Speculation surrounds oil peak

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Thanksgiving marked the day that some analysts thought global oil production would have reached its peak, ushering in a new era of fuel shortages.

These petro-pessimists were using the same formula as the one that accurately predicted the apex of U.S. oil production in 1970.

Matthew Simmons, author of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," is one of them. He thinks Saudi Arabia has pumped much of its usable reserves and will start to experience production declines.

Even analysts who are more optimistic warn that chronically high prices and occasional supply crunches are likely in the years ahead. The world's consumers are using up nearly all the oil being produced today, and the outlook for growth of supplies is uncertain.

"In terms of prices, I think the risk is ... it's going to explode," Fatih Birol, chief economist at the International Energy Agency, told the Council on Foreign Relations in New York last week.

Mr. Birol thinks plenty of cheap oil remains to be discovered, but it lies mostly in politically volatile nations of the Middle East. He is hopeful that those countries will spend the billions of dollars needed to increase their supplies and satisfy the growing appetite for fuel.

"The bulk of the growth needs to come from very few ... countries in the future, namely Saudi Arabia, Iran, Iraq, Kuwait" and the United Arab Emirates -- the countries where the lion's share of the world's remaining oil reserves lie, he said.

Two of the top four producers -- Iraq and Iran -- are not expected to increase supplies any time soon.

Persistent sabotage of oil facilities in Iraq has cut production below the 2.5 million barrels per day produced before the U.S. invasion in March 2003. Meanwhile, a U.S.-led economic embargo has reduced investment in new oil facilities in Iran.

Saudi Arabia, the largest producer with the biggest reserves, plans to increase production to 12.5 million barrels a day from about 11 million today. Smaller Persian Gulf states also seek to expand output.