Costlier oil
Oil was not immune to the commodity markets downside move and the failure to break back above 110.00 kept the bearish sentiment firmly in place and the sellers had a massive day. From here there is an element of bullish sentiment in the market as many traders are calling for 96.00 to hold in the first instance looking for a retracement back towards 106.00 initally Reuters

The issue of peak oil was raised by Sadad al-Husseini, a former top official at Aramco, Saudi Arabia's state oil company, in conversations with US officials, according to Wikileaks.

The Wikileak cables on Husseini were published by UK newspaper The Guardian.

In late 2007, he said global oil production output will peak and plateau in the next 5 to 10 years and will last about 15 years. Afterwards, it will decline.

Perhaps central to Husseini's assertion is his belief that Saudi Arabian oil reserves, currently believed to be by far the largest in the world, is overstated by as much as 40 percent.

Moreover, he thinks estimates of the country's near-term production capability are too optimistic.

Some officials and investors assumed that if oil prices were to sufficiently rise, Saudi Arabia, the world's largest oil exporter, would ramp up production to 12.5 million barrels per day to take advantage of the high prices, thereby keeping the oil rally in check.

However, Husseini said, back in 2007, that it may take as long as 10 years to reach production levels of 12 million barrels per day. Even when that level is reached, sustaining it will only be possible for a limited period of time and only with a massive investment program.

Despite his prediction that oil production will soon peak, Wikileaks cables stated that Husseini doesn't see himself as a part of the peak oil camp.

Many peak oil theorists believe the zenith and subsequent terminal decline of oil production will devastate the global economy by creating a shortage and driving up the price of oil, a commodity that's extremely important to both consumers and industries.

Husseini is no doomsday theorist, stated one cable.

Nevertheless, if he's right about the overstating of Saudi Arabia's near-term oil production capacity and the amount of oil reserves, oil prices will likely go up.

In this fragile global recovery where consumer spending remains weak and business margins are compressed by rising input costs, a rise in oil prices (and the inability of Saudi Arabia to stop it) will certainly not help.

Email Hao Li at hao.li@ibtimes.com

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