World oil production increased 4.2% during 2004, leading many analysts to conclude that demand increases, not supply disruptions, were the story behind last year's rise in oil prices. As data for 2005 become available, I'm forced to conclude that the reason that oil prices have continued to surge above their values from 2004 is not further increases in demand, but rather concerns about the ability of supply to increase significantly above the 2004 levels.Econbrowser (Hamilton) has been a cogent and insightful critic of simplistic Peak Oil mania. He's not yet ready concede that we may be nearing the Peak Oil zone, but he's getting there.
At the moment he feels the problem is recent past underinvestment in refining and processing, but I've read him for a while. He's clearly shifting his thinking, and lately is tending towards structural production issues as a component.
If we have hit Peak Oil, prices will rise until world consumption falls or stabilizes. Inflation adjusted prices still put us well below the early 1980s, but we're getting up there. I suspect US citizens will make serious changes to their practices when oil passes $7 a gallon, but that China will decrease its consumption earlier (by going into major recession).
If we've really hit Peak Oil that could happen within 1-2 years. Stay tuned to Econbrowser for updates, I'm not willing to bet either way.