The grinding destruction of Peak Oil continues. Cheap supplies shrink, costs rise, prices rise, economic trouble comes. This is part of the slow early effects of collapse.
Thank you for this link. This article addresses the fundamental nature of the behavior of capitalism with regards to any market, business or industry. Growth in oil production is driven by a simple feedback mechanism. How much of the current profit from sales needs to be reinvested for further production. As this ratio approaches (1), no further investment will be made and a particular industry will suffer irreversible decline.
There is one caveat. If demand for a particular product such as oil has very low marginal rates of substitution (this means that moving to an alternate as prices rise is difficult) then the market will continue to demand the product even in the face of dramatic increases in price. The wild fluctuations in the price of a barrel of oil indicates that this is the case. The world cannot quickly move away from oil to other sources of energy with regards to transportation. What this means is that, as prices rise, new and ever more exotic sources of oil become feasible for exploitation. I suspect that this will be the case for some time.
The driving force for continued exploitation of oil is demand. If demand were to drop (significant movement away from oil in the transportation industry) oil prices would drop precipitously and shale and tar sands ( any other exotic source, actually, including deep sea drilling) could become a losing proposition, perhaps permanently.
Consumers are in the drivers seat, literally and figuratively. Stop consuming products made from oil (gas, plastics, synthetic fibres etc.) and the rationale for the Keystone Pipeline and other investments would disappear. We focus on the investment required to extract exotic sources of oil like shale but this is actually a small part of the total cost. This stuff is more expensive to transport and more expensive to refine.
This behavior of capitalism is my one major source of hope regarding AGW. With regards to "supply and demand" it is the demand that shapes our economic reality. If consumers demand something, there will always be a company that supplies it for a profit. If demand stops or drops dramatically, companies will exit these markets.