Page A1: The Wall Street Journal, Thursday, May 22, 2008:

A growing number of people in the industry are endorsing a version of the "peak-oil" theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output. All of that has prompted numerous upward revisions to long-term oil-price forecasts on Wall Street.

How the World Works has been closely following the Journal's coverage of oil-related issues for several years -- today's front page story is the most pessimistic piece I've seen the newspaper publish. Two years ago (when a barrel of oil cost a mere $75), the phrase "peak oil" was more likely to be accompanied by the modifier "so-called" or to be ridiculed in a headline like, "Poking at Peak Oilers."

But new record-setting prices nearly every day have a way of focusing the mind (in trading Thursday, crude oil futures broke $135). The International Energy Agency is getting gloomier by the minute, reports the Journal.

The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought..

"This is a dangerous situation," Fatih Birol, the IEA's chief economist and the leader of the study, told the Journal.

Yes, speculation is likely playing a role in pushing prices up, and yes, many huge new oil development projects are scheduled to come online in the next couple of years. But as James Hamilton points out in Econbrowser, just bringing enough new supply into production to match the "oil depletion rate" -- the speed at which existing oil fields are being drained -- will be a Herculean task.

Hamilton accompanies his analysis of oil market fundamentals with a chart illustrating the growth rate of China's petroleum consumption. If it continues at the current rate, "China would be using 20 million barrels a day by 2020, about as much as the U.S. is today. By 2030, China would be up to 40 mb/d, twice the current U.S. consumption."

Demand, he notes, could easily grow that fast. But supply will not. "I cannot imagine that the projected path for China above will ever become a reality, writes Hamilton. "Oil prices have to rise to whatever value it takes to prevent that from happening."