There has been a lot of media lately about how the drop in oil prices means the crisis is over.
Even Jerome a Paris posted a diary over the controversy.
In truth the sharp drop in price is a perfect example of peak oil. Come with me below the fold.
After any commodity's production fails to meet demand, prices will fluctuate wildly.
the first example is this graph, a map of Caviar prices and sturgeon catches.
As you can see, the peak was acually reached a long time back, around 1977-78. but in the 1990s, the catch fell below the demand for caviar. Caviar prices cover increasingly wild swings from 1990 to 2000....but the bottom of each swing is higher than the previous low. Oil is going to do this. It is always volatile.
The next graph shows the 19th century harvesting of whales and the price of whale bone, an item in high demand throughout the 19th century
This graph shows a peak in the harvesting of whale bone in 1851. Unlike the earlier Caviar, demand for whale bone was always high. in the period 1845-50, the price rises almost in anticipation of the peak, as supply barely meets demand. After the peak, the price again fluctuate wildly, reaching its ultimate peak in 1864. While prices decline from its $20 /pound 1864 price, it never drops below $10, and the fluctuations are entirely due to substitutes for whale bone being found and used, and remains incredibly volatile.
So what does this have to do with oil? Simple: Oil will show a similar volatility, steep declines and steep rises as demand drops and supplies briefly meet the declining demand
In any case, oil isn't really dropping: Look at this chart from 2004-2006:
Remember just two years ago Oil was about $38/bbl and gas was about $1.50/gal. Now, its declined from $3.00/gal gas and $78/bbl, but its still nearly double per barrel what it was in 2004, and gasoline is still $1/gal higher than 2 years ago.
Those trying to deny peak oil would have been saying 'there are plenty of whales' in 1855-59, and plenty of sturgeon in 1995-97, where there is a downleg in price. Its not that there is plenty...its that demand finally fell below supply, not that there was any change in available quantity.
The price drops are entirely declining demand. Don't be fooled by a price drop. If the past is any guide, the swings are only going to get wilder.