20 May 2009

Is this slump all about peak oil?

We were hearing a lot about peak oil last summer when the oil price went to $147 a barrel. Since when, of course, the price has fallen through the floor, back down to 2005 levels, and, lo and behold, stories about peak oil have dropped off the radar.

But the issue refuses to go away and at least one serious commentator, Steven Koppits, suggests that we may have already passed the peak oil moment and that the global recession is the result.

Ultimately, the inability of the oil supply to keep pace with global demand proved to be a key contributing factor to the current recession. I would note, however, that the proximate cause of the recession is China, not peak oil. China ultimately provided both the financial liquidity and the commodities demand which brought down the global economy. Were China not so large and not at its current stage of development, peak oil could pass without anyone noticing for some time. As it was, China hit its stride just as the oil supply was stumbling. The issue was not, therefore, peak oil in and of itself, but rather the supply/demand imbalance caused by the inability of the global oil supply to adjust to China’s incremental demand.

It’s a very interesting, thought provoking piece and, to me, it makes a lot of sense.


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  2. Very interesting article on TheOilDrum yesterday:


  3. Can you have it both ways? When oil was $147 a barrel, that was evidence of peak oil. Now it's $50 a barrel, that too is evidence of peak oil.

    That's not to deny the possibility that peak oil may occur some time around now. However, global economies are made of many components, and there's plenty of evidence that the current recession is based on the deep reach of financial institutions and easily available credit. Oil was affected by the markets (there are some interesting articles on excessive leverage of oil movements in futures markets), not the other way round. Reading resource availability into traded commodity prices makes no sense.

    If peak oil were really the cause, I cannot understand the justification for the absolutely enormous slump in price. It appeared to happen with a speed that co-incided with market movements, not reductions in industrial output.

  4. Well, the logic would seem to be that the world growth story became unsustainable with oil at $147 a barrel, so world growth stopped dead in its tracks. The oil price fell because the demand dried up overnight.

    Now this may in time re-ignite growth and, with it, oil demand, but the peak oil theory would hold that world growth hits a ceiling with ultra high oil prices. and so the cycle will tend to repeat.

    I admit there is a large element of reading the runes here, but as they say, no one is going to ring a bell when we pass peak oil.

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  6. If you look at history an oil spike always is followed by a recession.