I was rummaging through the different peak oil websites a few months ago and came across an interveiw; I don't recall at the moment whether it was Matt Simmons or M. Hubbert ... it may have been Hubbert because he gave a lot of talks and presentations to energy company executives and engineers, particularly during the early 1970's. I recall the speaker was recollecting a conversation explaining the mechanism of peak oil to an executive; how the US oil production at the time was headed for a relentless and irreversable decline.

The executive declared this to be impossible! He pointed to the fact that the country was 'awash' in oil, that is was cheaper than it had ever been. There couldn't possibly be a decline in production. As Hubbert traveled the country - as Matt Simmons does now - explaining depletion and its effects, his listeners had never entertained the concept of general depletion. They were surprised, angry and in denial ... and these were energy company professionals!

Later on, the speaker, I actually believe it was Hubbert (I'll find it at some point) reflected that at the peak in production, oil would be most plentiful and prices would be lowest.

At that point I simply started looking at prices. The remarks made absolute, perfect sense. Conventionally, the measure of peak is a matter of physical production measured in barrels of liquid at either the wellhead, the shipping terminal or the refinery. The amounts are totaled and changes in physical production are measured against the 'Hubbert Curve'.

This is an excellent method to measure depletion. It has the benefit of removing production rates from the realm of conjecture and into that of data. It's hard to argue against physics. The 'bottom line' of peak production is rate of change; actual physical decline. A problem with measuring physical production is the demand dynamic is in the background. In the ambit of physical production, oil out of the ground will be used eventually. Demand doesn't effect production unless if declines to where it constrains that production - that is producers choose to leave oil in the ground because they cannot sell it. (NOTE: The opposite dynamic is also true!)

From the physical standpoint demand is static. A barrel produced will be consumed. Consumption makes use of all production. Storage relative to the production stream is small. Consumers can buy some oil and set it aside, but eventually all oil becomes atmospheric waste.

Market price measures the dynamic relationship of supply to consumption. The aim is to locate a change in trend, where the supply - demand dynamic changes from favoring the consumer to favoring the producer. In the market the intensity of demand is measurable. Consumption is auctioned. Marginal utility allows for consumers to bid prices higher than physical fundamentals might otherwise indicate. Markets calculate many sets of conditions. The price falls if the rate of consumption falls faster than the rate of supply, even if that rate is also falling. If the rate of production increases and exceeds the rate of consumption - even if the consumption rate is increasing - the price still falls. When the consumption rate rises faster than the rate of supply - even if the rate of supply is rising - the price rises. If supply declines and demand is steady or that rate falls slower than the decline of production, the price will also rise. The first set of conditions favors the consumer, the second set favors the producer.

Since every barrel of oil is bought and sold the price is an a accurate measure of the dynamic supply - demand relationship.

The rate of supply was very great and increasing relative to the (increasing) rate of consumption from 1985 until the late 1990's, During that period the the price declined. Afterwards, the rate of consumption increased faster than the rate of (increasing) production. Prices were bid higher. The 'inflection point' - where prices declined to the lowest point and then rose - was Economic Peak Oil, where supply was greatest relative to damand as measured in money within the marketplace. Prior to that point prices favored consumers, after that point prices favored producers.

The production rate exceeding the rate of consumption required a very low price to 'clear the market' Increased demand relative to increasing supply was reflected in steadily increasing prices. The price trend was exactly the same as if physical production declined!

Within the dynamic supply-demand relationship it does not matter if supply increases. Prices will increase if demand increases faster.

Many experts including Hubbert himself have stated that the real peak could only be determined long after the fact. As seen through the prism of price the largest supply relative to demand was at the end of 1998 until the first months of 1999. To my mind, this was 'peak oil'. From that point forward up until this minute the rate of consumption has outstripped to the rate of production allowing demand to bid up the price of relatively diminishing supply. The plentiful oil of 1998 and the cheap price of 25 cents a gallon of crude is likely never to be seen again. In this context, it doens't matter whether physical production increases of decreases; it's irrelevant. What matters is that consumption has unbalanced the pricing mechanism and tilted it in favor of production.

At the end of 2008 with prices plummeting and the overhang of 80 millions bpd of production overhanging the market, prior to any OPEC production cuts ... with the possible price of $5 a barrel looming over the horizon ... the price never fell below the longer termed trend line! The support level held; at $35 a barrel. Compared to prices of $11 a barrel ten years previous, the difference is a 3X increase! Now, prices have almost doubled again from that level.

A couple of things to consider ...

Peak Oil to the man in the street is a matter of price. The economic measure is more useful to people than is physical production. One person cannot grasp world fuel production, it's an abstract. Physical depletion is simply too big and too complex - and awful - to easily grasp. Even professionals have difficulties with the concept, as Hubbert and Simmons can both attest.

Consideration must be given to the state of production and demand. Both must be mature, that is supply and demand at high rates without distractions in the marketplace such as wars, embargoes or financial bubbles. Measuring supply v. demand by dollars in 1968 would have been pointless since US production was peaking and world demand was slight. During the period 1985 - 2002 there were few disruptions other than Saddam's adventure in Kuwait. both production and demand worldwide were mature and huge. Production levels were similar to those current; the interening years have not brought to light exponential increases in available oil. There are no new 'Super- giant' oil fields to replace those now producing in Saudi Arabia and Mexico.

Peak oil taking place in the past explains a lot of current problems and government strategies. Peak oil means basic, energy intensive manufacturing becomes less profitable over time. Better to send it to China and let them attempt to make use of it with cheaper labor ... or fail. Peak oil means that abstract speculation in financial securities - rather than making things in factories - is the only way for America to grow at a rate that allows our current standard of living. Under the circumstances, supporting finance and credit becomes a life or death political issue. Many of the credit and business disruptions of the past two years (and the follies leading up to them) are reasonable in a post- peak context.

Ten years into Peak Oil also explains the frenzy of capitalists worldwide to 'cash out'. Forward looking investors cannot afford to wait until the very end ... when bits and pieces of the current status quo will be worthless? What use is a private jet when fuel cannot be found for it? May as well ditch in now when it can gain a good price than wait. The manipulations taking place on Wall Street and other markets reflect this acknowledgement. Traders might not articulate the idea that 'Peak Oil happened at the end of the 1990's' but they can trade it and rationalize, later.

Ten years post- peak also means that time is running short (if it hasn't run out already). Exponential demand growth will consume remaining - harder to get - fuels in a staggeringly short time. In five years the full weight of out and out permanent shortages will fall with smashing weight upon the world's industrial economies. There is not sufficient time remaining to deploy the reactors, windmills, solar cells or electric cars ... particularly when there is no urgency to effect the change. The task is to replace the built world ... constructed over the past 60 years.

Unbelievable!