Oil bulls often argue that crude prices will stay high because global oil production is supposedly set to peak in the near future.
Anyone who starts to research the oil sector will come across the "Peak Oil" concept before too long. The theory was first outlined by a scientist called Marion King Hubbert in the 50s -- he claimed that US oil production would peak around 1970 and, if you exclude Alaska, he was right.
Some of Hubbert's followers believe that global oil production will reach its peak soon. Kenneth Deffyes, a geologist at Princeton, thinks the peak may come as early as next year.
Some economists, however, argue that the peak will come much later. They reckon that higher prices will mean that currently unviable fields will become profitable development propositions. What's more, new technology could mean that more oil can be extracted from an individual field.
I've been reading an interesting book which summarises some of the issues related to peak oil -- it's called Black Gold by George Orwel. Orwel isn't as pessimistic as Deffyes, he points out that big new fields are coming into production in Azerbaijan, Angola, Algeria, Nigeria and elsewhere. But he's not exactly optimistic either; he thinks the peak may come sometime in the decade following 2010.
If you think that's imprecise, the International Energy Agency (IEA) has said that oil production will peak between "2013 and 2037." So that's all clear then.
I think it's important not to get too bogged down in the peak oil debate. It's perfectly possible that geopolitical problems could mean that global oil production will fall in 2007 but then rises to a peak many years from now.
What's more, oil production could carry on rising but not fast enough to meet growing demand from China and India. After all, there doesn't appear to be much slack in the global oil marketplace right now. Global oil demand in 2005 was around 83m barrels a day (bopd) and production was only a bit higher at 84m bopd.
Political turbulence in, say, Venezuela and Iran could reduce production and only Saudi Arabia has significant spare capacity to make up the difference -- about 1.5m bopd, according to Orwel. Saudi may be able to raise production further from 2009 onwards, but some observers think that a big rise isn't practical regardless of what the Saudi government claims.
Orwel also reckons that oil demand is set to rise at quite a lick for many years ahead. He cites IEA forecasts which suggest that developing countries could push demand up to 121m bopd by 2030. China's demand is expected to double over 15 years to more than 10m bopd, half of current US demand. India's consumption is expected to rise nearly 30% over the next five years.
So what do I think?
I don't know when oil production will peak. However, I suspect that oil demand will continue to rise in the long term which will mean high oil prices. In the short term, I think we may see a pullback in the oil price thanks to the new fields coming on stream. But that assumes production isn't disrupted by further political problems.
That said, I could be wrong. If you'd like to make your own judgement, I recommend Orwel's book as an accessible starting point. You'll also find lots of chat about Peak Oil on our Oil & Gas Markets and Trends discussion board.
Where Now For Oil?