Peak Oilers Back in the Sun After All These Years

The Peak Oil theory is undergoing a renaissance of late, as is usually the case when oil prices are high. Bloomberg adds some oomph to the resurgence of this declinist doctrine by showing that the investment world is buying in. Bloomberg Markets magazine has a long article in the October '06 issue (short version here) that, among other things, dusts off Colin Campbell, a high priest of the Peak Oil sect. Despite Campbell's spotty track record, he now has big money disciples like T. Boone Pickens and Eric Sprott. Also to point, the current rock star of the Peak Oil movement is not a geologist at all, but an investment banker, Matthew Simmons, whose "Twilight in the Desert" is the "Silent Spring" of modern Peak Oildom.

Peak Oil is a second cousin of global warming. It shares a declinist perspective and it exists to heap scorn on the endeavors of humankind. What it also shares is the belligerent insistence that it is the consensus view and that dissenting views are ridiculous, heretical and/or sinister machinations. It simply is not accepted amongst right thinking people that Peak Oil could be wrong. It would be so terribly gauche to wax skeptical of Peak Oil at a Manhattan dinner party (and a good way not to get invited back).

There are good (science-based) reasons to be skeptical of Peak Oil, but if you ask me one of the most compelling reasons is the precise development that the Bloomberg piece highlights - money men signing on. When a scarce commodity theory takes such a hold on the investment community and becomes such entrenched conventional wisdom, hold onto your money and/or run the other way. Provided with the polish and gloss of a respectable theory, commodity bull markets turn into manias, but the end result is fairly predictable - the theory breaks down and the mania comes crashing down. High oil prices will correct high oil prices. Ignore Peak Oil as an investment strategy and a policy guidepost.