by Dale Allen Pfeiffer
June 8, 2008
Why prices are rising, what isn’t being done about it, and what it means for you
What is going on?
Oil prices surge to $100 per barrel, $120, $130, with no end in sight. And analysts are now talking about $200 per barrel by the end of summer.
Gasoline prices have reached $4 per gallon in the US. And now they are saying we may see $6 per gallon by summer’s end. Some analysts are saying gasoline prices will eventually reach $12 to $15 per gallon.
What is going on? Is this peak oil with a vengeance?
Yes and no.
There are three reasons why oil prices are skyrocketing, and peak oil is only indirectly involved.
The peak oil gene is out of the bottle, at least so far as investors are concerned. They only have a partial understanding of peak oil, but it is enough for market speculation to drive prices out of sight.
Oil production has not peaked. It is constrained and it can no longer keep up with growing world demand, but it has not peaked yet, so far as we can tell.
World oil production is approaching peak. It is no longer increasing as it once did. What is perhaps more important, there is no more spare capacity left in the system. At $130 per barrel any spare capacity has already been put into production. That is why Saudi Arabia has politely refused Bush’s request that they increase production. They are pumping everything they can.
Simply the specter of peak oil is enough to fuel market speculation, making a few people very rich while the rest of us must empty our pockets at the gasoline pumps.
On top of this, we have the devaluation of the US dollar. The petrodollar has become the Frankenstein monster, and now it is running amok.
What we are seeing is nothing less than the failure of the free market. And without intervention, the failure of the free market will make a shambles of the world economy and lead to massive impoverishment and even starvation.
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