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Two weeks ago, oil was soaring toward $150 a barrel; now it’s nosediving to $120 and may even see $100 again. Peak Oil? Humbug! Problem solved. The market works after all.

Not so fast.

I can see the headline of the Wall Street Journal a year or two from now: “Oil Price Falls from $300 to $275, Disproving peak Oil Theory.”

For years oil depletion analysts have been painting a consistent scenario that goes as follows. Sometime around 2010 (give or take two or three years), growing decline rates in oil production from existing oilfields will overwhelm new production streams coming online. The price of oil will rise dramatically. However, when it does it will cripple the trucking industry, the airline industry, tourism, agriculture—essentially, the whole economy. A serious recession will ensue, which will reduce demand for oil (among other things). Oil’s price will temporarily drop in response. Then, as declines in oil production worsen, the price will resume its upward march—but again in a
sawtooth or whipsaw fashion.

This scenario is hinted at in the second sentence of the Hirsch Report, which says, “As peaking is approached, liquid fuel prices and price volatility will increase dramatically….”

Volatility is in some ways an even worse problem than high prices, because sustained high oil prices make long-term investments in alternative energy sources and public transportation look sensible—whereas periodically collapsing oil prices discourage such investments.

Now, as the US economy is reeling, partly as a result of recent high oil costs (there’s also a bit of bother with banks, mortgages, and credit), there is the likelihood that urgent concerns on the part of families and policy makers to actually do something about dangerous oil dependency may wane if the downturn in gas pump prices continues. And of course politicians in Washington are doing their part to dampen the flames by insisting that all we need to do is rein in speculators or drill in protected areas and the good times of cheap gasoline can roll on forever.

What everyone needs to remember is this: the fundamental cause of the recent oil price spike has not gone away. Global demand for oil is still increasing; supply isn’t. The current brief respite from the hammering effect of new oil price records being set almost daily is not an occasion to go back to sleep, but an opportunity to consolidate efforts toward energy conservation and transition.

The days of skyrocketing oil prices will be back soon enough. Will we be ready?