First, Gross World Product growth has accelerated — from 2.9 percent in the 90s to almost 5 percent in recent years, according to the IMF. All of this is because of growth in emerging economies, largely China.

Second, world oil production has stalled — after growing around 1.6% a year in the 90s, it’s been basically flat for the last three years.

So we’ve got rapidly growing demand due to industrialization in Asia colliding with stagnant supply, basically because oil is getting hard to find. (The demand shock is probably even bigger than the GDP number suggests, because China’s economy is highly energy-inefficient).

And the demand for oil is price-inelastic — that is, it takes big price increases to persuade people to use significantly less.

There’s probably more to the story, but that seems to be the basic thrust. And it seems to be a recipe for rising prices for a long time to come.

This is what peak oil is supposed to look like — not Oh My God We’ve Just Run Out Of Oil, but steady pressure on the economy and the way we live from rising energy prices and their consequences. And it doesn’t matter much whether we’re literally at the peak, or whether production can rise by a few million more barrels a day; unless there are big sources of oil out there, we’ll be feeling peakish for the foreseeable future."

krugman

The last paragraph very effectively sums up what I think too. To put the "big sources of oil out there" comment into perspective, Brazil was the last place to announce any significant oil source finds.

"Oil experts said it was the biggest find anywhere in the world for at least seven years, could yield a total of 8bn barrels of light crude and represent 40% of the oil ever found in Brazil and would push Brazil's reserves into the global top 10. Comparisons to Saudi Arabia may be over-optimistic though. Brazil's total reserves will rise to about 20bn barrels as a result of the discovery, compared with Saudi Arabia's 260bn, whose daily production is four times that of the Brazil."

guardian

Assuming 75million barrels produced per day (based on the numbers in this table), then this find is the equivalent of 107 days of world production, ie. three and a half months. Not a lot is it.