In the short term, market emotions dictate day to day pricing, for the most part. In the long term, fundamentals play out the value of the commodity. Since 1972, when the US surpassed peak production, oil prices climbed almost 50 fold and brought about profound changes in American foreign policy. American consumption averages about 33 barrels per citizen with few signs of abatement. That's a nation with about 330 million people.
Now consider that both China and India consume just one barrel per person, but are in an all-out effort to bring their respective living standards up to Western style consumption. A thirty fold increase over 3 billion people is enough effectual demand to deplete the known energy reserves in five years. Then what? A fool can figure out the serious geo-political implications - that are clouded by the potential for hair-trigger nuclear decisions effected automatically by deteriorating systems. Get the picture?
Conclusively, there is very little downside to oil prices as long as populations are growing, China and India continue to Westernize their fragile economies, and global supply is geometrically drained to exhaustion. The question is not about price; but supply, and what happens when we pass peak global production.
Obviously, as evidenced by history - foreign policies and affairs will change dramatically - Very Scary!
Dr Peter G Kinesa
December 4, 2012