The Oil Drum

In 1982, I had a fascinating lunch with my boss's boss's boss, Arco's VP of the Southern Region, Tom Neal. This was at the height of the last oil boom. The price of oil was $32/bbl headed to $100 (everybody knew). I was a 30 something oilman wannabe, Neal had achieved significant success. He taught me about economics that day. He and the VP of the Northern Region, Tom Wilkinson (one had to be a Tom to be a VP in those days), had had a meeting with Peter Drucker. At the time of the meeting, oil had just begun to show some signs of weakness and people were expecting a slight near-term decline in the price of oil. Drucker had asked these two very savvy VP's how low the price of oil would go. Both had mentioned numbers in the low $30s. Neal then told me that Drucker asked them to tell him their worst case scenario. What is the absolute worst that could happen to the price of oil? Neal said he responded with a value of $28 as the absolute worst. Drucker told them that he thought the price would drop to $14, which is about what the price was when the oil boom started in the mid-1970s. Both VPs were aghast, but disbelieving. But by the time of my lunch with Neal, he was beginning to think Drucker was correct.

Call the theory Peak Metal. The price of gold and other metals, and related stocks, will keep rising as finding new sources gets harder and more expensive.[...]But I find the mechanisms that Peak Oil theory has developed to explain the direction of oil prices and the operation of the oil market immediately applicable to the metals sector.