Oil is Peaking But Not Because of Speculation

In seeking to explain the run up in oil prices from 2004 to 2008, commentators often turn to

However, this came at a price. In the absence of oil supply growth, demand accommodation was required. This was achieved by prices rises averaging 25 percent per annum from 2003 to the end of 2007. In other words, the price of oil went up, and this constrained consumption by causing the marginal consumer to drop out of the market. This proved a workable solution for a time, but the global economy could not sustain 25 percentannual price increases indefinitely, and by second half 2007, the situation was becoming critical. Consumption was being maintained by continuing draws on inventories averaging 1.4 million b/d, and virtually every producer, with the possible exception of the Saudis, was running flat out. By early 2008, even the Saudis were throwing the kitchen sink at the market