$20 per gallon

on Jul 25 in Oil Exploration, Oil Market tagged by Trevor Hicks

Christopher Steiner has written a provocative new book about what will happen to our economy and lifestyle as oil becomes more scarce and the price of gasoline rises in $2 increments up to $20 per gallon.

Forbes has a nice set of commentary both by Mr. Steiner and others about the concept of Peak Oil and its potential impact.

My take is that world oil production probably has plateaued.  If you count the natural gas liquids, tar sands and other substances that can also be refined (at greater expense and environmental impact of course) into products like gasoline and diesel then there may be a little room for growth, but not much.

The prices we experienced in the oil markets in 2008 were not a bubble in the sense of a mania fueled price divorced from true economic value.  Rather, the $140+ price was based on the false assumption that the world economy could sustain such prices and not collapse.  With supply constrained, the prices we experienced were quite rational under the assumption that world economic growth and its concomitant consumption of oil would continue unabated. I place the blame for our current recession squarely on the high and rising prices of oil and I fear the world economy will be trapped in a nasty cycle of high oil prices followed by economic crash and moderate oil prices.  The economy will recover, oil prices will spike again followed by another crash etc. until a reasonable alternative fuel for transportation is developed.

The next 20 years won’t be as much fun economically as the last 20 years - though relatively speaking we’re still going to do well.  My portfolio is heavily weighted towards being long oil and oil-related stocks and I’m shifting focus on accumulating real assets more than paper/financial assets.