Churchill’s assessment applies to the current oil situation: this is the beginning of the end of OPEC. That much is obvious; the more interesting question is “why?”

OPEC was founded in 1960 to protect the interest of its members, major oil exporting nations. That interest is to stabilize world oil prices at levels that balance their competing objectives to maximize both long term oil demand and the short term oil price. The idea was to keep enough oil off the market during glut periods to elevate the price and insert enough oil onto markets and lower prices during crises to prevent a global recession and to subvert movements toward substitutions for oil.


The cartel has struggled with both tasks. They have had some successes and some failures in keeping short term prices high. But since prices broke out of the $30 ceiling in 2003, OPEC had had little success in containing the price rise. Now analysts are increasingly questioning whether OPEC is able to contain oil prices. Whether they can or not will soon become evident. Regardless of whether OPEC can lower oil prices in the near term, it is clear that soon enough OPEC will not have that ability.

Let me digress for one moment to address the concept of Peak Oil, because I need to use the term. It is now time to adjust our definition, since the term is increasingly being used in a new way by the popular press. “Peak Oil” no longer carries Hubbert’s geological meaning: roughly, the time when maximum oil flow cannot be increased because decreased reserve levels prevent human efforts from being able to get it out of the ground any faster.

Instead, “Peak Oil” is now becoming known as the time when maximum global oil production has been reached for reasons that include both geological constraints and human behavior. In the latter category we have two things: political events that contain production in countries like Nigeria, Iraq, and Venezuela on the one hand. And on the other hand we have conscious decisions to hoard oil by countries like Russia, Kuwait, and, recently, Saudi Arabia, which have all acted to produce oil at less than the maximum geologically possible level.

So, now that you understand what I’m referring to, let me assert that we are now - or soon will be - at Peak Oil due to both geological and human reasons. Both factors working in tandem have created Peak Oil - if not today, then very soon.