Peak oil

[updated September 2011]

While there is a plethora of content on the web about peak oil, I can’t seem to find many charts that track the current medium-term trends in global oil supply and price (a lot of the reports go into great detail about explaining short-term trends, or show long-term trends without the most recent data).

So here is an attempt at some medium term analysis of the data (if anyone can suggest other/better sources of such analysis I’d be pleased to hear about them).

Current medium-term trends

The first chart uses International Energy Agency (IEA) quarterly data on world oil supply until 2011Q2, projected demand for the last two quarters of 2011 (as at September 2011), together with the average WTI oil price in $US for each quarter.

The second chart simplistically looks at the relationship between price and demand/supply for each quarter 2000 to 2011Q1. I’ve also added forecast 2011 demand for remaining 2011 (assuming a $91 price). Note: there are small differences between supply and demand each quarter due to stockpiling etc.


Yes this is a very simplistic representation of world oil markets (it doesn’t adjust for inflation or global exchange rates), but I think it is still interesting. You can see that there are differences between quarterly demand and supply as the red and blue lines don’t always overlap. For example, according to the data, supply exceeded demand in the quarters where prices peaked, but then demand exceeded supply for the two previous quarters.


I’m certainly not a qualified oil market analyst, and this isn’t rigorous analysis, but a few things do stick out:

  • World oil supply grew strongly between 2002 and 2005 and then was stuck around 84-87 million barrels per day (mb/d) until 2010. Supply grew to a new high of 88.5 mb/d in 2011 Q1, but then dropped in 2011 Q2. The September 2011 Oil Market Report suggests supply is now 89.1 mb/d.
  • During 2007 and the first half of 2008, oil prices grew strongly while supply was relatively unchanged, suggesting a demand-supply crunch.
  • After mid 2008, both prices and supply collapsed, around the same time as the global financial crisis hit.
  • During 2009, prices almost doubled, while supply only grew a small amount (although a devaluing of the US dollar explains some of this).
  • During the first three-quarters of 2010 supply grew but prices stabilised. But since 2010Q4, prices increased, even though supply reduced in 2011Q2. At the time of writing WTI oil was around US$91, and supply had increased again.
  • Looking at the second chart, it appears we have broken through the 88 mb/d threshold without the same prices seen in 2008.

The future?

It’s very hard to speculate, and I’m not particularly qualified. At present it appears oil prices have fallen with global economic conditions, supply has increased to a new high, and demand is also higher than ever.

Will it be possible to continue to ramp up supply to meet the further increases in demand?

The peak oil theory essentially suggests that new oil sources are harder to find and extract, that many existing fields are in unavoidable production decline, and so it is getting harder just to maintain current supply levels with new fields, let alone grow production overall. And harder still to grow production without increasing prices.

We’ve seen some supporting evidence in 2008, but conflicting evidence in 2010. That might have something to do with exchange rates. Oil prices fell in 2010Q3, but the US dollar was strong in mid 2010. Probably need more thorough analysis than what I have done. But the data is what it is. And all will be revealed in time.

But what will transport investors assume? Increasing global supply without significant price growth over the next 30 years does not look like a particularly safe assumption! But I fear it is the default assumption.

One Response to Peak oil

  1. Riccardo says:

    What do transport investors assume? You mean like those who hold tollway shares? They appear to expect continued growth.

    That said, I’m not sure how we measure the elasticity of demand for a tollway versus the various crosses – a non-tolled (presumably non-grade-sepped) road, other modes, and not travelling at all.

    If it is assumed that the tollway is paying at a certain level, and if oil price goes up then the competing untolled road (non-grade sepped) suffers first, then maybe demand will hold for a while. And can the competing modes like rail pick up the difference, or is transport absolutely constrained?

    And finally, is it an economic question or sociological? Are we talking about a cohort of wealthy, powerful people who will drive no matter what, highly inelastic demand at any credible price level?

    Even in China, one problem you have is no ‘memory’ of cheap oil if you’ve just bought your first car. If yoy pay AUD 100 a week to drive your car that may not seem expensive if that’s all you’ve ever known.

    And even AUD200 is not expensive if that translates to AUD10000 a year, still not as expensive as the annual depreciation on a Lexus or Mercedes. And plenty in China do.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: