There seems to be an on-going debate among peak oilers and many economists as to which came first, the chicken (peak supply flow) or the egg (peak demand). The first is attributed to the classical peak oil theory that when about half of the oil in the ground is pumped out, extraction rates start to go into deceleration and eventually peak, thereafter going into decline. The oil price spike of 2009 was quickly interpreted in this vein, the price of oil reflecting the fact that peak had come at last and oil was just going to get more expensive with declining supplies. There were dire fears that oil at that price would trigger a recession, which seems to have been the case. But then the price fell precipitously leading other analysts to conclude that the spike might have been an anomaly set off by speculation and that the subsequent reduction in oil flow rates was due to demand destruction owing to the effects of a global recession.
The problem with these kinds of interpretations is that they often look for a prime cause in a linear chain of cause and effect. In this case the prime cause would have been peak oil and all else follows. A general truth behind this explanation is that oil is depleting and will indeed, if not already, become so expensive, both in monetary and energy terms, to extract that our production rates will begin to decline and less and less oil will flow over time. But the economic system that is dependent on oil is far more complex and no linear model can really explain what we have been witnessing in terms of oil prices and economic activity (the general so-called health of the economy).
theoildrum
