Peak Oil: why $40 per barrel is no cause for complacency

by David Strahan and Gary Kendall

These days it is comforting to have one thing not to worry about. As the world teeters on the edge of a full-blown depression, and business is crushed between slumping sales and seized-up credit markets, at least the oil price is in retreat. From an historic high of $147 per barrel last July to around $40 today, the price of crude has collapsed so quickly it is tempting to believe it means the end of the energy crisis; that the spike was just some speculative aberration; and that all talk of


It is commonplace to blame $147 oil on booming demand in China and India, but that is only one half of the equation. The other is that global oil production between early 2005 and mid 2008 was stagnant, at around 86 million barrels per day. So for three years the oil supply was a zero sum game: the East consumed more, and with production static, the price of crude had to rise to force the West to consume less. Under the circumstances the oil price was a one way bet. But in the past, rising demand has always been met by increased output, so the key question is: why did global oil production fail to grow?

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