You can read the whole article Peak Oil & The Global Economy by Clifford J. Wirth, Ph.D. especially in the light of the current Big Collapse. Below is an excerpt from the article by ASPO, Ireland.
ASPO-Ireland examines the economy in light of Peak Oil (excerpts from the ASPO Newsletter):
“Oil demand had begun to outpace supply around 2005, when the production of Regular Conventional Oil passed its peak. The shortfall was however relatively small and was partly met without undue difficulty by a modest reduction in consumption. But as prices began to firm, oil traders and other speculative financial institutions began to take a position in the market, which had the effect of driving up the price. Gradually the process built momentum as huge notional profits were reaped from the appreciating asset. In a conventional market such movements would soon be countered by increased production, but in the case of oil, there was no spare capacity to release, and the speculative surge fed on itself leading to an extreme escalation in price which reached about $150 a barrel by July 2008. However as this peak [in prices] was approached, the traders began to conclude that a limit was close and began to buy future options at lower prices, which began to undermine the price in a self-fulfilling process. In parallel the high prices began to undermine many other aspects of the economy with for example airlines and automobile manufacturers facing difficulties. They themselves relied heavily on debt, which itself was traded between banks without adequate genuine collateral, and were forced to unload their speculative oil positions in order to try to shore up their failing businesses. Gradually the whole edifice collapsed, and oil prices fell to around $50 a barrel, although nothing particular had changed in the actual supply/demand relationship.
The flaw in the system was to treat a finite resource whose production was largely controlled by the immutable physics of the reservoir as if it were a normal commodity capable of responding to ordinary market pressures. If the price of potatoes increases, farmers can grow more and the market responds, but oil is different.
Governments responded to the crash by pouring yet more money, itself lacking genuine collateral, into the system in the mistaken belief that this would restore the position of assumed eternal growth, and quite possibly the stock market will respond positively as traders sense a new upward direction. They have no real interest in reality: their job being to try to reap rewards from short term movements.
But if there is an economic recovery, that would serve to increase the demand for oil, which is in a sense the lifeblood of the modern world, and oil prices would again begin to surge. Probably, it will take several such vicious circles before governments and, more important, people at large at last come to grasp the reality of the situation, which will likely prompt radical changes in the human condition.
Meanwhile, desperate efforts are being made around the world to shore up the crumbling financial system. For example, the Bank of England has radically reduced interest rates in a country facing a severe recession, effectively taking money from savers to give to spenders.
The Government has evidently failed to grasp the underlying causes of recession and hopes that pumping a bit of money into the system will restore it to its previous condition. That was premised on eternal economic growth, which is a somewhat unrealistic proposition for a Planet of finite dimensions, but Governments subject to re-election are by nature short-term in their thinking.
One is led to conclude that the entire Stock Market, including especially the oil market, has become a thoroughly debased speculative institution. In earlier years, investors clubbed together to build a specific project, such as a canal or railway, with the resulting dividend being the prime motivation. Things seemed to have gone wrong when such investments were traded on markets by financial institutions which naturally can have no serious knowledge of the underlying business or the true value to be placed upon it.”