Oil prices are at record highs, production may well have peaked, yet demand continues to soar. So why aren`t the oil companies panicking?
The San Francisco Chronicle, in 1971, carried a small item: “The Texas Railroad Commission announced a 100% allowable for next month.” It was a very cryptic report and, knowing newspapers, it was probably simply used as a filler.
But that report was momentous because the TRC could be described as the forerunner to OPEC. The commission ran a US government-approved oil cartel. Its job was to match production with demand. In those days, Texas was the swing producer in the US. Its announcement that production would move to 100% capacity marked the peak in US oil output – a development few in the oil industry believed back then.
That maximum production point is known as Hubbert’s Peak – an acknowledgement it had been predicted in its timing in 1956 by M. King Hubbert, a geophysicist at Shell in Houston. Hubbert’s forecast was regarded as contentious when it was made – not least by his employer, who failed to dissuade him from publishing it. It took another 20 years after 1971 before, with the evidence of hindsight, Hubbert’s work was widely accepted as correct.