Verleger Warns Oil Prices To Plummet & How That Fits With Alternate Peak Oil Scenarios

Academic and former U.S. government adviser Philip Verleger is warning that the price of crude oil may collapse to as low as $20 per barrel this year as the recession continues to take a hefty toll on fuel demand. This is the same guy, by the way, who correctly predicted that the price would rise above $100 per barrel back in 2007. On its face and assuming he is correct again, this would appear to throw a wrench into the cogs of all the folks (myself included) theorizing that we are at the end of the oil age and we're about to see shortages, skyrocketing pricing, et cetera.

However, with a little further reading and independent research, it can be surmised that the reasons behind the huge reserves of oil that are nearly causing a backlog has nothing to do with a "true" glut in supplies. Rather it is due to the pathetically languishing state of the world's economies. When people can't afford to go on vacations at all anymore or, at best, must pile together in fewer vehicles to keep costs under control, the demand for oil goes down. And, when record numbers of Americans lose their jobs outright or are begged by their employers to take Unpaid Leave and stay home, the demand for oil goes down. It isn't rocket science. Less driving and fewer vehicles on the road equals less oil used, thus currently supply is far outstripping demand.

This, by the way, fits perfectly with an alternative Peak Oil theory broached here on the blog a while back. Basically, this theory surmises that the extreme uptick in the price per barrel of oil that occurred in the recent past helped to cause the current world economic crisis, thus artificially driving down demand. It is demand destruction at its best. The theory also argues that it could be a regular cycle wherein high oil prices crash the economy and drive usage (and with it, demand and price) down, but some other factor gets the blame (tech bubble, housing bubble), and we slowly work our way back to high oil prices so the cycle can just begin anew.