Why Peak Oil Prices May Rocket Higher

Sure, oil is relatively cheap now. But what about when the global economy turns around? Might it then rocket  higher again? This via Commodity Online, from oil expert Peter Grandich (bold is mine):

Yes. We suggest that people contain any oil purchases between $35 and $40—not above $40 at this point in time. Oil longer term is far more likely to be higher than that level than equities looking out the same timeframe. As bearish as oil looks right now in the demand destruction, we’re also having development destruction, which happens very fast. We have argued for almost four years that the peak oil theory, which many people latched onto during the last dramatic rise, couldn’t come into play without another recession and without what has been taking place in the oil market recently. As we get into the next economic recovery, which I think will be more a world recovery versus a U.S. recovery, the peak oil argument could have a more pronounced effect on the oil price. That’s particularly true in light of the fact that this decline has caused just about everybody to stop any real new exploration and hold off where expectations of oil were high, such as the tar sands in Canada.

Me: Superstrategist Ed Yardeni recently made a similar point:

Will there be enough oil supply when oil demand recovers? Probably not at the current price. So it will rise maybe back to $100 a barrel very fast. The plunge in oil prices since last summer, the credit crunch since last fall, and weakening profits over the past six months are all depressing capital spending in the energy industry. When demand and prices rebound, energy producers are unlikely to ramp up their capital spending, especially on alternative sources of energy. Many of them must certainly regret the money they poured into the Canadian tar sands, into ethanol refineries, and other similar investments.