The "peak oil" theory was popularized by Shell Oil geophysicist M. King Hubbert, who in a 1956 paper, predicted that U.S. oil production would peak by the early 1970s and then decline sharply. Some analysts believe that investors are pricing oil higher because they fear the world is running out of crude and permanent shortages are imminent. Investors should look to recent economic facts, not a decades-old theory, says Investor's Business Daily (IBD).
For example:
- Global oil consumption grew 2 percent in the first quarter of this year over the first quarter of 2007, while production increased 2.5 percent over the same period.
- On a daily basis, roughly 85 million barrels of oil are consumed across the world, almost exactly matching the amount produced each day.
- Production over the next two quarters is projected to continue rising (3.3 percent and 4.1 percent, according to estimates from Citigroup), while demand is expected to grow at a slower 1.6 percent pace over the next six months.
Indeed, oil production in other areas of the world will be expanding in the future, says IBD. For example:
- World output is expected to rise from 85 million barrels a day today to 110 million barrels by 2015, according to the International Energy Agency.
- Cambridge Energy Research Associates (CERA) argues that the remaining global oil resource base is 3.74 trillion barrels; that's more than triple the peak oil estimate of 1.2 trillion barrels.
- CERA also has noted that output will not fall as quickly as peak oil alarmists think. Many studies put the decline rate at 8 percent a year, but after studying 811 separate oil fields, CERA believes the rate to be about half that -- 4.5 percent.
Source: "Peak Oil: An Idea Whose Time Is Up," Investor's Business Daily, May 28, 2008.
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