World oil production has been on a plateau for the last several years. Is that a temporary leveling off, a geologically imposed peak before long-term decline, or something called "peak oil lite"? The theory of peak oil lite is that human-based reasons, not geological reasons, are creating at least a temporary peak in oil production.

The thing is, it's pretty hard to tell peak oil lite from geological peak oil. When the world nears or reaches geological peak oil, it unleashes human forces that keep production down.

For example, Iran and Venezuela have both said recently that they think OPEC should commit to reducing output at their meeting on September 9, since oil prices are going down. Yes, they're saying that the price of oil is too low!

Because oil production is so tight elsewhere, OPEC has real power to jack prices back up. OPEC's power to raise oil prices is strongest at the time of regional or world peak oil.

OPEC was formed in 1960, and it first affected prices significantly in 1973. US oil production had peaked in 1970 and was in decline. OPEC member countries, in retaliation for support of Israel in the Yom Kippur War of 1973, embargoed oil shipments to countries supporting Israel: Western Europe, the US, and Japan. They also steeply increased the price of oil. Because it had peaked, the US couldn't just open its own spigots and supply the missing oil: it was already producing full tilt.

The price of oil increased almost 10 times from 1971 to 1981, partly because of the OPEC embargo and price hikes, and partly because of the collapse of the Iranian oil industry when the Shah's dictatorship was overthrown.

High prices stimulated more exploration and production outside of OPEC, as well as conservation and efficiency. Increasing supply and decreasing demand worked. A glut of oil in the mid 1980s caused the price of oil to plummet, dropping by half in just one year. Faced with the glut, OPEC lacked the unity to cut production and hold prices up.

In the early years of this century, OPEC has again lacked the ability to control oil, but this time in the other direction. Price increases have outraced OPEC's appetite for increasing income. Oil prices have again increased 10 times in 10 years, staying above OPEC's target price. OPEC member countries worried that the rapidly increasing price of oil would cripple the economies of oil-consuming nations, but they couldn't do anything about it. World oil production and production capacity had reached a plateau. OPEC couldn't just open the spigots, produce more oil, and pressure prices downwards.

After prices reached nearly $150 a barrel without devastating the economy in large, oil-importing countries, OPEC has apparently decided that it prefers the higher prices. They're worried that the drop in prices is because some parts of the world, like the US, are responding to high prices by driving less, flying less, and otherwise cutting oil use. Lowering supplies should stop the downward trend, they reason.

As I've discussed previously, the current downward trend in oil prices may just be the random volatility that a tight oil market exhibits. Percentage-wise, we've seen bigger drops over the last 5 years.

Regardless, some in OPEC believe they need to cut production to keep prices up. And because the world is at or near geological peak oil, OPEC can influence prices upward dramatically, if they wish. This is quite rational behavior for an oil producer at a time of peak oil. Oil in the ground is growing more valuable, year by year. Oil pumped out of the ground is sold for dollars, which are losing value, year by year. In this situation, pumping the oil and selling it as fast as possible doesn't make economic sense.

So, if OPEC does decrease its production, does that mean we're at Peak Oil Lite? Sort of. However, they only have this much financial incentive to decrease production when the world is at or near peak oil.

When the world is near peak oil, small actions can have a big effect on prices. As investment banking firm Raymond James and Associates warns, “The world now has a precariously balanced oil market that cannot withstand any meaningful oil supply disruptions without significantly higher oil price implications.”

Last month, Kurdish separatists bombed the oil pipeline that runs from Azerbaijan through Georgia and Turkey to the Black Sea. At a time of peak oil, taking the million barrels per day running through this pipeline off the market could set prices spiking again worldwide. With prices on the way down, the attack did not cause a new spike, but the saboteurs probably planned their attack in the hope that it would.

Control over that same million-barrel-per-day pipeline has also surely influenced Russia's actions in the past few weeks. When Georgia attacked Russian peacekeepers, Russia had an excuse to invade and occupy Georgia, maintaining troops near the strategic pipeline.

And that pipeline is only strategic because oil markets are tight and a million barrels per day can affect prices.

Peak oil or peak oil lite? Either way, it may not be long before, once again, OPEC becomes powerless to stop rising oil prices.