Have we reached peak oil?

MORNINGSTAR VIEW: A look at the supply and demand side and what's likely to happen with oil prices

Paul A. Larson 18 January, 2010 | 12:33PM
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Remember the summer of 2008, when oil was approaching $150 per barrel and topping the headlines? The oil story quickly faded to the background when the financial crisis hit full-steam that September; we had bigger things to worry about in terms of the potential collapse of the worldwide financial system. Meanwhile, the deepening recession greatly reduced demand for oil. The price per barrel fell precipitously.

But while the world is awash in an excess supply of oil at the moment, I am convinced that the supply/demand balance of oil over the longer term is a critical issue that bears watching.

Oil is so important because it is, at the moment, the primary source of transportation fuel, and transport costs affect the entire economy. Low oil prices cut the cost of doing business and help reduce geographic barriers, while high oil prices act as a "tax" on the entire system and force us to act more locally.

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About Author

Paul A. Larson  Paul Larson is an equities strategist with Morningstar and editor of Morningstar StockInvestor, which seeks to purchase shares of quality companies at a discount to their intrinsic values. StockInvestor features two market-beating portfolios: the Tortoise and the Hare. Paul joined Morningstar in 2002, and he was the lead writer and editor for Morningstar's educational series of stock-investing books. Click here for a free issue of StockInvestor.