Why the "Death of Peak Oil" Still Won't Mean Cheap Oil

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Today (Wednesday) an analyst from Citigroup became the latest lemming to declare the death of peak oil.

In a report entitled "The End is Nigh," Seth Kleinman says a combination of flattening demand and rising supply will cause oil prices to slide slightly by the end of the decade to $80-$90 a barrel.

But while oil companies have made many large new discoveries over the past few years, including big shale oil finds in North America and Australia as well as deepwater finds in the Gulf of Mexico, that doesn't mean oil prices will fall.

In fact, according to Money Morning Global Energy Strategist Dr. Kent Moors, it's far more likely that oil prices will continue to rise over the next decade.

Moors points out what most other analysts seem to be missing - that all of the new oil finds present many challenges that will add to the cost of extraction.

"None of this new volume is light, sweet crude," Moors said. "The average wellhead costs continue to go up, and that moves its way downstream to processing, wholesale, and retail."

Why We Keep Hearing About the Death of Peak Oil

First of all, the whole concept of "peak oil" was based on the belief that the amount of oil the world could extract from the ground had topped out and would start to decline.

The falling oil supply, combined with rising demand from a growing global population as well as rapidly developing economies in places like China, India and parts of Africa would, the theory went, drive oil prices sky high.

But in recent years, a combination of technological advances and discoveries of vast new reserves have led many to declare the death of peak oil and confidence in the ability of oil producers to meet increasing demand.

Even oil industry leaders have joined the chorus...

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