This Is What Peak Oil Looks Like

Paul Krugman at the NYT - Oil numbers

There are two basic facts that would seem to explain a lot about what’s happening to oil prices.

First, Gross World Product growth has accelerated — from 2.9 percent in the 90s to almost 5 percent in recent years, according to the IMF. All of this is because of growth in emerging economies, largely China.

Second, world oil production has stalled — after growing around 1.6% a year in the 90s, it’s been basically flat for the last three years.

So we’ve got rapidly growing demand due to industrialization in Asia colliding with stagnant supply, basically because oil is getting hard to find. (The demand shock is probably even bigger than the GDP number suggests, because China’s economy is highly energy-inefficient).