Last week, I attended a round table discussion of ASPO Switzerland held here in Zurich. The topic of the discussion concerned the price of oil. Can we explain what happened in recent months to the price of crude oil? Why did it rise sharply last spring to a value of $147/barrel to then drop again down to a value of $36/barrel? What can we expect that the next few months and years will bring?

The aim of this short article is not to discuss that meeting in any detail. Such issues have been discussed to quite some depth already here at the Oil Drum. The purpose of this article is to discuss a single remark that one of the attendees, a Professor of Economics of the University of Geneva, made during the discussion.

This gentleman, unfortunately I didn't get his name, claimed that the price of crude oil could not rise much above $120/barrel in a sustainable fashion, because at such prices, we would use up our entire GDP for the procurement of energy only.

We all know that, after the peak, the oil must invariably become more expensive. We also know that, as the oil becomes expensive, demand destruction sets in that reduces the demand for the commodity, driving its price back down again.

What I had not come across before was a methodology that would allow me to quantify the price level at which our economies will stall, and this is precisely what my colleague from Geneva suggested.

The goal of this article is to review his proposed methodology.