Baltimore, MD--The next twelve months are going to put the theory of peak oil to the test. The question is whether you'll be in the right position to take advantage of this crisis.

As many of my readers have picked up over the last few weeks, I (along with a majority of you, from the replies I've received) am extremely bullish on Canadian oil sands. But here's my question to you . . .

Why aren't you?

Clearly, the development of unconventional sources like oil sands depends on the price of oil. Under $50 a barrel, it is simply no longer economical. And as you can probably guess, the peaking of global oil production presents us with an unprecedented opportunity.

Within the last couple weeks, we've watched the price of crude oil break its record high price. Ever since receding a few dollars over the last few days, all I hear is, "It's safe to come out now, oil's not going back up."

Idiots.

I'm absolutely confounded every time I read headlines predicting oil prices will plummet. I can't help but laugh.

I know that sounds arrogant, but how could I not? It's frustrating to read some of the stuff out there.

One of the latest headlines I've seen predicted oil would fall below $40 a barrel. Even more ridiculous was the idea that oil would drop back to $20 a barrel beyond 2010.

This time, the reasoning was even more absurd. They based their forecast on the fact that oil prices are historically cyclical.

So basically, we need to forget about field depletions, the lack of new giant oilfield discoveries or even supply and demand problems.

The conventional fields used today will become more expensive as the years pass. Let's set aside the depletion rates for a second. The infrastructure alone will require a massive amount of investment money. Drilling rigs are growing old. Some have been around for decades. Yet the lack of new rigs forces producers to use older ones.

But don't worry, these $20-a-barrel optimists have said that the majority of oil analysts out there don't believe Saudi Arabia is peaking.

I can't help but wonder if all these "analysts" are employed by Saudi Aramco. That just might explain things.

Mexico's state oil company, PEMEX, has recently reported that Mexican oil reserves could dry up within seven years. They've even stated that an enormous amount of investment dollars would give them another two or three years at the most.

After Chavez gave foreign oil companies the boot a few months ago, Venezuela is starting to have some problems. They are beginning to rely on older wells to keep up production. Over the next year, Chavez will realize the grave he dug for himself when production fails to increase.

The truth is that oil companies are spending billions of dollars more and coming up short. So far in 2007, companies like Exxon have drastically raised their spending only to see production fall.

And oil depletion is only one of the concerns.

The fact is that we're at a tipping point. The world's oil supply has been flat while demand is growing up to 3% annually.

Will we see a barrel of oil cost $100?

That's a possibility. As I said before, the next year is going to test the theory of peak oil. The question is whether or not producers will be able to increase the world's supply to meet demand. And that will be nearly impossible without unconventional sources like Canadian oil sands.

As for going below $50 or even $60 a barrel? That's not likely either. On the one hand, the cost of extracting oil (whether conventional or unconventional) is rising. On the other, OPEC countries like Iran are posting record profits. I wouldn't be surprised at all if they decided not to increase production during their meeting in September. Why should they? OPEC has said time and again that they're "comfortable" with the current oil prices.

Putting Peak Oil to the Test

Typically, the price of oil dips during the winter months. So it will be interesting to see which direction oil prices go. If we see prices reach new highs (as the Goldman Sachs report forecasts), you can bet peak oil has a hand in it.

Only time will tell.

Until next time,

Keith Kohl

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