Remember the "silly season" in politics?

Well in case you were wondering, we're now in the silly season of energy.

Oil traded from $35 to $50 and back to $37 in under three weeks, with no discernible reason based in fundamentals. Sure, we had lots of interesting news—inventory builds, paid-off pirates, geopolitical posturing, and a slew of revised demand and price forecasts—but nothing that would, in my mind at least, justify such short, sharp moves.

I can only conclude that the volatility in oil is an indication that traders are desperately seeking the right price.

I have news for them: As my friend energy analyst Gregor MacDonald (on Twitter: @GregorMacDonald) said today, "Oil at 38.00 is free."

Never mind the latest price forecast from the Department of Energy, which speculated that the recession in the US, Europe and Japan would give us an oil price of $43.25 a barrel this year. As bad as their track record in price forecasting is, you'd think they would at least have the decency to round it to the nearest buck! (For more on that, see " EIA's Oil Outlook Report .")

As for forecasting $54.50 a barrel in 2010...well, that's just silly. I understand that they have a mandate to forecast, but there should be a big, fat, red asterisk after any such prognostication, with a footnote saying "+/- 100%."

I wouldn't put much credence in the latest statement from the oil minister of Oman, either, who projected that oil would stay below $50 this year under recessionary pressure.

In fact, never mind any of the price forecasts you hear right now. There is no signal; it's all noise. Lots and lots of noise. Better yet, turn off CNBC altogether, for it can drive you mad.

Even the demand forecasts, upon which price forecasts are based, are suspect. I can't think of a single forecast from last June saying that global demand would crash 2.5 million barrels per day by September. It just wasn't knowable. I certainly didn't expect it.

So, I don't have much confidence in the EIA's revised demand forecast, either, which projects that world oil consumption will fall by 800,000 barrels per day this year. I don't mean to pick on the EIA particularly; they just happen to be the official agency responsible for energy data, and they must offer some numbers. They are also wise to tell the real story: "The oil price path going forward will be driven mainly by the depth and duration of the global economic downturn, the pace and timing of the recovery, and actual OPEC production."

On the question of the economic downturn and recovery, I don't think anybody can say with confidence what those timelines are. Most of the analysts I respect don't see an economic recovery until perhaps mid-2010, and then it will likely take until 2012 to get back to ‘normal' business.

We do, however, have some clear news from Saudi Arabia, where oil minister Ali al-Naimi has indicated that its output would be "lower than the target" announced in December—in other words, further production cuts. In which case, oil at $38 might as well be free.

OPEC has made it clear that it will continue to try to put a floor under oil, and that floor should be around $70. Since OPEC moves typically lag the market, and oil is already badly underpriced, every production cut now only stretches the price slingshot a little tighter.

When demand recovers, prices will snap back in a New York minute. Perhaps that tension is the real explanation for the volatility of the last three weeks.

Putting aside all that noise, however, here's the signal: peak oil. We need to start taking the long view on energy.

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The Long View on Energy

What is the long-term outlook for energy? From my study of the data, it's pretty simple.

We're essentially at peak oil now because the global recession has wiped out any hope of achieving some theoretical higher peak two years from now. July 2008 will probably prove to be the absolute peak, but the "peak" will really be a plateau stretching from roughly 2005-2012.

Then we will begin the long descent down the back of Hubbert's Curve. By 2050, the world will have to make do with roughly half the current energy budget, all forms of energy included. By 2100, most fossil fuels will be kaput.

By 2150, I expect the world will be basically living off of solar income again, meaning biomass plus whatever remains of the renewable energy infrastructure. (At some point, I conjecture in the 2050-2100 time frame, it will get progressively more difficult to build and maintain renewable energy infrastructure because liquid fuels will be very limited and expensive.)

So, that's the outlook. The data supporting it is all publicly available, as I have documented in painstaking detail in my book Profit from the Peak . Barring some unforeseen event, like aliens dropping some crazy new energy technology on us, or cracking the cold fusion conundrum, there is little data to suggest otherwise.

Even oil and gas companies see the coming transformation. A recent survey by Deloitte of 52 directors and higher-level executives at oil and gas companies worth $100 million or more found that a majority believe reasonably priced oil will be out of reach for the US within 25 years, and for the world within 50 years. Three-quarters of them believe oil and gas is currently cheap, but only one-quarter think it will be cheap within 25 years. Only 17% think oil and gas will be sustainable within 25 years, and a majority see renewable energy taking their place. Three-quarters also believe that "transitioning away from the nation's reliance on fossil fuels for transportation is an appropriate goal for the country."

