To Peak Oil, or not To Peak Oil

We have been struck by the number of bearish reports and comments emanating from analysts, fund managers and assorted pundits with regard to oil, gas and other commodities. But an oil bubble or a commodities bubble? We don't think so. And other analysts, including Adam Hamilton, also do not believe it. Oil prices in real terms are below the highs seen at the heights of the Iranian crisis in 1979-80. Today, oil would have to rise towards $100 to equal those levels. Another measurement of a bubble that Hamilton noted was P/E ratios. At the top of the NASDAQ mania in 2000, P/E ratios were well above 100 and some were over 200. It was clearly not sustainable. The average P/E of the XOI stocks today is 8.5 - hardly manic. A quick check reveals such stalwarts as EnCana with a P/E of 6 and Exxon Mobil with a P/E of 10. If anything, they remain cheap.

Oil certainly since the 1970's has a history of booms and busts and there is no reason to not believe as GaveKal correctly points out that it can not happen again. Here we are in complete agreement. Until that happens, though, peak oil and the continued demand for it will continue to maintain an upward push on global prices. And the real explosion is still to come, when war breaks out between Iran and the West that could encompass the entire globe. Then and only then will we see the bubble that many have said has been burst today.

(2006-09-30 15:56:47 SGT) [Energy] Permalink

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