Crude Fact - $ 200 Oil @ 2009

This week, oil reached its highest price ever, exceeding the inflation-adjusted record of $103.76 set in April 1980, at the height of the second oil shock. Then, the world was worried that the high price would trigger a global depression. Now, the scope for the oil price to soar ruinously higher than $100 does not seem to worry many people. The landmark record did not reach the front pages.

Yet developments in the peak oil debate so far this year should be sounding alarm bells everywhere. In the first week, with the oil price hitting three digits for the first time and growing numbers of oil traders betting on forward contracts for $200 oil before the end of the year, the James Baker Institute urged oil industry bosses to address falling investment in exploration. The institute was worried because the big five international oil companies had cut exploration spending in real terms between 1998 and 2006, notwithstanding the rise in oil prices and the increasingly desperate need to find more.

In the second week, Total boss Christophe de Margerie warned that oil production may be nearing its peak. He now believes the world will never be able lift production from the current level of 85m barrels per day. One hundred is out of the question, he says, much less the 115m that so many optimists assume. The CEO of ConocoPhillips agrees with him. The oil companies duly announced their 2007 results, and masked in statistics combining oil and gas production was the alarming fact that all, bar Total, had suffered falling oil production. This is not what we expect of an oil-addicted world on course for 115m barrels a day.

The CEO of Hess was the next oil boss to blow a whistle, telling an oil industry conference in Houston that oil companies, oil-producing countries, and consumers need to act now. "Given the long lead times of at least 5-10 years from discovery to production," he said, "an oil crisis is coming and sooner than most people think. Unfortunately, we are behaving in ways that suggest we do not know there is a serious problem."

Sixty per cent of the world's oil production is from countries that have already peaked. As for the tar sands, said John Hess, "their contributions to supply are not material enough to bridge the gap in oil requirements over the next 10 years."

The IEA have been warning during 2007 that non-OPEC oil will peak within a few years, and even making it that far depends on Russia expanding production. But last week in Moscow, a Russian senator voiced doubts that Russia can meet commitments to the west in both oil and gas. Senator Gennady Olenik, an ex-oilman, told a news conference that private companies have not been prospecting in the oil-and-gas rich north since being created in the early 1990s. A former Soviet Minister of Geology, Yevgeny Kozlovsky, backed this up.

In other words, as RIA Novosti put it, "for the last 15 years, Russia has done practically nothing to reproduce its mineral wealth, but has been scattering the inheritance it received from the previous generations. In this context, reports about an imminent reduction in oil production in Russia are a source of concern. We have been giving promises to Europeans, Chinese and other foreign partners, but will we be able to keep them?"

Herein lies the biggest fear of all. If peak oil hits, and the slumbering industry awakens from its endemic over-optimism - in the west and in producing countries alike - what do we do if the producers start keeping their fast-dwindling resources in order to power up their own fast-expanding economies? An oil shock then risks turning into an energy famine.