Yes, it sounds like an impossibility but it is really going to happen. Did you ever think $50 oil would occur? How about $100? If you said no to those levels then I am sure you watched in shock as crude futures hit $147 in July 2008.

Unfortunately that is just a stepping-stone to higher levels. The problem is not that oil does not exist but that not enough oil exists. Up until 2004 Saudi Arabia always stepped into any supply gap and pumped enough to fill the gap and push prices back to reasonable levels. They could do this because they had the four largest oil fields on the planet. Unfortunately those fields have been producing for more than 50 years. You can't suck oil out of one field for 50 years without leaving a really big hole.

Over the last few years Saudi has resorted to accelerated drilling programs and state of the art recovery techniques but you just can't get that last drop out of a sponge. Like a jumbo fountain drink when it is gone it is simply gone and all the sucking in the world will not produce any more liquid. The lack of increased Saudi production during the latest price crisis proved to the world, at least to the oil community that the days of cheap oil are over. Uncle Saudi has run out of surplus oil and the rest of the globe has to go on a diet. Like a bevy of fat women fighting over the last few donuts at the donut counter the oil buyers were bidding ever higher in order to keep their refineries running. Demand has slowed temporarily because of the recession but it will be back.

The rising price cycle is still running on Peak Oil fears and we are still seeing ebbs and flows in the market price. Once those fears are really confirmed there will be no further dips and we could see $200 in a matter of weeks, not months. 2010 could be the last time we see oil below $100 a barrel.

Once it becomes official that demand has exceeded supply the bidding war will begin in earnest. This is not the same thing as PEAK OIL as that will occur when global production begins to permanently decline. That is when the bidding war will turn into real war and prices will go through the roof.

Until Peak Oil the rapidly escalating prices will serve to dampen demand as $5 gasoline puts a crimp not only in the wallet but also the diving habits of consumers. (Gas is already over $8 in Europe) Americans are spoiled and they will wake up abruptly very soon. $4 gasoline crippled American consumers in 2008.

What will cause $200 oil? Simply lack of supply and excessive demand. Economies run on oil and growing economies use more oil than mature economies. Globally more than three billion citizens are currently in rapidly growing economies. China, India, Africa and South America are growing faster than the rest of the already developed planet. Three billion consumers don't have to add more than a couple gallons of oil to their yearly consumption to bankrupt the current global supply. China is currently building over 800,000 cars per month and only nine of every 1000 citizens have a car.

While you are probably reading this and thinking I have lost my mind I would remind you that oil was $30 in 2004. With annual production over 3.2 billion barrels it is not just speculation that has driven the price up over 500% in only four years. It is real economic stress and it is only just beginning. While oil prices may still moderate somewhat as sticker shock slows demand there is no way that eventual demand will not outstrip supply.