Tom Whipple -- Falls Church News-Press
Sept. 26, 2006 -- Events move quickly these days. Two months ago oil was north of $78 a barrel and, nationwide, gasoline was above to well above $3. The Middle East was threatening a conflagration and another exciting hurricane season was in the offing. Even the concept of peak oil was starting to get some scattered but serious attention in the media.
Now here we are at the end of September. The price of crude is down nearly 25 percent. Gasoline is down 75 cents a gallon. The press is full of stories of a great new oil find in the Gulf that could show the way to a cornucopia of oil. The Dow is pushing an all-time high, and financial analysts are predicting lower inflation and solid growth in the year ahead. Finally, those who don't want to believe in peak oil are loudly proclaiming, "I told you so."
What happened? Is imminent peak oil still in the cards? Just where is reality?
The first thing to remember is that the price of oil has had a great run-up in the last five years. Way back in 2002 oil was circa $20 a barrel. Although there are many factors that go into the price of oil, they sort of group into three general categories: 1) Underlying supply and demand for the product including genuine hedging; 2) Technical factors that stem from the nature of commodity speculation: overbought, oversold, charting, stop loss orders, margin calls, etc.; 3) The sum of all the speculators' ideas as to whether the price will go up or down— the fear factor. All of these factors are present all of the time. The eternal argument is over how much of the current price is due to which influence.
Every jump in the price of oil earlier this year brought forth remarks about the "fear factor." Speculators were constantly afraid something so bad was about to happen that the price of oil would soon be over $100 a barrel so the current price was a great bargain.
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