Earlier this month, according to several peak oil bloggers, the world passed a milestone worth noting: the point at which oil, in constant dollars, became more expensive than ever before in history. Plenty of us in the peak oil community have been expecting that milestone any time now, and the surge that pushed one widely watched price marker past $112 a barrel last week turned the expectation into reality.

Profit-taking and a flurry of margin calls driven by the wider economic crisis brought oil prices back down at the beginning of this week, at least for the moment. Meanwhile, though, the higher cost of oil is already starting to trickle down to the consumer level. Diesel fuel is up over $4 a gallon in many US markets, while gasoline, heating oil, and other petroleum products are following the same curve. Speculation, in several senses of the word, has begun to focus on the upcoming summer driving season and the likelihood of soaring prices at the pump.

Just now, however, it may be worth taking the long view. When Goldman Sachs suggested, not so long ago, that oil prices might rise above $110 a barrel, their analysts thought that it would take a crisis threatening some significant fraction of world oil production to drive such a “superspike.” (That warning was widely and, I think, correctly interpreted as an attempt by New York financial interests to talk the cowboys in Washington D.C. out of launching a war with Iran.) The crisis has so far failed to materialize, but the superspike showed up anyway.

Like any other economic phenomenon in the real world, that unexpected event had numerous causes. One factor not often given sufficient weight, at least in the peak oil community, is the role of speculation. The global economy these days is dominated by flows of speculative money that pour into any investment promising an above average rate of return. Just now, commodities – fossil fuels, grains, metals, and the like – yield better returns than most other investments, and so that’s where the money goes.

Monday’s events demonstrated that. The drastic declines in most stock markets that day resulted in a bumper crop of margin calls. For those of my readers who don’t follow the markets, a margin call is what happens when investments bought with borrowed money lose enough value that the lender demands more collateral for the loan. Since few speculators keep large amounts of ready cash on hand, that usually means that other investments have to be turned into cash in a hurry; this is one of the ways financial panics spread from market to market.

Hit with margin calls in the stock market, speculators unwound positions in the commodities market, and most commodities dropped sharply in Monday’s trading. Oil slumped from $111 to $106 in a matter of hours. They rallied after that, but today’s ticker shows another dive, with oil futures down near $104 a barrel as I write these words. With stock markets sliding again, further declines are tolerably likely. None of this ought to come as any kind of surprise; the role of speculation as a source of whipsaw motions in energy prices has been discussed here on The Archdruid Report, and elsewhere across the peak oil blogosphere.

Still, speculation is only one part of the picture. Another part, hard to miss just now, is the plunging value of the dollar. Since oil, like most commodities, is priced in US dollars – a circumstance that has given the United States some notable advantages – a portion of the price increases that have roiled commodities markets and startled American consumers in recent months are simply readjustments by which commodities retain their value against the measure of a weakening currency.

There are good reasons for the dollar to shed value just now, of course, but I sometimes wonder if deliberate policy may play a role as well. After a quarter century of reckless deficit spending, the United States is insolvent by any reasonable measure, saddled with debts it will never be able to pay off. Unlike other countries that have recently landed in the same bind, though, it has a notable advantage – all those debts are payable in a currency it controls. The other day, US Treasury Secretary Henry Paulson made the usual ritual noises about upholding a strong dollar policy, but I suspect it has crossed his mind that the national debt would be a good deal less intimidating if the dollar were to slide to 5% of its current value over the next ten years or so. It’s hard to think of another policy, in fact, that will keep the United States from having to default on its sovereign debt sooner or later.

Whether or not this is on the official agenda, though, some such readjustment is inevitable. The imperial economics that enabled the five percent of the world’s population who are Americans to monopolize a third of the world’s resources have begun to unravel, with predictable results. Pundits who denounce “resource nationalism” and laud the alleged benefits of free trade have conveniently forgotten that America built the largest industrial economy in the world in the shelter of protective tariffs, and used its own natural resources as a political weapon whenever it had the chance – for example, against Japan in the years before the Second World War. We may not enjoy seeing the tables turned, but it’s not as though we have grounds for complaint.

Behind the wild swings of speculative excess and the tidal forces set in motion by a collapsing US dollar, in turn, lies a third factor – from a peak oil perspective, the signal half-hidden by a great deal of economic noise. This is the failure of world petroleum production to break out of the plateau it has occupied since 2004. Those who have been following the peak oil scene for more than a year or so will recall any number of confident predictions concerning improved secondary recovery, new discoveries, or alternative fuels, that would enable oil production to continue on its upward path once prices rose enough to make them economical.

That hasn’t happened. Instead, world oil production has continued to bump along at roughly the same level, while prices have soared through the skylight. The latest news from the International Energy Agency (IEA) shows that with ethanol, biodiesel, and every other source of liquid fuels added in, world production of petroleum and equivalents nudged just slightly over the records set in 2006, while production of conventional petroleum continues to wobble downward from its May 2005 peak. Demand remains strong and prices have soared, but supply has barely budged – and plenty of technologies and energy sources supposedly poised to surge onto the market once oil broke $30, or $40, or $50 a barrel are still pie in the sky.

What this implies is that for all practical purposes, peak oil has arrived. Pinpointing the peak precisely in time quickly becomes an exercise in quibbling over definitions; petroleum is not a single thing but a diverse assemblage of chemically related resources, extracted in many ways and traded in a baroque diversity of markets. Should tar sand extractives, which require huge energy inputs to bring to market, be counted alongside light sweet crude, which requires little? What about ethanol from American corn, cultivated by energy-intensive methods that burn more fuel than the corn itself yields? Should the ethanol and the oil used to produce it both be included in total production, even though this amounts to counting the same energy twice?

Still, there’s another way to think about peak oil that’s less difficult to define: the point along the curve of petroleum production at which geology trumps market forces, and all the price adjustments in the world can’t make supply increase to meet the potential demand. Set aside the whipsaw motions of speculative excess and the impact of a disintegrating currency, and this is what the rising price of petroleum seems to be telling us. Unless events in the very near future offer a different message, it’s fair to suggest that the milestone of record oil prices fading into the dust behind us may mark the end of the age of cheap abundant energy, and the coming of a new world of limits and scarcities for which most of us are hopelessly unprepared.