This week at the annual conference in Montreal of the CFA Institute, a professional body for investors, there were some grand narratives about the future of oil. They should be taken seriously. But the last time the conference visited Canada, in Vancouver in May 2008, there was also a grand oil story. How did that work out? Back then, crude prices were at a record, on their way to an insane peak of $150 per barrel two months later. That spike sparked a narrative: Peak Oil.
Peak Oil’s adherents pointed out correctly that the supply of oil under the ground is finite, and that at some point production would peak and then start to decline. As supply declined, so prices would rise to ration it. In global output figures, it was possible to discern a slight fall, or at least a plateau, ahead of the price spike. Judging by the IEA figures, this was a period when demand (led by the seemingly unstoppable rise of China) exceeded supply to an uncharacteristic extent. It then became an article of faith for many that oil supply had peaked, and that prices could only increase in future. I took the idea seriously, but received much abuse from Peak Oilers for not doing more to alert FT readers to the doom that awaited them. The notion that the high price would spark more supply received less attention, even though this is what the first chapter of any economics textbook would have predicted. And it is, of course, what happened.