As the global economy goes, so goes oil demand. If the outlook for the global economy is not so good, oil consumption will stagnate or increase very slowly. If oil demand grows slowly or not at all, consumption will remain below the world's productive capacity, as measured in millions of barrels-per-day. If oil demand remains below the available supply, there will be no oil price shock.
A new oil price shock tells us that "peak oil"—an inability to grow supply to meet growing demand— has returned with a vengeance. The last time supply could not meet demand was in the years 2005-2007. The growing gap led directly to the oil price shock of 2007-2008. After July of 2008, the world economy unraveled, leading to the relatively low demand environment we have today.
Although this simpleminded explanation smooths out all the messy details, it is basically correct. So where do we stand?
The International Energy Agency has just released its 2010 Medium-Term Outlook reflecting its projections for the period 2010-2015. Here is the relevant text from the summary—
declineoftheempire
