Crude oil, or black gold, is finite and a non-renewable resource of energy. It is undoubtedly one of the most essential commodities at present. A slight fluctuation in crude oil price can lead to direct or indirect impact on the global economy. All of us depend on oil for essential needs of our life. An unprecedented increase in oil prices can instigate recession, like the one we witnessed in 1970s when oil output fell drastically while oil prices kept on rising.

Peak Oil is the time when petroleum-extraction activity in the world reaches an optimal level. Thereafter, the rate of oil production enters a terminal decline. Peak in oil production does not indicate ?running out of oil resources?, but means ?no more availability of oil at economical prices?. However, the most debated question is: Does world hold adequate oil resources to meet its needs forever?

Sooner or later, the consumption of oil is going to exceed its supply. As of now, no qualitative substitute for crude oil exists in the world. Therefore, another concern is: When would oil resources go dry in the world ? In this article, we shall touch upon some of the main arguments on which such a theory is based, highlighting the impact of high oil prices on the global economy.

Energy Information Administration (EIA) is a US-based organisation that comprises 26 member countries. The key objectives of EIA include checking disruptions in oil supply and providing updated information on international oil market.

In its latest report, EIA has forecast that world is expected to face an oil crunch in the future as demand for oil is expected to surpass its production in non-Opec countries. In such a kind of scenario, oil-producing countries could increase their oil outputs to create spare capacities in a bid to bring down the oil prices. Most countries outside the West Asia region have entered their peak-oil phases or are likely to witness such scenarios in the near future.

The Organisation of Petroleum Exporting Countries (Opec) owns 77% of the world?s crude oil reserve currently. The reliability of Opec capacity is not known as no external audits have been permitted regarding its vast oil reserves.

Oil production activities in many countries could face shutdowns due to factors like wars, strikes or unexpected political developments resulting into a slowdown in supply of oil to the global market. If such events occur repeatedly or at different locations, explorations and production of oil could get constrained, resulting in ?peaks? across the globe.

Demand for oil is expected to be strongest in countries outside the Organization for Economic Co-operation and Development (OECD) region, with China taking the lead. Chinese economy is expected to grow at around 8% or at a higher rate in 2010. It means demand for oil from China would be very strong in the near future. EIA forecasts that demand for oil from China would touch almost 10 million barrels per day in 2012, as against country?s domestic oil production of about 3.9 million barrels per day.

It is estimated that global oil sector would attract investments worth around $3 trillion over next 20-25 years. A major chunk of these investments would go towards maintenance of current oil production levels.

Ironically, when prices of oil are low, usually no initiatives are undertaken to upgrade complex oil-production technologies in a bid to increase the global oil output. Capital-starved Opec nations do not encourage foreign investments for expanding their oil production capacities, as high oil outputs lower oil prices globally. It?s a ploy by Opec to maximise its oil revenues.

Global implications of ?peak oil? are profound. A continuous decline in oil production would cause economic and social disruptions across the globe for obvious reasons.

It is estimated that ?peak oil? could happen anytime up till 2040. However, the timing of peak oil depends upon many uncertain factors like ongoing oil production, future demand, potential production etc.

In the present scenario, where oil production capacities of many fields are dwindling, concerns are being expressed on relationship between growing oil consumption and availability of oil in the reserves. The more significant question is: What will be the rate of decline in oil production in the future? Some form of coordinated adaptation might be possible if annual drop in oil production would not be more than 1-2% per annum. Many experts predict such a decline to happen at 2-4%.

Global oil demand has fallen almost by 2% since 2007 as oil prices crashed from almost $150 a barrel in July 2008 to below $33 a barrel in December 2008. Since 2008, oil prices have more than doubled to just below $80 a barrel. If oil demand increases in future, the key factor that would determine the price would be the quantum of spare oil capacity with Opec. The spare capacity is that extra supply that can be brought on stream in event of any supply disruptions.

Opec capacity has been high traditionally whenever global oil demand is low, signifying an inverse correlation. It is expected that firm global oil demand will pressure Opec?s spare capacity triggering an increase in oil price, which could cross $100 in 2010 and increase further in 2011.