When gasoline prices first hit $2 a gallon three years ago, drivers gritted their teeth and kept on pumping in the hope that the damage would be temporary.

Now, prices have doubled and the distress shows no sign of disappearing.

(ENLARGE)

THE MARKET PRO: Stuart Schweitzer, managing director and global markets strategist for JPMorgan Private Bank

(ENLARGE)

THE GEOLOGIST: William Fisher, Barrow Chair in Mineral Resources, University of Texas at Austin

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Worse, the pace of the pain has accelerated: As recently as February, metro Atlanta gasoline averaged less than $3 a gallon.

Why the run-up? Why the recent surge?

One answer is "peak oil." That argument — dismissed a few years ago as alarmist, wacky or worse — now receives a more serious hearing.

The notion is that about half the oil beneath the earth has been extracted. With demand still rising and production at its peak, prices can only keep rising, say peak oil adherents: $4 a gallon will soon seem cheap. But there is a countervailing contention that oil — like the Nasdaq before it — has become something of a "bubble," its prices puffed up by a massive flow of speculation.

The Journal-Constitution recently separately spoke with an expert in the workings of investments and another expert on the geology of fossil fuels.

Q: A decade ago, crude oil was roughly $12 a barrel. Now it is selling for more than 11 times that amount. What is the key reason for the change?

Fisher: The reality is that this is fundamentally a supply-and-demand situation. There is so much growth in demand coming from emerging countries, particularly Asia — especially China and India.

It doesn't take very much in the way of demand to pull it pretty doggone hard.

Schweitzer: It's supply and demand if you look at the growth of oil demand since the mid-1990s. About 75 to 80 percent of the growth has come from developing-market economies. And in the last two years, 100 percent of the growth globally has come from those countries — including, but not at all limited to, China and India. I think the growth of the emerging economies is a secular [long-term] force that will be with us for the foreseeable future, except for temporary interruptions.

Q: Oil prices have nearly doubled in the past year. Even people who said there were fundamental reasons for the price rise were taken aback by the steep, steady climb. What has changed in the past year?

Fisher: I think probably the biggest is the weakening price of the dollar. I've seen some analysis that shows that if the dollar were on a par with the euro, the price of oil would be closer to $70 than to $120 or $130.

Schweitzer: I say supply and demand because supply has proved more restricted than many people expected it would be. There is a very strong case that rapid demand growth has run up against limited supply growth.

Q: How do you judge the action of traders and speculators in oil as a commodity? Are they to blame?

Fisher: There has been some deterioration of the financial situation that has moved a lot of people out of other investments and into commodities. In fact, some of the other commodities have increased even faster than oil. Commodities is a place where a lot of investors turn when there is a softening in other investments.

Really, the effect can be explained by three things: supply and demand, the fall of the dollar and commodity investing.

Schweitzer: Now, I wouldn't want to argue that there is no role for speculation in the rise of oil prices. There may be. But there are good and solid reasons why oil should be up. ... It would not be at all surprising that there was some speculative element to the rise in oil prices. Anytime a commodity is rising, the natural tendency for traders is to try to take advantage of that [which adds to the pressure upward].

But it is very difficult to prove the importance of speculation. I think that it's a story about expectations, that oil prices may go up in the future, and that can itself fuel a further rise in prices.

Q: Have we reached peak oil? Are we close?

Fisher: The idea of peak oil — that we are running out of oil — is not a cogent scientific argument. There are assumptions behind peak oil. You have to know that you are halfway through [all the world's oil]. To know you are halfway, you'd have to know how much oil is out there. And we don't know. The estimates vary by a factor of three.

The resource base around the world is pretty substantial. And how much you are converting to supply depends on the investment made. We know oil is finite. We will peak on oil production one of these days. But that won't be from physical factors. It will be because we are moving to say, a hydrogen economy.

Schweitzer: Non-OPEC supply has leveled off. There has been a decline in places — Mexico, the North Sea — and Russia, too, has had its challenges. Even within OPEC, it's hard to say what limitations OPEC may be encountering.

During the 1980s [after prices rose], demand contracted and prices collapsed. OPEC knows those lessons. I would expect that if it is within their power, they would prefer not to see prices go ever-upward.

The analysis I've seen suggests that ... Saudi Arabia is bringing on a significant new field in a year or so.

Q: What would it take to convince you that you are wrong about peak oil?

Fisher: You'd have to go into a persistent decline of oil production for a couple of years, like the "peakers" say: 6 to 8 percent a year. If I saw that, I'd stand up and salute.

Schweitzer: I think markets work. We have had to adapt. What makes the rise in oil prices so disconcerting is the suddenness, without enough time for people to adapt.

I am not a believer in peak oil. I am a believer in the ability of markets to help the economy to adjust, but that doesn't mean that the adjustment will be painless.

Q: Which is more likely a year from now: oil down $70, to $55 a barrel, or up $70, to $185?

Fisher: Absolutely nobody knows what is going to happen to oil prices. There are so many dependencies out there.

But there are new projects coming that will add 12 to 15 million barrels per day in additional capacity in the next few years. And some will be coming online to increase production in the next five or 10 years.

The amount of new projects coming online should be able to handle demand ... and might even exceed demand — depending on how much [a higher price] dampens demand.

Schweitzer: To my eye, oil prices have now reached levels they are unlikely to hold for the next year. I think that we'll see some pullback in prices.

I think that oil prices have reached a level that will extract more pain than the economy can withstand. We may very well expect a pullback in demand as economic activity slows further.

It's all a matter of degree. I would not expect prices to fall back to the levels of a year ago. I don't expect them to fall sharply.

Unless there comes to be a lot more supply or a lot more conservation — especially in the United States — I just don't see the supply-demand balance improving back to the "good old days" of $60-a-barrel oil.