The peak oil folks have gotten fairly shrill the last year or two. And the oil industry has started their own campaign to counter some of the assertions being made. For those of you who don’t follow this debate, peak oil refers to the the point in time when the world production of oil (i.e., barrels produced per day) has peaked. The peak oil advocates say it has already arrived or will in the next few years. Oil companies argue it is still at least 25 years off.

Here is my lay person’s analysis.

The easy oil is already in production. As a result, the industry cannot quickly bring online new supplies if demand/prices spike upwards.  Technology is constantly improving however and given sufficient profit motive greater production can be achieved but the time from investment to fruition is measured in years.

This means oil prices will become increasingly volatile. For example, if the world went into a mild recession next year, demand would drop significantly and prices could easily fall to the forty or fifty dollar range, further reducing the incentive to invest in increased production. However, when the economy picked back up again, demand would shoot past current production capability causing a price spike while investments are made with improved production showing up years later.  Also as prices rise, alternate energy sources, like sun, wind and wave will start to look more attractive and enter the mainstream. But again, those take time to produce and deploy so I would predict there will be multi year periods where oil prices could spike much higher than is stable (i.e., they will come back down eventually).

So ensure you are set up to weather an oil price spike, but when the spike happens don’t invest as if the high prices will be permanent.

Here are some pro and con sites you can visit.

Neutral overview of Peak Oil —

Peak Oil Advocacy

Industry Response
CERA: News: Press Releases: Peak Oil Theory – “World Running Out of Oil
Soon” – Is Faulty; Could Distort Policy & Energy Debate