Below are several clips from an article by Steven Kopits.  Originally published in Oil & Gas Investor magazine, the piece ran too long for a Commentary in this particular issue; for the full article, go to www.aspo-usa.com and click on Daily-Peak Oil News archives (November 13 issue; item #23).  [ Watch Steven Kopits’ video clip, runs 1:10 ]  Kopits is the Managing Director of Douglas-Westwood LLC (USA), with an office in New York City.   He has more than 20 years experience in strategic management consulting and investment banking.

Was the current recession the result of a normal business cycle? If so, life will return to normal as asset and commodity bubbles are squeezed out of the economy…Or was the recession primarily a consequence of peak oil? If it was the latter, the world is on notice that oil has entered its twilight years and fundamentally new approaches to transportation will be required to maintain accustomed standards of living.

…The dominant view is that this recession was caused primarily by a housing price bubble tied to excess leverage. When the bubble popped, mortgage quality deteriorated, leading ultimately to a banking crisis unparalleled since the Great Depression.

…Analysis by economist James Hamilton, however, tends to support a more nuanced view. Hamilton, well known for his macroeconomic analysis of oil markets, can attribute a substantial portion of the current recession to oil prices.

…But was it a peak oil recession or merely a boom-bust cycle seen so many times before in the oil and gas industry? In a typical boom cycle, supply increases, but not as fast as demand, and scarcity pricing emerges. Prices continue to rise until consumers and lenders are no longer willing to underwrite price levels, and the bubble pops.

…Until late 2004, oil supply had grown apace with economic activity, and prices had fluctuated at relatively low levels. However, in Q3 2004, the oil supply stalled and remained entirely flat through 2007, achieving only modest growth through the first half of 2008. Over nearly four years, the oil supply had grown only 2%. By the first half of 2008, a volume equal to the entire production of Saudi Arabia was missing compared to the quantity anticipated based on observed GDP growth, even allowing for normal efficiency gains.

…In the end, the recession of 2008 was about more than oil. But oil played a material part. For the first time in history, spare oil production capacity simply ran out. At the same time, advanced country consumers resisted yielding oil consumption levels to fast-growing emerging economies, not for months but for years. Only a severe recession induced the mature economies to reduce their consumption, and when they did, consumption fell at a pace not seen since the oil crises of the 1970s. In the era of peak oil, therefore, sharp and painful recessions may prove the chief means by which oil consumption in transferred from the rich to the poor. If so, this is the first peak oil recession, and surely more will follow.