone realized peak was upon us, by november/december you would have lost something like $15k/contract.

So in the market fear is the balance to greed... it would be great to own oil for 2012 (as far as contracts go now, I think) but how many tens of thousands of $$ might you have to put into margin to hold that position if the price goes against you (esp. if the economy falters)?

In looking for an oil price signal for peak oil, you need to be looking at an inflation adjusted chart that has some of the major artificial pricing episodes removed like this:

Some of the obvious periods when basic supply/demand was not the market's only consideration:

  a)the beginnings before a world market for oil was established
  b)the Iran/Iraq war wherein they attacked each other's oil facilities for 10 years (it was even called the tanker war)
  c)the Kuwait invasion and first Persian Gulf war
  d) the artificial glut of oil in '97-'99 that was, in fact, a "glut of bad data" as Matt Simmons has phrased it. This "glut" devastated the drillers, who were beginning to seriously gear up for what they correctly were foreseeing as a tidal wave of demand from Asia.

 This kind of chart pretty clearly shows the price signal you would expect to encounter as global demand begins to leave behind global production increases, whether that be exactly at peak production or just near it. At $75/bbl now, you would have to look at this chart and conclude that something has fundamentally changed with the supply/demand of this resource and it seems to be centered around the year 2000. You would have to conclude this even if you had never heard of Hubbert or seen a bell curve in your life.

 The demand surge of the 70s broke the 100 year price resistance level and will probably wind up being a mild foreshock of the climb we are starting. In the 70s, we had a huge amount of unused well head capacity in OPEC to somewhat control the climb in the price of oil. That throttle mechanism is gone now.