The return of peak oil

Unrest in the Arab world has left the oil market feeling understandably jittery
Jasmine Budak

A reviving global economy and mounting unrest in the Arab world are stirring renewed fears about a long-term spike in oil prices. Earlier this month, as protests in Egypt peaked, oil hit a two-year high, prompting anxiety about a return to the $100-a-barrel days of 2008. And with Egypt not quite out of the woods, and uglier protests igniting in Bahrain, Libya and Iran, the oil market remains understandably jittery. (Last week, oil prices hit $90 a barrel.)

But renowned energy analyst Charles Maxwell, looking beyond the political turmoil to the more long-term pressures on oil prices, predicts oil could fetch $300 a barrel within the next decade. “We will begin to settle very slowly and gradually into a world in which we need more oil each year, but we can’t get more,” he said in a recent interview with Barron’s. The 79-year-old “oil oracle” has been an enduring advocate of peak oil, the theory that says demand will rise faster than the production capacity.

His latest forecast rests on growing energy demands by emerging economies such as China, India and Brazil. But unlike the severe hikes of 2008, when oil went from $60 a barrel to more than $100—and sparked fears of an energy crisis that would wreak havoc on everything from the airline industry to suburban car culture—Maxwell estimates a gradual, less economically damaging increase that will plateau in 2015, before oil production begins to recede in earnest by 2020.

Even though, historically, overly high oil prices have been blamed for triggering recessions, Maxwell resists a Chicken-Little scenario. He says the slower climb will force the world to get off oil once and for all. Natural gas, he says, with help from Alberta’s oil sands and some renewable sources, will ease the painful transition and bide us time to get into conservation mode and accept a future that will include nuclear energy.

Other analysts agree that oil will climb in the long run, though not necessarily as high as Maxwell predicts. However, the underlying reasons remain the same. As economies and GDPs grow, so do the requirements for raw materials, energy being the most basic of them all.