Is this what peak oil looks like?

The price of oil, which only hit the milestone $100 mark in March, bounced on to $135 last week amid rising protests. That is as dramatic as economic data gets, short of people jumping from windows. US drivers are finally beginning to change their ways, American Airlines is cutting 7% of routes and retiring 75 planes, while British Airways' profit reportedly expired when the price passed $120.

Blame is being tossed back and forth between the US gas guzzlers, the Chinese gas sippers, the speculators and of course OPEC, but the fundamentals are simple supply and demand, and long predicted. Non-OPEC supply is slipping, demand from China (where prices remain subsidised) is still growing. OPEC is pumping flat out, and the Saudis, who are the only ones with any chance of raising production are.... well, they won't. Or maybe they can't. Which is it? And if they can't does that mean Peak Oil is here for real, as the mainstream financial press is now finally asking?

Of course there are complexities. Of the 2million barrels per day spare capacity the Saudis are supposed to still have, 1.5 is heavy oil that the world's refineries can't process, and the remaining 0.5mbpd wouldn't change things that much and perhaps should be kept for a real emergency. And then there's short term versus long term capacity. They may not be able to pump more now, but they're drilling hard and maybe they will be able to in a few years time (and where might prices be by then?). But then again, they know they have a finite resource and they don't fall for the kind of short term market idiocy that saw the North Sea emptied at $10 a barrel - maybe they want to pump slowly, for the highest price, and keep their barrels for their children, as King Abdullah recently suggested.

Whichever, it means we are beginning to get the kind of price signals so often lacking in climate policy, and the concept of environmental limits may finally be forced through to policy makers and business alike. But be careful what you wish for. This may or may not be some kind of peak, or plateau. But if oil production were to slide significantly rather than just stagnating, climate campaigners might get knocked flat in the rush to exploit oil sands, and coal liquefaction - anything to keep the greedy system going. Better perhaps to have a soft plateau to get those plug-in hybrids up and running...

Image: (cc) hrtmnstrfr