As regular readers may know, I started out as an oil analyst shortly after the Iranian revolution and the success of the OPEC cartel in fixing prices sent crude oil soaring. And by “soaring” I mean from around $1 a barrel to producers in 1970 to $35 or so for the easiest to refine grades.

The speculation back then about “peak oil” was about when the demand for oil, driven by world economic and industrial expansion, would finally exceed supply. This, the consensus thinking went, would drive prices to the sky.

The reality was that the new supply brought into production because of higher prices ultimately sent the price into a quarter-century decline, before increasing world demand drove the crude oil price to $100+ per barrel.

This was not the simple interplay between price and production. The world’s big producers break into three camps, with three different price objectives:

–Saudi Arabia, for a long time the dominant OPEC producer, which has decades of reserves that can be brought to market at extremely low cost (a few dollars per barrel). Its pricing strategy has been to keep the crude price low, to discourage the development of substitutes–to minimize the chances of the world shifting away from oil

–the rest of OPEC, which has higher costs ($30?) and shorter-lived deposits. So its strategy has been to seek the highest possible current price

–the US, now the world’s #1 producer, relies on very high cost ($50-ish) and environmentally unfriendly hydraulic fracturing (“fracking”) for the bulk of its output. So it wants the highest possible near-term price.

What it seems to me has changed very recently is that it looks like we’ve finally reached peak oil. But it hasn’t been peak supply. It’s that with more efficient usage and alternative sources of energy, we’ve reached–and maybe already passed the high point–peak demand.

More next year.