'Peak Oil' Burned as Exxon, Chevron, Shell See $100 a Barrel

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NEW YORK (TheStreet) -- They don't come any smarter than Rep. Roscoe Bartlett, a former Member of Congress from Maryland.

With a Ph.D. in Physiology, Dr. Bartlett had a number of high tech patents that had made him a very wealthy man. He was also a successful farmer, professor, and real estate developer. As his Legislative Director, I quickly came to admire and respect greatly his character and intelligence.

But I never could understand why a man of science with such faith in the brilliance of the free market like Roscoe Bartlett was a believer in "Peak Oil," the theory that global fossil fuel production was on an inexorable decline.

He was hardly the only proponent. In May 2008, when oil was over $140 a barrel, Goldman Sachs published a report that claimed, "The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty."

Oil is now around $100 a barrel with record levels of production.

Based on pure economic demand, it should be around $60-70 a barrel, admitted Rex Tillerson, the CEO of ExxonMobil , in 2011. At that time, oil was in the same range of about $100 a barrel. Without speculators, obviously the price of oil would be much lower.

But that was not supposed to happen, according to the Peak Oil School. All the easy oil that could be found had been. From that point on the world would just have to live with high oil prices that were supposed to be around 100% more than at present.

In one word, Peak Oil got drilled by "fracking."

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Fracking has been around only as long as computers, as it was licensed exclusively to Halliburton in 1949. And, like computers, advances in technology allowed for fracking to accelerate in usage in the early 2000s. Fracking has advanced to the point where North America is now the largest energy producing region in the world.

The free market was every bit as important as fracking in proving the Peak Oil School to be wrong.

Speculators, swayed by the Goldman report and related materials, drove up the price of oil. As Tillerson stated, it's about 50% more than it should be based on fundamental economic demand. By the beauty of the free market, that results in the economic principle of "substitution." With oil priced so high, alternatives such as natural gas, wind power, solar energy and others were substituted.

Big Oil firms such as BP , Chevron , ExxonMobil, and Royal Dutch Shell led the way in substituting for oil.