By Alan Hall
A friend of mine sent me at least a dozen emails this year proclaiming “Peak oil! Peak oil!” The media was full of the same opinion; the story was POPULAR. Why? The evidence was not overwhelming; oil supplies weren’t dwindling; there were no gas lines. It was only that oil prices were at a record high.
After oil prices plummeted in late July, the emails dwindled too, and so did the news stories. Interesting how our perceptions are colored by the opinions around us, isn’t it?
To look at this peak oil anxiety from a different point of view, here are some facts:
- If the Earth were an apple, we have yet to drill even through the skin of it.
- Two theories compete to explain the origins of petroleum. The popular one, of biologically originated “fossil fuel,” is an antique (1757) and has little to no research confirming it. In fact, a mathematical model incorporating quantum mechanics, statistics, and thermodynamics suggests that the formation of crude oil requires pressures not reached in the earth’s crust.
- The other theory is Russian, 50 years old, and holds that oil is abiotic in origin, originates deep within the earth, and may exist in truly vast reservoirs in the mantle. This theory has much affirming research, yet low popularity.
- A scientist showed that a mixture of calcium carbonate, water and iron oxide heated to 1,500 degrees C and crushed with the weight of 50,000 atmospheres will produce hydrocarbons – i.e., oil.
- The perspective of the Russian theory was applied to explore and develop more than 80 oil and gas fields in the Caspian district. They produce oil from crystalline basement rock, where dinosaurs never roamed.
- There is a recorded case of an oilfield in the Gulf of Mexico that, at the point of a near exhaustion, re-filled itself with oil of a different geological age.
In other words, running out of oil might be a less rational fear than running out of air to burn it with.
Now that peak oil stories generate a lot less interest than they did this summer, what is interesting is this chart of the Daily Sentiment Index for NYMEX Crude presented by EWI's Energy Specialty Service:
As you can see from this chart, peaks in sentiment reached a bullish extreme three times during the past year, mirroring almost exactly the peaks in oil prices (and hysterical "peak oil" headlines).
And now, the DSI again shows an extreme reading – but this time, on the bearish side: Only about 25 percent of oil traders are bullish the commodity.
Does this mean there is a possible trading opportunity at hand in Crude?
Maybe, but if I were you, I would definitely want to look at the Elliott wave counts for December Crude in our Energy Specialty Service before pulling the trigger. Sentiment can be a powerful trading signal – but it's not everything.
As you can see, we at EWI use many other analytical tools besides Elliott wave to help us understand the big picture. There is one big advantage this perspective gives you – and that is independence of thought.
That's why, when my friend sends me more peak oil emails, and the headlines and commentators shout “Peak Oil” again, I'll know that we might be near another peak… in oil prices.