While global demand for oil has moved to an all-time high, one long-established theory suggests that oil production (and consumption) might be peaking out. If this is the case, might its price tank?
If one thinks about it, the world will never run out of oil. As oil becomes scarce, consumers will necessarily turn to an alternative before the supply runs out. Whether it is due to a realization that oil is scarce – if only in an economic sense – or due to a concern for global warming, we can see the signs of a shift in consumption. Most automobile manufacturers have some pure electric or electric hybrid car project in development or in production. There are even hybrid Formula One racecars. (What would Enzo think?) It is only a matter of time that the automobile is electric. It seems not too far-fetched that oil consumption might drop.
Back in the 1950s, M. King Hubbert developed logistical models to predict points in time called “peak oil,” which is when the maximum rate of petroleum extraction would be reached. For the US, peak oil was the point in time when the maximum rate of US petroleum extraction was reached. Hubbert correctly predicted the US would reach peak oil in the 1965 to 1970 timeframe. His logistical models are now called Hubbert Peak Theory. Today, Hubbert Peak Theory is used predict peak oil points for oil wells, oil fields, regions, and countries with reasonable accuracy.
When Hubbert applied his models to global production, they pointed to a peak petroleum extraction being somewhere in the 2010 to 2015 timeframe. Separately, there have been a number of studies published by the Association for the Study of Peak Oil and Gas that reach a similar conclusion. Given the automobile industry’s current embracing of electricity, Hubbert’s prediction of global peak oil might well come to pass.
Some might point to the emerging middle class in China, India, Brazil, and elsewhere and suggest that the demand for automobiles is just ramping up. While there is no denying this increasing demand for automobiles, but how will those vehicles be powered? Jerry Matecun, portfolio manager at Integrated Wealth Counsel (www.integratedwealth.com), notes that there is intense interest in renewable energy by emerging market governments. During the past two years, he attended conferences in Singapore and Beijing whose focus was just that. So, it might well be that global consumption of oil will peak out this decade and, in the face of price-competitive energy alternatives, its price begins to fall.