The theory of peak oil suffered another blow with the recent news that global crude oil production increased to a new all-time high in April 2013, the latest set of output numbers from the US Energy Information Administration (EIA). Production touched 76.348 million barrels per day in April, inching above the previous global peak of 76.036 million bbl/day in December 2012. The new era of increased oil supply, in other words, continues to find broad support in the data.
“The main reason why Peak Oil theorists always turn out to be wrong,” writes David Blackmon of FTI Consulting, “is that they by and large appear to be unable to grasp the huge role advancing technology plays in allowing the industry to discover new oil resources previously unknown, to access known resources that were previously thought to be unexploitable, and to extract an ever-increasing percentage of oil long known to be in place via secondary and tertiary recovery techniques.” Given the numbers cited above, it’s not getting tougher to argue otherwise.
For another perspective, consider how the world’s primary oil-producing nations have fared over the past decade. Iraq, Canada, Brazil, the US and Russia have materially raised output over the past 10 years through April 2013. You can dismiss Iraq’s increase as an anomaly, thanks to the fact that in 2003 the country’s production was artificially low due to the Iraq war. But the so-called fracking revolution in the US is certainly the real deal, which is part of the reason why domestic production is up nearly 30% these days vs. a decade earlier. Over the past 12 months, according to EIA, US output is higher by 17%. Just a few years ago, such gains were thought impossible for a “mature” oil-producing region such as the US.
But the oil game always has at least one trick up its sleeve. Despite the increase in global production, crude prices have remained close to all-time nominal highs. West Texas Intermediate and Brent oil prices currently trade at well over $100 a barrel, or quite a bit more than double the price of a decade earlier.
How can prices rise in the face of substantial increases in supply? The answer starts with two basic facts. One, consumption keeps rising, although some analysts say the real peak in the oil game is likely to come in the realm of demand in the years ahead. Perhaps, although given the collapse of the peak oil theory for production one might want to take the next big forecast for crude with a grain of salt.
The other big factor that affects (dominates?) oil prices falls under the general heading of geopolitical risk, which adds a premium on oil prices for all the obvious reasons. Despite all the technology advances in the discovery and production of oil, some things remain the same. Oil, in other words, is still a globally priced commodity. Technology has opened up new supplies, and will continue to do so, but old pricing habits for the world’s most important commodity die hard.