Crude Oil: how high can it go?  

Ugo Bardi has a post up at TOD Europe looking at the full depletion curve for whale oil and bone over time and wonders what lessons we can learn about oil prices from the whale commodity prices.

19th century whaling is today one of the best examples we have of a complete cycle of exploitation of a natural resource.

A few years ago, I appeared in TV for the first time in my life. Oil had just passed 38 dollars per barrel and I was invited to speak in a national financial channel as the president of the newly formed Italian section of ASPO. When I said that I expected oil to rise well over 40 $/bl soon, everyone in the TV studio looked at me as if I had just said something very funny. All the other experts there hastened to contradict me and said that 38 $ per barrel was just a spike, speculation, and that prices would soon go back to "normal."

Seen in retrospect, it was an easy guess that oil prices had to rise. You only had to know a little about Hubbert's theory. As I am writing these notes, oil prices stand at around 120 dollars per barrel and may well keep rising. But for how long? The problem with Hubbert's model is that it is good for predicting production, but it tells you nothing about prices.

There are all sorts of economic models that attempt to predict prices, but their record is very poor. So, maybe the answer can be found in historical examples. If we can find a resource that has peaked and declined to zero or near zero production in the past, then its historical prices could give us some idea of what to expect today for oil.

There are many resources that have peaked and declined at the regional level; crude oil in the United States is a good example. But the price of US oil doesn't depend only on US production; it is affected by imports from other regions of the world. So that's not useful for understanding price trends at the global level. What we are looking for is a global resource that has peaked worldwide or, at least, in an economically isolated region.

After much search, the best example that I could find is not that of a mineral resource but of a biological one: whaling in 19th century. Whales are, of course, a renewable resource but if they are hunted much faster than they can reproduce, they behave as a non renewable resource; just like oil. We have good data about whaling compiled in books such as Alexander Starbuck's "History of the American whale fishery" (1878). In Starbuck's times there was no such thing as a "global market" for whale products. But the reach of the whaling ships was worldwide and the effects of whale depletion were felt in the same way by all markets in the world. So, we can take the prices reported by Starbuck as directly affected by the behavior of the production curve. ...