Is world oil production peaking? Quite possibly. Data from the International Energy Agency (IEA) show a pronounced loss of momentum in the growth of oil production during the last few years. After climbing from 82.90 million barrels per day (mb/d) in 2004 to 84.15 mb/d in 2005, output only increased to 84.80 mb/d in 2006 and then declined to 84.62 mb/d during the first 10 months of 2007.
The combination of world production slowing down or starting to decline while demand continues to rise rapidly is putting strong upward pressure on prices. Over the past two years, oil prices have climbed from $50 to nearly $100 a barrel. If production growth continues to lag behind the increase in demand, how high will prices go?
There are many ways of assessing the oil production prospect. One is to look at the relationship between oil discoveries and production, a technique pioneered by the legendary U.S. geologist M. King Hubbert. Given the nature of oil production, Hubbert theorized that the time lag between the peaking of new discoveries and that of production was predictable. Noting that the discovery of new reserves in the United States peaked around 1930, he predicted in 1956 that U.S. oil output would peak in 1970. He hit it right on the head.
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