Looks Like Oil Production Already Peaked

The following graph shows that the spike in West Texas Intermediate Oil of $147 per barrel may have signaled that global oil production has already hit its peak.

There are two telling signs:
July 2004 – September 2007: Daily oil production remained flat while prices doubled and consumption was on an upward trajectory. Perhaps OPEC wanted to create a tightening bias in the world oil markets to force prices to rise. But more realistically, OPEC likely knew it had limited production slack and did not want to use up its last ‘bullet’ before price rises started destroying demand.

May 2007 – February 2008: Daily oil consumption rose by 3.6 million barrels and daily oil consumption peaked at nearly 88 million barrels per day during February 2008. The supply response during the same period was a meaningless 1.7 million barrels of extra production. During the same period, prices rose from $63 per barrel to $95 per barrel (eventually spiking to $147/barrel during July 2008). Given that as of May 2007 prices had already tripled from 2002 levels it is difficult to argue that OPEC wasn’t satisfied with market prices and wasn’t beginning to worry about demand destruction. The problem was that excess capacity simply didn’t exist and production couldn’t be increased meaningfully to offset destructive price increases.

Production was eventually increased to 86.71 million barrels per day by July 2008. This was still below peak demand.

Regardless, by that point demand destruction had already begun. The twin ravages of high prices and a developing economic recession pulled the plug on oil demand thereby temporarily alleviating the supply-demand imbalance.

Seeking Alpha