Camille's posting that you quoted was in response to me on the other site, so here is a copy of what I posted over there. It's kind of funny that you just reposted that ridiculous graphic about supply and so-called "demand", it is a perfect example of the misleading presentation that I complain about below.

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Let me say a little more about supply and demand then.

This site has had a persistent problem with misusing and misstating the relationship and the facts about the current supply and demand situation. Now that we are on the old site I couldn't help noticing the last posting here before moving to the new site, from Aug 19: "More EIA: Demand will Outstrip Supply in Q4 '05 and Q1 and Q4 of '06 - Something we've talked about already, but more evidence of it. The EIA officially is stating that oil demand will outstrip supply in the fourth quarter of this year, as well as in Q1 and Q4 of 2006. (hat tip: peakoil.com.)"

This is just total BS. The so-called demand here is merely another word for consumption. When "demand outstrips supply" or vice versa in this sense, it only means that we are slightly building up or drawing down reserves. It is a normal process in the oil business and happens every year. It has absolutely nothing to do with Peak Oil. Yet this site has continued to post messages like this that mislead readers. That's why I objected to the claim that demand and supply are balanced on a knife edge. It is very much in keeping with those earlier postings that were fundamentally misleading. Demand and supply have always been balanced like that in the oil business, but this site has persisted in misunderstanding that and presenting the balance as if it is new.

But let's suppose that what PG really meant in the recent post is that the world does not have much excess capacity, due to Peak Oil. There are two things wrong with this. First, the world does in fact have some excess capacity now. See http://money.cnn.com/2005/08/28/news/international/bc.markets.oil.reut/index.html : 'Oil Minister Ali al-Naimi told the state news agency SPA that the OPEC giant was in touch with its customers, especially in the United States, to assist in any supply shortfall but said that world oil markets were currently "well-balanced" and that supplies were adequate. "To the extent that markets are concerned about the impact of Hurricane Katrina on the availability of crude oil supply, the minister said that Saudi Arabia stands ready to increase oil production immediately to 11 million barrels per day and sustain that level to replace any shortages in the crude oil market," SPA said.'

And second, the real issue for Peak Oil is not how much excess capacity there is on any given day. No doubt there are many commodities which don't have much excess production capacity. Farms couldn't double their milk output tomorrow but that doesn't mean we're hitting Peak Milk. The real issue is whether it will be possible to ramp up production smoothly over the next few years to meet expected demand levels. Just because they can't increase production by huge amounts in a short time doesn't mean that they can't increase over a period of years. The latter question is the real issue for Peak Oil, and the failure to have lots of excess capacity on a day to day basis is not the same thing.

One final point, as far as the SPR, even just for sweet crude they have over 200 million barrels, more than enough to get us through a 1 mbpd temporary shortfall. And initial reports are that refineries will be able to get back in business quickly, so hopefully the impact on gas won't be that bad. Gasoline demand cuts back after Labor Day anyway, which is only a week away.

When economists talk about "supply" and "demand," they use the term to refer to the whole curve--supply (or demand) as a function of price.  They also talk about the "quantity supplied" at a particular price.  In an ordinary market situation, you have an upward sloping supply curve (suppliers will supply more at a higher price) and a downward sloping demand curve (consumers will demand less at a higher price) and a point where they cross--when the quantity supplied and the quantity demanded are equal at a particular price:  the market-clearing price.

A whole lot of what economicsts do has to do with the shape of those curves:  Do they slope steeply, or are they relatively flat?  Is the whole curve shifting out or back?