"I see the nascent breakdown in the GDP/oil relationship over the past three years as a symptom of the supply shock the world has been experiencing. In past economic cycles, faster GDP growth powered higher oil demand and rising crude prices; higher oil, in turn, catalyzed increased drilling activity and growth in global oil supply. Those rising supplies helped keep a lid on crude oil prices.
In this cycle, however, supply growth was limited by geological factors; many of the world’s largest oilfields are mature and seeing declining production, while new fields are difficult, expensive and time-consuming to develop. Thus, even with oil prices sky-high and energy firms investing record sums in exploration and development, global oil supply rose only slightly between 2005 and 2007. Non-OPEC production growth has, in particular, serially come in under expectations.