As we stand now on the cusp of "Change," then, what kind of infrastructure will Obama's stimulus plan give us, and will it conform to that outlook?

Rail to the Future, or Roads to Nowhere?

I have hoped as much as the next guy that the next administration will set a new and better course, but I am beginning to have my doubts.

It is abundantly clear to me, as it is to any student of peak oil or anybody who has read my column or my books, that rail is the obvious priority for the future of transportation. Rail is by far the cheapest and most fuel-efficient form of transport, requiring about a third less fuel than air for personal travel, and as little as 3% of the energy for freight.

Yet, our current rail system is a joke compared to the rest of the developed world. As James Howard Kunstler has remarked, even Bulgaria would be ashamed of our rail system. Destinations are limited, especially in the West, and most of the trains run on diesel. Our fastest train, Amtrak's Acela, only does about 100 mph on its short run from Boston to D.C., less than half the speed of modern high-speed trains elsewhere.

If we really intend to have an infrastructure that survives peak oil, we have to transform it to run on renewably generated electricity. We also have to expand it massively and take millions of cars and transport trucks off the road. Doing so would probably cost trillions of dollars and would be worth every penny. For example, a high-speed rail corridor for the Northeast would run about $32 billion. Laying high-speed rail between the major cities of California would cost north of $40 billion.

So far, however, I have seen little suggestion of such an ambitious transformation. The funding package approved in October by Congress would grant a paltry $13 billion to passenger rail over five years, of which three-fourths would go to Amtrak. Another $5 billion is currently proposed by the House transportation and infrastructure committee for intercity rail. That's not transformation spending; that's barely better than maintenance spending.

In fact, despite Obama's pledge to devote funds to projects beyond "roads and bridges," it's now looking like the states might hijack those funds and try to pour much of the Obama stimulus package money into roads and cars.

According to a report by Bloomberg, Missouri plans to spend $750 million of it on highways and nothing on mass transit. Utah would devote 87% of its share to new roads, and Arizona would spend $869 million on highways. Presumably, other states have similar priorities.

I'm not unsympathetic to the plight of the states. Saddled with declining revenues due to the recession and a crumbling road, bridge and airport infrastructure badly in need of repair, they have to do something. In the absence of strong federal leadership into mass transit, they have little choice but to try to maintain what they have.

A spokesman for House Transportation and Infrastructure Committee Chairman James Oberstar quoted in the Bloomberg article was blunt: "We like the environmentally friendly way of doing things but the charge we were given was to come up with something that can happen quickly," he said. "We can't lose sight of what the primary goal here is, and that is to put people to work."

Not Just Jobs, but the Right Jobs

Which brings us to the key point: Instead of seeking "shovel ready" projects that can be started within 180 days to create new jobs ASAP, the Obama team should be looking at the long view on energy and ensuring what we build now is truly built to last. Roads—especially new roads—are definitely not that.

According to the director of Washington-based Building America's Future, some $16.5 billion in mass transit projects can be started within a year. (By comparison, tens of billions of dollars have already been committed to high-speed electric rail in Europe and Asia.) Those projects should be our immediate national priority, followed by some deep and serious planning for a long-term transportation infrastructure that will survive $150 oil and declining supply. President Roosevelt created just such a planning board as part of the New Deal, which eventually resulted in the interstate highway system.

By planning for it now, we could achieve a somewhat orderly transition away from liquid fuels and toward efficient electric transport. We'll still create millions of new jobs, only they'll be the right jobs. Jobs that won't disappear the next time oil spikes.

Sooner or later, we will have to make some hard choices about what kind of future we want: one that is doomed, but to our current liking, or one that our children's children can rely on. Do we really want to leave them a decrepit landscape of useless asphalt and concrete and an economy that's run out of fuel?

What we need now is an honest, long-range strategy. We need to build rail, rip up roads, massively beef up the electrical grid, and deploy millions of renewable energy generators— the more distributed, the better.

I sincerely hope that the incoming administration will avoid the temptation to reach for the quick fix of new jobs and deliver us that strategy. Without it, we may indeed be lost.

Allow me to close with a stanza from James Taylor's "Traffic Jam":

Now I used to think that I was cool

Running around on fossil fuel

Until I saw what I was doin'

Was driving down the road to ruin.

Until next time,

Chris

P.S. My colleague Nick Hodge has been on top of these crucial infrastructure plays from the start. And I know for a fact that he is the reason my readers have had tremendous success preparing their portfolios for Obama's multi-billion dollar strategy. Maybe it's time you joined them. You can learn all you need to know about the Alternative Energy Speculator by simply clicking here.