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FinancialRx submits: I'm not a scientist, nor a petroleum engineer. Like most of you, I read what other experts say about complicated issues and try to make sense of it. Also like most of you, I try to think through the consequences. I have no clue whether or not oil is going to $200 anytime soon, but I do know we'd discover the straw that broke the stock market's back long before we ever get there.

My wheels started turning when I stumbled upon this attention grabbing headline over on Bloomberg: Peak Oil Forecasters Win Converts on Wall Street to $200 Crude.

Before you blow a gasket let me point out that despite the headline, the author actually balances the debate between the two camps. There's something for everyone here, peaksters, cynics, or even agnostics like me.

But what really interests me is the psychology of the issue:

"'The peaksters are drowning out everyone else,' Cranberg says. 'You can't turn around without seeing or hearing these ideas,' he says. 'I think they are gaining.'"

The first time I heard about peak oil was a looooong time ago, during a debate about if, or when, US production starts to decline. At that time there were lots of folks who questioned the accuracy of such a claim. Frankly, it sounded unpatriotic.

By the late 1990s, when oil was in the low teens despite the then obvious decline in U.S. production, the concept of 'peak oil' was a joke. Only a few fringe types and pointy headed professors bothered talking about it. And with wholesale gas around a dollar per gallon, the public, and thus politicians, could not have cared less. Nobody knew or cared where it came from, nor about rising Chinese consumption, blah, blah, blah.

Since then everybody has been wrong about oil. Wall Street analysts, industry experts, and government experts. Oil prices have gone higher than anybody imagined.

Take a long look at that chart again. Rising oil prices are no longer described as transient while keeping a straight face. Instead, I see the same folks blaming hedge funds, Iran, or [insert your own ideas]. And those market strategists that claim $25 of the current price is hedge funds/Iran—why would anybody listen to them? They were still using $28 oil targets when oil was trading at $60.

Having said that, there's no doubt that in the short- and intermediate-term oil prices are no different than the way inflation expectations work their way through an economy; if a majority of Americans wake up one morning and decide we have a peak oil crisis on our hands, it will become a self-fulfilling prophecy.

How likely is that? I have no idea. But I sense American public opinion has been following the rest of the world on a number of big issues such as this one; global warming comes to mind.

Bear with me here.

Up until recently the majority of Americans scoffed at the idea of global warming, let alone the notion it was becoming a crisis. Yet after one hot summer, global warming has become accepted by most of Americans. More importantly, they now agree we need to do something about it. And just six months ago Al Gore was material for late night comedians every time there was a snowstorm somewhere in the Northern Hemisphere.

Meanwhile, the rest of the world is now shaking their head thinking, "it's about time you people woke up!" They have believed deeply that global warming is an end-of-the-world-as-we-know-it crisis for years.

And they are way ahead of Americans on peak oil too.

The question is whether peak oil will suddenly get traction in the US the way we've seen sentiment shift massively on global warming in 2006. If so, oil prices in 2007 might be an even bigger surprise.

Truth is, a lot of really smart people will be arguing about all this for years to come. But with the economy already slowing, we need to pay close attention to the psychology of big stories such as this, because the market will have already sniffed this stuff out when the competing experts are still arguing over the shape of the table for their next conference.

Finally, what do I think about peak oil/oil prices? Do I believe we'll see $200 for oil? The contrarian in me sees that headline and smiles at the thought of oil plummeting from here. But then again, a year ago I would not have guessed anybody in this country would ever believe global warming. Frankly, it doesn't matter what I think—I'm watching the psychology on this one instead.

Source: Oil Prices - Just Starting to Warm Up