Pex Pickin

I recognize how anecdotal this observation is but I can't help but get the feeling that we've reached the mid-term peak in oil prices. The Wall Street Journal reported today that Americans have cut 40 billion miles(yes, with a B) from their driving as compared with a year ago. Even assuming that the average American vehicle gets 20 mpg (which I think is hopelessly high), it means that we've shaved 2 billion gallons of gas consumption from the demand side of the equation. That equates to roughly 100 million barrels of oil or only 5 days worth of US oil consumption, but it is also not entirely clear that Americans will not continue to modify their use of high energy transportaion.

Just as rising prices cause suppliers to hoard, falling prices cause producers to oversupply the market. This coupled with the billions of gallons of alternative fuel infrastructure coming online in the next 24-36 months and I think you are looking at sub-$3.00 gasoline in 2009.

Market inertia is a very hard thing to fight, but $4.00 per gallon gasoline has finally made the American consumer more energy aware and once the American consumer changes course, it's very hard to get them to change back.

Things to watch: Canadian/Venezuelan Oil Sands. 1.3 million barrels of oil per day from Canadian Oil Sand fields now and growing - roughly 10% American consumption. Contrary to the petro-chicken littles fear of depleting oil reserves, Canadian crude reserves are over 170 Billion barrels. Experts believe that Canada will triple production of oil from these fields in the next decade.