PEAK OIL WATCH….Why have oil prices doubled, doubled again, and then nearly doubled yet again over the past six years? Hedge fund speculation? A “risk premium” due to the Iraq war? Or genuine supply restrictions caused by the declining output of old oil fields?

I’ve long thought it was the latter — though I admit that the most recent doubling, which took place over a mere 12 months, looks so much like a bubble that it’s given me pause. Today, though, the Wall Street Journal reports that even the International Energy Agency is getting gloomy. In the past, they’ve simply projected demand and basically assumed that OPEC could keep up, but now they’ve decided to take a closer look at that assumption:

The decision to rigorously survey supply — instead of just demand, as in the past — reflects an increasing fear within the agency and elsewhere that oil-producing regions aren’t on track to meet future needs.

….The IEA’s pessimism over future supplies has been building for some time. Last summer, the agency warned that OPEC’s spare capacity could shrink “to minimal levels by 2012.” In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand. The current IEA work aims to tally the range of investments and projects under way to boost production from the fields in question to get a clearer sense of what to expect in production flows.

“This is very important, because the IEA is treated as the world’s only serious independent guardian of energy data and forecasts,” says Edward Morse, chief energy economist at Lehman Brothers. Examining the state of the world’s big oil fields could prod their owners into unaccustomed transparency, he says.

The IEA’s concern is with both the absolute condition of the world’s oil fields and the amount of investment being made in new projects. Either way, though, a shortfall of 12.5 million barrels is huge. If that’s an accurate assessment, prices are going to have to double another couple of times to bring demand into line with supply. $500 oil, anyone?

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