Last week the price of crude oil broke new records, running about $110 a barrel. That's well above the previous record (in inflation-adjusted dollars) reached in 1980 after the revolution in Iran resulted in the nationalization of its oil.
Since tanks of crude are full to brimming, many traders in oil markets suspect that $110 could be the top price for now. But a growing number of oil-market analysts reckon the supply of oil to the world economy has reached a peak or is about to. The discoveries of new oil are now exceeded by the output of old oil. At some point, global oil output will start to decline, as happened in the United States in 1971.
If that is the case, before long $100-a-barrel oil will be regarded as "the good old days," says Robert Hirsch, a senior energy analyst at Management Information Services, Inc., a Washington, D.C., research and consulting firm.
The price of oil in the New York futures market, a financial market that promises the delivery of oil in the future, has already climbed more than $20 in the past two months.
Global oil production has been on a plateau at around 85 million barrels per day (b.p.d.) for about 3-1/2 years. It is widely debated whether that output level could be pushed much higher to reach demand in the future, which, according to the International Energy Agency (IEA) in Paris, could reach 98.5 million b.p.d. in 2015 and 116.3 million b.p.d. in 2030.
What greatly concerns Mr. Hirsch is that the US and most of the world has not prepared seriously for a "peak" in world oil output.
"If we wait until the problem hits us, we are in for very serious economic problems worldwide for at least 20 years," he says. "There is no good news. Nobody is really doing anything."
The peak for production of conventional liquid crude has or will occur sometime between 2005 to 2016, says Roger Bentley, an advocate of the peak-oil view at Reading University in Britain.
That same time span holds for nonconventional oil sources, such as the Canadian oil sands or the Venezuelan oil tars, he maintains.
A few years back, Hirsch and two other experts wrote a report for Science Applications International Corporation on the impact of the peak. It concluded that the price volatility of oil will increase dramatically and, "without timely mitigation, the economic, social, and political costs will be unprecedented … extremely damaging."
The biggest problem for the US is the supply of liquid fuel. Its more than 210 million automobiles and light trucks run on mostly gasoline.
The average age of the cars is nine years. So replacement of only half the automobile fleet will require 10 to 15 years.