The Oil Drum

My logic follows as such:

Would we still have $100 dollar oil per barrel if:

(a) Iraq was at optimal production
(b) Iran was at optimal production
(c) Nigeria was politically stable and at optimal production
(d) Venesuala was politically stable and at optimal production
(e) Saudi Arabia was investing fully in maintaining optimal production, and had not been caught late in the 1990's on investment due to the givaway oil prices.
(f) Mexican development and production was being well managed.
etc.

So, now on top of all that, take off the 30% percent drop (more by now, I can't keep track) in the value of the dollar in the last several years which puts us back at $70 oil all by itself...

In other words, there are enough above ground old fashioned logistical issues to explain away the current oil price, with no need to resort to peak as an explanation. Likewise, the two cleanest fuels in the world, natural gas and LPG. By historical standards, they are high, but there has been NO effort to substitute them into the transportation mix, indicating that no one as of yet sees an emergency that justifies substitution. And again, if you take out the commodities increase/dollar decrease into account, they are simply not that high in price. In the 1970's, there was more effort to substitute LPG than we have seen now.

People often say "Price has gone up XXX% since the 1990's, a huge amount, that must mean peak!" And then in the next breath remind us that oil was massively underpriced in the 1990's! Think about that for a moment. Would some of the increase in price be simply to get back to what could be viewed as a rational level?

Now, time for the disclaimer: All of the above is NOT proof that we are not at peak. People often use price and production level as indicators either for or against peak oil. These are NOT reliable indicators. When the U.S. peaked in 1970, the price was at an almost all time low in the post war period.
In the late 1970's, production spiraled downward at a dizzying pace, one that makes the current "plateau" look like nothing more than measurement error.

When we get to true geological peak, on top of all the above ground and economic factors we have mentioned above, it is only logical to assume that the price will break to the upside to such an extent it will wash out the above ground/economic factors.

Rough guess would be a spike to $200 per barrel, falling back to about $160.

Then we would just have to see what the combined demand destruction/alternatives/substitution effect would be. We could also be sure that all of production that was possible would be fully funded and come online, but with about a 5 year delay, given lead times, even in an emergency push. We would finally get to see what max production would look like.

All the numbers above are nominal. If the dollar collapses more, they would have to adjusted.

That is why the high oil prices per se are causing some pain, but have not impacted demand greatly. If you take into effect the rising incomes since the 1980's, the rising prices in all other sectors of the economy, and the explosion in personal wealth due to the 1980's/1990's investment bubble, oil at $160 plus will be needed to seriously cut into demand, with one possible exception: If technical improvements enhance efficiency at a very rapid pace, we get "accidental" or "transparent" demand destruction, that is, for the same size/performance/comfort vehicles, the fuel economy increases, thus reducing demand. Don't laugh, it could happen.

Oh, one more thing....you see why you have to be cautious about asking me to explain my thinking! Sorry to go so long.....:-)

RC