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Try Googling this: “Image: Oil Prices 1861–2007.” What this dramatic chart shows is that the real price of oil fell almost continuously until about 2001, except for a period from the early 1970s to the mid- 1980s. That bump up and down was brought about by the Arab oil embargo, which lasted for six months beginning in October 1973. Saudi production was cut by about 25 percent for long enough to demonstrate that no one else had the spare capacity to make up the difference. It was followed almost immediately by the U.S. folly of price controls. Price regulations on oil continued until President Reagan ended them on entering the Oval Office in January 1981. The effect of these controls was to discourage production at the moment when it was most needed, and true shortages ensued—periods when demand exceeded supply. By law, gas stations were not allowed to charge what motorists were happy to pay. Instead, they had to wait in line. The issue is not widely understood. One article I read online says that current oil prices are “well above those that caused the 1973 and 1979 energy crises.” Wrong. Those “crises” were caused by U.S. lawmakers, not by world prices. Today, there are no price controls, no shortages, and no crises. As they always do, free market prices equalize supply and demand.

The key point is that the world oil price did not take off in an unmistakable way until a few years ago, and only recently have oilmen been confident enough to undertake expensive exploration without fearing they will be left high and dry if the oil price sinks back down again. The availability of that controversial thing called recoverable reserves depends on the price. Some years back there was a big oil find in North Dakota and Montana. It’s called the Bakken Formation. Earlier this year the U.S. Geological Survey said that four billion barrels could be recovered. That was not what some had hoped, but it was 25 times larger than the estimate given for the Bakken field in 1995.

Developing oil at ever-greater depths takes time and capital and is at the mercy of the world oil price. Notice, by the way, that the 15-year period when Hubbard’s peak came true was one of continuous, inflation-adjusted oil-price declines. Why should production increase when prices decrease? Two years ago Exxon Mobil drilled almost five miles beneath the Gulf of Mexico, without hitting oil. Now, in view of the much higher price, another company is continuing to drill even deeper in the same location. Another number worth watching is the U.S. rotary rig count, provided by Baker Hughes, Inc., in Houston. The count peaked at 4530 in 1981 (when price controls were lifted) and had fallen to a low of 488 by 1999. By this August 15 there were 1990 rigs at work.

The one concession I will make to the peakists is to agree that the “era of cheap oil” probably really is over. It does look as though we now face a permanent and perhaps substantial oil price increase. But that is not to say that production has peaked. Meanwhile, let’s wait and see what the oil price is in 2010. Politics, national and international, will surely be decisive.

Tom Bethell is a senior editor of The American Spectator and a media fellow at the Hoover Institution.