Peak oil

Crude oil price has been hovering around the US$70 level for the last three weeks. It has been over $50 a barrel for at least two year now. Whither crude price?

Experts on oil think that we have reached or are near peak oil i.e. the demand for oil outpaces production. What this means is that the day of cheap oil is over. Don't expect oil to be in the 20s and 30s range anymore.

The world is consuming about 84 milion barrels of the black stuff a day. It is expected to grow at a rate of at least 2%. No big new oil field has been found in this decade. Besides, some old fields have reached their own peak production. Hence, it would be difficult for supply to meet demand in a few years time.

What about alternatives? Alternatives like solar power, windmill, fuel cell technology and nuclear power all need oil in their construction / production. Also, oil is needed to power them. Biofuel also needs oil to produce and besides that, it is robbing the people of much needed food. Even Canada's oil sands needs oil in its extraction. It takes about half a barrel of oil to produce a barrel from the tar.

So what will happen when the supply of oil starts declining? One thing is for sure - oil price will go up further. A lot of adjustment will take place. The price of oil will reach a level where the alternatives become viable. There will be a more mixed use of energy.