Peak oil is the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters its terminal decline. If global consumption is not mitigated before the peak, an energy crisis may develop because the availability of conventional oil will drop and prices will rise, perhaps dramatically. M. King Hubbert first used the theory in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. His logistic model, now called Hubbert peak theory, has since been used to predict the peak petroleum production of many other countries, and has also proved useful in other limited-resource production-domains. According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical bell-shaped curve based on the limits of exploitability and market pressures.
Also from Wikipedia:
Oil depletion is the inescapable result of extracting and consuming oil faster than it is naturally produced, due to the fact that the formation of new natural petroleum is a continuous geologic process which takes millions of years. No one knows for sure when the long-term decline of oil reserves will begin, or what the consequences will be. The Hubbert peak is an influential theory concerning the long-term rate of conventional Petroleum (and other fossil fuel) extraction and depletion. The Hubbert peak is named for United States geophysicist M. King Hubbert, who created a model of known reserves, and proposed the theory. The concept of passing the peak-point, so that society is on the downward side of the oil supply curve, is also referred to as Peak oil or the end of cheap oil. By most projections, this point has already been passed or is about to be at some point between the years 2007 and 2010, although by United States government prediction, world consumption of oil will increase to 98.3 million barrels a day in 2015 and 118 million barrels a day in 2030. This represents more than a 25% increase in world oil production. Many predictions have been made about the potential implications of passing the peak. These estimates range from warnings of a doomsday scenario created by long term lack of growth to faith that the market economy will allow a relatively smooth transition to other energy sources through technological solutions.
Let's simplify the above into classic economics. There is a limited supply of oil. Because India and China have added 2 billion people to the world's roll of active consumers demand is increasing. Put these two elements together, and you get increasing prices -- just like we are experiencing now.
I bring this up because on the front page of today's WSJ there is an article that the IEA is now focusing on the supply of oil rather than demand. As a result, people are far more pessimistic about the oil market.
But the direction of the IEA's work echoes the gathering supply-side gloom articulated by some Big Oil executives in recent months. A growing number of people in the industry are endorsing a version of the "peak-oil" theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output. All of that has prompted numerous upward revisions to long-term oil-price forecasts on Wall Street.
.....
The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.
The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.
.....
For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.
