Law of supply and demand fuels rising oil prices

The real issue that McCain, Clinton and anyone truly serious about gas prices must confront is peak oil.

Peak oil theorists do not suggest that the Earth will surrender its last drop of oil anytime soon. Rather, they contend that the world’s oil supply has, or soon will, hit its upper limit, and then shrink. This, the end of abundant oil, spells the end of cheap oil.
As limited supply confronts growing demand, the result will be volatile higher prices and shortages that could bring back the gas lines of the 1970s. And that’s just for starters. The modern world needs cheap oil like the human body needs oxygen; remove it, and we could be headed for economic decline, resource wars and social chaos.

Conventional wisdom says the market will solve the problem: Higher prices will call forth more supply. But a growing number of oil industry insiders are disputing that and instead backing the peak oil thesis.

Though largely unnoticed by the media, a decisive moment in the debate came last September, when James Schlesinger declared that the “peakists” were right. You don’t get closer to the American establishment than Schlesinger, who served as head of the CIA, secretary of energy and adviser to oil companies.

In a speech to a conference sponsored by the Association for the Study of Peak Oil, Schlesinger said, “It’s no longer the case that we have a few voices crying in the wilderness. The battle is over. The peakists have won.” Schlesinger added that many oil company CEOs privately agree that peak oil is imminent, but don’t say so publicly.

One who does is Royal Dutch Shell CEO Jeroen van der Veer. Without using the term peak oil, he warned this year that, “After 2015, easily accessible supplies of oil and gas probably will no longer keep up with demand.”

The United States, with its two-hour commutes, three-car families, atrophied mass transit and petroleum-based food system, is most vulnerable to an oil shock. But similar vulnerabilities exist in most industrial societies, not to mention China and other emerging economies that are only now getting a taste of oil-fueled modernity.

Morning Sentinel