I’ve been thinking a lot about Peak Oil recently, and am increasingly convinced that we are seeing its effects already starting to play out in world news, in low oil prices, flat economies, etc.

It is widely accepted that Peak Oil occurred for conventional oil in 2005/6 and that led via very high oil prices to the global financial crisis of 2007/8. However, the high oil prices had an important side-effect, and that was to allow oil that was hard to extract to become potentially profitable and so we had the dash for shale and tar sands oil that has been booming since. This growth in unconventional oil increased the total annual oil extraction figures such that ‘Peak Total Oil’ looked to be moved into the future.

The Saudis, however, put a spoke in the wheel in October last year when they decided they were better off with low oil prices – since they can extract oil very cheaply – and so get back their reducing market share. This led to the current price tumble and oil glut.

While the notoriously optimistic U.S. Energy Information Administration (EIA) has been talking up the US shale oil industry for years, recently it has been moderating its view and suggesting that there may be a peak in unconventional oils as soon as 2020. I believe even this to be over-optimistic.

It is in this context that I see the currently unfolding Chinese stock market crash as being the key turning point, and in particular the week beginning 24 August 2015 – Black Monday – when the Chinese stock market lost 16% of its value. Given that China is currently the world’s economic engine this faltering is a major warning sign, and will likely lead to a softening of demand over the next few years (and perhaps indefinitely).

Putting these things together – a reduction in supply from unconventional oil and a reduction in demand from a faltering global economy – means I’m going to call it:

I think the conditions required for Peak Oil occurred together in August 2015.

This doesn’t mean that Peak Oil has itself just occurred since production drops will lag the economic situation – not least because shale oil production is heavily hedged and credit is currently cheap. Rather, that the peak is imminent – it cannot be avoided unless there is a major increase in either supply or demand in the short term, and neither seems likely.

Longer term, if the Saudis hold their nerve, the US shale industry is likely to implode* from insufficient revenue to service its debts – I think this will occur before the end of 2016, and very likely before the end of 2017 – and shale oil production will drop like a stone. Then Peak Unconventional Oil will have occurred, and therefore Peak Oil itself.

In summary:

In the future, we will be able to look back and see that Peak Oil occurred in 2016/17 and followed naturally and inevitably from the collision of supply and demand reductions in the summer of 2015.

*I think if this plays out we will have another Global Financial Crisis within three years from now, but that’s a topic for another day.