Regular readers of this column know that I have long predicted that oil would reach and then exceed the $100 price barrier. In fact, when this barrier was first breached the first few days of January, readers congratulated me on the veracity of my prediction. Yesterday was the first time that a barrel of oil actually closed over $100. This drove the stock market down, made economic prognosticators nervous and created headlines across the country.

Six months ago I predicted that the trading range for a barrel of oil will be $80 — 125 for the foreseeable future. The current global marketplace is such that it is hard to imagine the price dipping below $80 but there are a lot of scenarios that could ultimately drive it above $125. The actual trigger for the recent price increase is an explosion in a Texas refinery that processes 70,000 barrels a day, which is less that one half of one percent of the daily U.S. consumption of 20 million barrels a day. That is how tight the oil market is. There is little or no excess refining capacity in the world.

Demand is and will consistently outstrip supply in the oil market. Any perceived fall off in U.S. consumption due to an economic slow down will be more than offset by the increased demand from China and India and other developing countries. This will be a constant for the foreseeable future. When one layers on top of that supply/demand tension such things as political unrest in an oil exporting country such as Nigeria or the perceived terrorist threat to pipelines, it is quite clear that prices will move higher. Another thing that is putting upward pressure on the price of oil is the weakness of the dollar. As the dollar weakens against other countries currencies, those countries find oil more affordable. It has seemed very possible to this prognosticator that OPEC, which is headquartered in Vienna, could make the decision to price oil against the Euro, not the dollar. If that happens the U.S. would bear the greatest negative consequence of any major country.

The underlying dynamic that is really the reason for the increase in the price of oil is that we are passing through Peak Oil. Peak Oil is the time when the world will have consumed half of all the oil that exists on Earth. It took humanity some 150 years to consume the first half of available petroleum reserves. It is predicted that it will take 30-75 years to consume the second half, given that consumption is vastly greater than in the past. It was predicted 30 years ago that one of the market manifestations of Peak Oil would be price volatility with rapid moves upward in price over a sustained period of time. Sound familiar?

Peak Oil is a concept well understood by oil exporting countries. They realize they have a finite asset that is getting depleted on a daily basis. As the price moves upward their remaining reserves are worth more. Increasing production would lower price, devalue reserves and would shorten the timeline of export revenues. OPEC is not interested in lowering the price of oil except to prevent a global recession as that would create downward pressure on the price of oil. The understanding of Peak Oil is one of the reasons that countries like Dubai and Qatar are building like crazy in hopes of creating economies that are less dependent on oil export revenues. It is the reason that Norway and other countries that have become wealthy through oil are making significant investments in U.S. companies, to diversify.

Peak oil and the recent rapid increase in the price of oil are the triggers that will ultimately lead to the development of ever more cost efficient forms of alternative energy. That will be subjects for future columns. The purpose here is to suggest that a triple digit price of oil will gradually become the new accepted norm. It will no longer be a big story that adversely affects equity markets. $125 oil will be a reality in the year(s) ahead and it makes sense for individuals to plan their lives accordingly and for companies to integrate that reality into all business planning. We have entered a new stage in the energy history of humanity and there is no turning back.