Will The Oil Price Pause At $150 On The Way To $200 A Barrel?

Vernon Coleman

When I first wrote about the coming oil crisis in Living In A Fascist Country and Oil Apocalypse I was widely criticised for exaggerating the problem. Magazines and newspapers banned advertisements for Oil Apocalypse on the grounds that talking of an oil shortage was scare-mongering. Bloggers who hadn't even bothered to read the book wrote attacking me for writing it. (A surprising number of reviewers who condemn books on the Web do so without bothering to read the books they are attacking.) Some of the attacks were surprisingly vicious. I got the impression that some of those leading the attacks preferred to stick their heads in the sand rather than acknowledge the truth. Some critics are probably individuals who jumped on the `peak oil' bandwagon and want the attention for themselves (and their own publications). And there are probably one or two people who agree with me about `peak oil' but who want to attack my book to draw attention to themselves and whatever it is they want to sell. Some abusive attacks have come from politicians and people from the oil producing countries and others from half-witted folk who believe that wind and wave power will provide the energy their computers need. It was ever thus and, sadly, the Internet has made such behaviour much easier.

But everything I described in Oil Apocalypse is coming to pass. And investors who followed the advice I gave in that book should by now be much wealthier than they were. I have a file stuffed with letters from oil industry experts confirming that everything in Oil Apocalypse is accurate. And I am convinced that the oil is running out and that the price will rise. The evidence strongly supports my contention (just look at the price of petrol at the pump if you doubt me). The bottom line is that we will find out soon enough who is right. Those who claim that there is plenty of oil out there and that it will be easy enough to find can sit back and make no plans. That's their choice. My choice is to buy oil company shares and make sure that I own a bicycle and have log burning stoves in my home.

Forget all the rubbish about new oil fields being found. Forget about the prospects of using nuclear power to extract untold quantities of oil from the Canadian oil sands.

As I predicted in my book Oil Apocalypse, the oil is running out.

In 2009, the International Energy Agency warned that a decline in oil investments could lead to another economic crisis in 2013 as oil reserves start to dry up.

Nevertheless, later that year, in November 2009, a whistleblower at the International Energy Agency claimed that the agency had been deliberately underplaying a looming shortage of oil for fear of triggering panic buying. America has been encouraging the I.E.A. to underplay the rate of decline of existing fields while overplaying the chances of finding new reserves. Meanwhile, America was accumulating vast amounts of oil and storing it. They were, of course, also busy grabbing countries which had some oil. (In late May 2010, after a disaster with one of BP's oil drilling rigs, there was much talk among American politicians about banning all drilling off the American coastline. The Americans did not, however, suggest that they might reduce their consumption of oil. And the result will be that oil companies will drill off other coastlines, where the risk of environmental damage may well be considerably higher. American selfishness knows no bounds.)

At about the same time, Total, the French oil group warned politicians that they risked accelerating an oil supply crunch if they enacted environmental policies that deterred investment in oil and gas before enough viable alternatives were available. The company's chief executive, Christophe de Margerie, was quoted as warning that not only the planet would suffer if the UK and other governments failed to enact smart environmental polices. `I hope you have a lot of candles,' said Mr de Margerie.

In April 2010, a Joint Operating Environment report issued by the US Joint Forces Command suggested that the USA could face oil shortages much earlier than many had anticipated. The report speculated that by 2012 surplus oil production capacity will dry up; by 2015, the world could face shortages of nearly 10 million barrels a day; and that by 2030 the world will require production of 118 million barrels of oil per day, but will produce only 100 million barrels of oil a day.

Developed countries now generate almost twice as much output from each barrel of crude as they did in the 1970s. But that's the only bright point. Unconventional sources of fuel, such as the oil sands and biofuels, are environmentally unsound. The first will lead to massive damage to the environment. There will be an increasing number of protests against their use though as the price of oil soars and supply drops, governments will suppress the protests and the companies involved (such As Royal Dutch Shell) will probably do well out of them. The second will lead to massive starvation. Other sources of power, such as wind and wave power, are irrelevant and impractical. Only two things matter. First, we have devised a society which relies upon oil. Second, the oil is running out.

I have no doubt that the price will fluctuate. But I don't believe it is going down to stay down. Every fall in the price will, for me, be another buying opportunity. (I'm not buying oil. I'm buying and holding shares in oil and gas companies. I like big companies which have the stuff to sell and small exploration companies.)

The price of petrol is going to keep going up. As our currency declines (either bit by bit or in great leaps and bounds) so the price of the oil we have to import (measured in dollars or, in the future, a basket of currencies) will rise.

As the oil price keeps going up so the shares of companies which find oil will go up with it.

But as the price of oil goes up, up and away out of sight so we will have to change the way we live. Horse drawn vehicles will become practical again. Barges will be used on our canals to move goods between towns. Houses with chimneys and hearths will become increasingly valuable as people learn that keeping warm with a log fire is preferable to shivering with oil fired central heating that doesn't work.

The coming oil crisis will mean the end of the suburbs and the death of rural villages. People will no longer be able to live miles from shops, schools and work. The cost of travelling 20 miles a day by car will be far too high for most people to consider. Abandoned city centre shops will be converted into living accommodation as more and more people want properties close to the railway station and to the few remaining offices and factories remaining.

The oil is running out. The price of what is left (and not commandeered by the American military) will go up. There will, of course, be protests and (perhaps most stupid of all) conveys of lorry drivers and motorcyclists driving slowly up and down motorways, burning up expensive fuel and achieving absolutely nothing. There will a lot more wars as America and other nations try to commandeer the oil and other strategic commodities that are left.

Nothing anyone does or says will make a damn of difference. The oil is running out. And when something runs out the price goes up. There will be many losers (big stores, lorry owners and sales representatives). But there will be winners too. Small shops (especially when the property is owned by the shopkeeper) will do well if they provide a local service. Small arcades of four to five shops will do well. DIY shops will thrive as people decide to save costs and delivery problems by repairing broken appliances. Hiring professional workmen will be made unbelievably tiresome - and expensive - by endless new rules and regulations. Small local fish and chip shops will surely thrive. And people selling logs and log burners and bicycles should do very well. Eventually, horse drawn carts will take stuff to cart boot sales.

Oh, and as I have said many times, I believe that shareholders in small exploration companies which find oil run the risk of becoming extremely rich.

Copyright Vernon Coleman 2011
To find out more read the bestselling Oil Apocalypse by Vernon Coleman. There are a few copies left but Vernon Coleman has decided that the book (which is packed with advice) will not be reprinted.