Market expert Ben Mountifield explores commodities markets: Profiting from peak oil.

Oil is a finite, non-renewable resource. Since its discovery in 1859, oil production (meaning the extraction and refining of oil) has increased almost every year. At some point, however, the rate at which oil can be produced will reach its geological limit and we will see the peak in global oil production, followed by its terminal decline.

Contrary to popular belief, peak oil does not signify ‘running out of oil’; rather, it refers to the end of easy-to-extract, cheap oil and an end to the growing supply of oil.

Conventional wisdom holds that the peak in world oil production will occur many years in the future, allowing a timely transition to alternative sources of energy. However the International Energy Agency (IEA), together with a host of other authoritative voices, predicts that peak oil will occur as early as 2013 to 2015 – something that will have a profound effect on the lives of us all.

Early predictions of peak oil
In the 1950s geophysicist Dr Marion King Hubbert gained attention for his ability to predict the depletion rate of various natural resources. His work involved plotting the rate of production of resources over time. He found that there was an early period of steady growth in production, followed by a topping process, followed by a steep decline.

Dr Hubbert applied his theory to the data on US oil production to predict when the peak would occur. In March 1956 Hubbert predicted that US oil and gas production would peak between 1966 and 1971. The actual peak occurred in 1970 at just less than 10 million barrels per day and was followed by a rapid decline...

Excerpted from an article originally published in the Jan/Feb 2012 issue of YourTradingEdge magazine UK. All rights reserved. © Copyright 2012, Your Media Edge Pty Ltd.
If you are a subscriber to YourTradingEdge magazine UK, you will receive this article in your Jan/Feb 2012 issue of YTE UK. If you are not a subscriber, click here to subscribe to our print edition, or to purchase a digital subscription, click here.