Let's park up all the environmental downsides of oil usage for the moment. Because despite all of oil's sins, most of humanity depends on it for everything from the clothes we wear to the means we employ to get about. Even a lot of the food we eat and many of the modern medicines that help keep so many of us well are in some way linked to the petrochemical industry.

But as we know, crude oil is a finite resource. Not that anyone would ever believe it when observing the accelerating rate at which it's being pumped out of the ground. Oil is becoming an increasingly precious commodity. Worryingly, as it becomes more and more complicated to source and extract, it gains an ever greater capacity to hold our modern civilization to ransom.

All this might sound a bit melodramatic. But the plain, simple truth is our modern culture is actually perched on an oily knife edge. The slightest threat to global supplies almost instantly impacts the price we pay for just about everything. Naturally, this factor directly affects the way millions of us live out our daily lives. So it matters.

Oil supply threats can come in many forms such as geopolitical tensions, demand or distribution issues caused by extreme weather or other unpredictable natural phenomena. Of course, there will always be a large dollop of plain old fashioned profiteering going on too. Traders will be forever keen to make a swift killing on global commodity exchanges, putting us all at the mercy of a bizarre system.

High oil demand is usually a sign of healthy economic activity. Perversely, favourable economic prospects always seem to push up the price of oil because we use more of it during boom times. Other commodities then follow suit. This, in turn, stokes up inflation. Of course, high inflation is harmful to western economic models. So, you see the problem here? It's a self propagating mess.

Prolonged inflation eventually forces a downward price spiral due to reduced demand. Basically if goods (including oil derivatives) get too expensive, it causes demand destruction. Then, economies go into recession. Boom equals bust.

Peaks and troughs

However, traders love peaks and troughs. They will declare that "the trend is their friend" or that "nothing cures high prices like high prices". Well, we already know about demand destruction.

But, these rather strange and illogical perversions of Capitalism have long governed our existence. Whether we approve or disapprove very much depends on individual outlooks. It amounts to whether or not we believe that we've personally gained from such a system.

Environmentally, we've all clearly suffered whether it's from harmful fossil fuel emissions or from matters such as the increasing prevalence of toxic plastic waste in our natural environment. Consumption creates waste. That's just the way it is.

The economics of fossil fuels have long shaped the fortunes of modern western societies. These days, it's not just the west that's impacted by energy price volatilities. There is an undeniable correlation between global population growth, the pace of fossil fuel extraction, global economic prospects and the consequent increase in emission levels.

There will doubtlessly be a few Professor Yaffel characters out there who will be exclaiming "Nonsense! Nonsense!". They'll be saying that such comments (made by the likes of yours truly) are a gross oversimplification of what is a deeply complicated issue. Maybe so. Personally, I just try to face facts as I see them. Let's be candid: If there were only 7.7 million people living on this earth right now rather than the current 7.7 billion inhabitants - I suspect that the story would be a somewhat different one when it comes to global consumption?

Peak oil

The crunch will come when our world reaches something called 'Peak Oil'. So what's Peak Oil all about?

Professor Yaffel is right about my desire to simplify a complicated topic. So I hereby hope to explain Peak Oil without causing my brain to explode:

Peak Oil identifies a hypothetical point in time when global crude production and refinement hits the maximum possible rate at which current infrastructures can efficiently operate. Once this happens, crude oil production will decline at a rapid pace. Luckily for us, Peak Oil remains a hypothesis.

Or is it?

The theory suggests that oil production will decline as the cost of extraction grows. But the 'easy oil' has been dwindling for years. North Sea oil for example. Depleting oil reserves puts global inventories under increasing pressure. It becomes the catalyst for rapid price hikes as the industry struggles to replenish global stocks. The market is getting increasingly tight as more and more countries strive towards industrialisation.

Peak Oil has been declared several times amidst various crises over the years. However, each time we get a Peak Oil declaration, it has invariably proved to have been a premature call. But, that's only been thanks to higher oil prices funding new extraction technologies and more sophisticated surveying techniques. This has thus far somehow saved our bacon.

Today, however, things are very different. Emerging economies are now more than just emerging. Some are now wholly and massively established mega giants in their own right. China alone has grown on a miraculous, mind-boggling and unprecedented scale.

Emergence of China

The Chinese don't hang about! If the Chinese authorities want to build a motorway or a new airport, there's no protracted 10 year consultation period with millions of pounds being wasted on absolutely nothing. There will be no Chinese 'environmental impact assessment committee' to help protect the habitat of the lesser spotted NIMBY. The Chinese don't bother with any of that - they just build things. Fast! Thousands of miles of motorways are carved magnificently into China's landscapes each year. There are no obstacles to progress in the People's Republic.

The emergence of China as the world's second largest economy has massively increased demand for oil as never before. Bear in mind that the world's major oil fields (first tapped into over 40 years ago) are now in terminal decline. No one seems to want to fess up to precisely how quickly they're drying up but we all know that they really are being depleted at record speed.

Best estimates suggest that productivity decline from the major oil fields currently stands at around 5 million barrels per day (that's 5 million fewer barrels per day than was produced at their peak). The shortfalls are currently being made up by other smaller producers but they won't last forever. In stark terms what this means is that the oil industry needs to find new reserves that are equal or larger to those currently existing in Iran or Iraq every single year in order to simply keep up with current demand.

So next time you feel the pain in your wallet at the petrol pump, look around you and think about how much of what you behold is somehow made of oil. Where would we be without it? That's a pretty good question!