Much of the cheap oil has been produced, and the oil industry is increasingly relying on costly reserves. While the world is awash in supply right now, the market may begin to tighten up in the next few years, forcing prices higher.

But the global economy will begin to sputter as a result of higher crude prices. “The current economic system cannot sustain oil prices above $100 a barrel, and engage in genuine growth in the real economy for very long,” warned the report, authored by Dr. Simon Michaux and published by the Geological Survey of Finland. “Alternatively, producers cannot sustain oil prices as low as $45 a barrel and still make a profit.”

That’s especially true of U.S. shale. Wall Street is taking an increasingly critical view of shale, an industry which has never been cash flow positive for any meaningful period of time. As investors, banks and other forms of finance distance themselves from unprofitable shale drilling, the rate of bankruptcies is on the rise. Clearly, at least a portion of the global oil industry needs much higher prices in order to sustain growth. The production gains of the past decade were possible via cheap credit and an overcapitalized industry in North Dakota and Texas.

U.S. shale could be nearing a peak, or, at least a plateau. There isn’t a consensus on this, by any means, but a growing number of analysts and even some within the industry are eyeing such a possibility. For example, John Hess, CEO of Hess Corp., recently said that production in the Bakken could peak within the next two years and the Permian will peak in the mid-2020s. But others have said that the Permian peak may arrive sooner. Steep decline rates mean that any slowdown in the pace of drilling will quickly impact production.

The financial stress sweeping across the shale industry may bring forward the peak in shale production. But the precise date is not all that important. The problem is that the plateauing of U.S. shale, and the resulting increasing in prices, could spell trouble for the global economy. Michaux, author of the Geological Survey of Finland, cited the 2008-2009 global financial crisis as an example. Saudi oil production stalled out in the years preceding the crisis, precipitating a massive price spike in 2008, which contributed to the financial market meltdown.

The report – which was recently analyzed in an excellent article by Vice – notes that about 70 percent of the world’s oil supply comes from fields discovered before 1970, and the bulk of that comes from 10 to 20 enormous fields. The pace of discoveries has slowed dramatically in the past decade. In fact, conventional oil production largely plateaued in 2005. Since then, U.S. shale and Canadian oil sands accounted for most of the new supply. But as the number of bankruptcies in the shale patch reveal, the new forms of oil are more costly to produce.

The report concedes that the oil market is currently oversupplied. But Michaux takes a dim view of peak oil demand, instead predicting that demand growth will once again begin to exceed supply growth, putting a lot of pressure on spare capacity, which will shrink to ever-smaller levels. “Oil demand is still growing by ~1mbd every year, and no central scenarios that have been recently assessed see oil demand peaking before 2040,” Michaux warns.

Roughly 81 percent of existing production is already in decline. Given that the average decline rate bounces around between 5 to 7 percent per year – which translates to lost production of about 3 to 4.5 million barrels per day (mb/d) each year – the world will need to come up with an extra 40 mb/d just to keep output flat, Michaux predicts.

In other words, the market will need the equivalent of four additional Saudi Arabia’s just to replace depleted fields by 2040. But, as previously mentioned, the major source of supply growth in the past decade – U.S. shale – is running on fumes, and needs higher prices in order to grow.

To be clear, this flies in the face of lot of conventional wisdom in the industry (newfound conventional wisdom, it should be noted). For instance, Suncor Energy just announced a C$2.8 billion write-down on its newest oil sands production facility, due to the expectation of low long-term oil prices. “When the price went down in 2014, I don’t think people realized that we literally were going to go (down) year over year over year,” Suncor CEO Mark Little said Thursday on a conference call. "We’re literally bouncing around, but trading sideways. When we look at the markets we think, 'hey we’re sitting in this same range going forward for foreseeable future.'”

Many industry analysts see oil prices remaining “lower for longer,” or even permanently lower. The prospect of peak demand plays into this, and the shift away from fossil fuels would relieve pressure on the global economy and prevent oil prices from spiking.

But Simon Michaux wrote in the Geological Survey of Finland that the energy transition may not be fast enough. As slowing supply growth runs into ongoing increases in demand, the result could be much higher prices in the years ahead, and a major risk to the global economy. “Money supply and debt have grown faster than the real economy. Debt saturation and paralysis is now a very real risk, requiring a global scale reset,” Michaux warned. That’s a nice way of saying that an oil price spike could cause another financial crisis.

By Nick Cunningham of Oilprice.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.