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This Time, It's Different
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Some analysts argue that peak oil production has already been reached. Others say the peak remains a ways off but perhaps not very far. Though capital spending by big oil companies has again picked up pace in the past couple of years, spurred by higher prices, exploration is still falling short.
"It's not that we're going to run out of oil or hydrocarbons, but it's not going to become available as fast as uninhibited, unrestricted demand," said Sadad Husseini, a consultant and former petroleum geologist at Saudi Aramco.
Just two decades ago, the world could pump 15 percent more oil than it needed. Today, that spare production capacity has practically vanished -- it's now about 2 percent beyond the world's total daily consumption of 85.5 million barrels. That makes the market very sensitive to rumors about anything that might endanger existing production.
Earlier, oil-rich nations opened their spigots to prevent run-ups in prices. In the early 1980s, oil from the British and Norwegian North Sea started to flow in large volumes and helped push down prices even as war raged between Iran and Iraq, disrupting Mideast supplies. During the Persian Gulf War after Iraq invaded Kuwait in 1990, Saudi Arabia increased production to head off a spike in oil prices.
But now, the cushion is all but gone. And Saudi Arabia, which is home to what little spare capacity remains, has become reluctant to temper price increases by boosting production. Quite the reverse, the kingdom and its fellow OPEC members have trimmed production on those few occasions when prices showed signs of slipping, most recently in late 2006.
That has left the global oil market particularly vulnerable to threats as varied as hurricanes in the oil-rich Gulf of Mexico, the potential for war with Iran and pipeline attacks by small groups of insurgents in remote parts of the Niger Delta.
* * *
At the beginning of the pipeline, high oil prices have been a gusher of good news.
Any company that owns oil in the ground or a share of what's pumped out of it is swimming in profit. Exxon Mobil, the biggest of the independent oil giants, last year broke records for U.S. corporate profits, chalking up $40.6 billion. This year, it is on track to earn even more.
Thanks to the rapid and sustained rise in prices, oil-producing countries are also accumulating vast reservoirs of money in one of the most massive transfers of wealth in history. Every day, oil consumers pay $6 billion to $7.5 billion more for crude oil than they paid six years ago. At the current rate, they will pump more than $1.5 trillion a year into the coffers of OPEC, Russia and other oil exporting countries.
Some Middle Eastern countries are already on a shopping spree: indoor ski facilities on the edge of the desert, water-borne hotel complexes, new industrial cities.
The new balance of petro-power was evident at a meeting of oil producers and consumers in late June in Jeddah, Saudi Arabia. The body language and setting said it all.
