The new "peak oil" could be demand, not production

Fifteen years ago, the world was worried it would run out of oil, yet this week the crude market cratered, with prices for American oil temporarily going negative.

The big picture: While the recent price crash is largely due to unprecedented drops in demand for oil because of COVID-19 lockdown policies, technological advances over the past decade unlocked new supplies in the U.S. and elsewhere.

• The result is an oil glut that could keep prices low for years.

Background: The idea that the world would eventually run out of oil was prominently put forward by an American geologist named M. King Hubbert who predicted in 1956 (mostly accurately) that U.S. oil production would peak in the early 1970s. The theory received a boost in 1998 when Scientific American published an influential article by a pair of geologists arguing that global oil production would soon be unable to keep pace with rising demand.

• In the years that followed, global oil prices kept rising, eventually passing $100 a barrel in early 2008.
• The increase in prices, as well as projections of future decline in production in countries like the U.S., led to fears the world was approaching "peak oil," after which supplies would inevitably decline, prices would skyrocket and economic collapse would follow.

But, but, but: The opposite happened. The fracking revolution, which allowed oil companies to drill for new supply in places like western Texas and North Dakota, inverted projections like the one in the chart above. U.S. oil production began rising, adding millions of barrels a day to the global market.

• By September 2018, the U.S. passed Russia and Saudi Arabia to become the world's biggest oil producer, and by the following year, the country was a net petroleum exporter.

What's next: It's a bad time to be in the oil business, but the world is a long way from getting off crude, with global demand passing 100 million barrels a day before the COVID-19 crisis. Still, with alternative energy and electric vehicles on the rise, it's not impossible to imagine the true peak oil we could be facing is peak demand, not peak production.

The bottom line: Unexpected technological change reliably overthrows our predictions about the future — which doesn't stop us from making them.