Note: I have posted a more recent article with updated data here.
Mises Blog has a good article on the "Peak Oil" meme. You may have gotten investment solicitations urging you to invest in oil because production is supposedly going to peak in 2006.
Oil production will peak some day. I do not know when. I do know that when I was in high school debate in the late 1970's, the topic one year was on resource policies. I read everything there was at the time on oil supply as well as other critical mineral supplies. Most "experts" at the time were predicting that oil would "run out" in about 1985 or 1990. As you can see below, folks who invested in oil in 1980, after a price run-up similar to the one we have seen lately, got slaughtered.
Think twice or maybe three times about this graph before you invest. Notice that there is no long term trend in real oil prices, even over one hundred years! To make money buying oil, you have to do it on timing, buying ahead of sharp temporary increases. And given that we are at the top of one of those sharp increases, can now really be the time to buy?
You can never get all the oil out of a field, and the exact amount of oil you can recover is dependent on how much you want to spend to do it, which in turn is related to oil prices (or expectations of oil prices). The first 20% of the oil in a field might just squirt out under its own pressure. The next 20% might have to be pumped. The next 20% might need high pressure water injection to help it. The next 20% might need expensive CO2 injection to help it. If you ask the field manager how much oil was left, he would give you different answers at $20 and $45 a barrel, because he would make different assumptions about how far along this investment curve he would go.
If you are still thinking about investing, do one more thing: Study the famous bet between Paul Ehrlich and Julian Simon:
In 1980, economist |Julian Simon| and biologist Paul Ehrlich decided to put their money where their predictions were. Ehrlich had been predicting massive shortages in various natural resources for decades, while Simon claimed natural resources were infinite.
Simon offered Ehrlich a bet centered on the market price of metals. Ehrlich would pick a quantity of any five metals he liked worth $1,000 in 1980. If the 1990 price of the metals, after adjusting for inflation, was more than $1,000 (i.e. the metals became more scarce), Ehrlich would win. If, however, the value of the metals after inflation was less than $1,000 (i.e. the metals became less scare), Simon would win. The loser would mail the winner a check for the change in price.
Ehrlich agreed to the bet, and chose copper, chrome, nickel, tin and tungsten.
By 1990, all five metal were below their inflation-adjusted price level in 1980. Ehrlich lost the bet and sent Simon a check for $576.07. Prices of the metals chosen by Ehrlich fell so much that Simon would have won the bet even if the prices hadn't been adjusted for inflation. (1) Here's how each of the metals performed from 1980-1990.