Total says oil output near peak

The world will never be able to produce more than 89m barrels a day of oil, the head of Europe’s third largest energy group has warned, citing high costs in areas such as Canada and political restrictions in countries like Iran and Iraq.

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Mr de Margerie warned that the glut of oil caused by the dramatic reduction in demand would be short-lived and that, in spite of the economic crisis, in the long-term demand would remain constrained by supply.

Right now, the price of oil is staying low (relative to the past couple years, anyway) because demand is still shrinking faster than supply. Supply is being reduced because of OPEC production cuts and, more ominously, by a brutal interruption of investment in many places. Thus declining production from mature fields is not going to be replaced in the near future by new production coming online, and any ramp up, when actually needed, could take time to happen and thus lead, again, to higher prices.

An intriguing theory is that such price increases will trigger yet another round of economic downturn and demand reduction, bringing prices down again, thus leading to another drop in investment. We could thus end up in a world of oil prices that never go extremely high (say in the 50-150 range), but nevertheless cause a vicious circle for the economy.

It thus remains vital to focus on energy policy right now - meaning long term demand reduction, energy efficiency, public transport and renewable energy, to move away from the threat of an oil-constrained economy.