Gosh, what a difference a recession makes. It’s been less than 19 months since oil rocketed to an all-time high above $147 US a barrel amid fears that it might soon be all gone. But Wednesday, economist Dina Cover at the TD Bank declared that the world’s oil market faces “a massive glut.”

She’s not alone.

Cambridge Energy Research Associates, a consulting firm, predicts that
petroleum demand in the world’s rich industrial nations probably won’t
ever rebound as high as its 2005 peak. Total demand will grow, but only
because there’s still rising consumption in industrializing nations
such as China and India.

Peter Buchanan, an economist at CIBC World Markets, sees a similar scenario.

“It’s going to take a long time for demand to get back to pre-recession
levels in the industrial world, if indeed it ever does,” he said
Wednesday.

At the moment, oil demand in the world’s biggest market, the U.S., is
still nearly 10 per cent below the peak it touched before the economic
slump.

That doesn’t mean we’ll never face another oil shortage, but it does mean that we have time to plan for it.

And it’s just possible that there won’t have to be any oil crisis, ever.

If today’s worldwide talk about limits on carbon emissions, alternative
energy and improved conservation efforts proves to be serious, it’s
possible that world oil demand will never rebound to its previous
level, Cover speculates.

Indeed, CERA suggests in a recent report that the limit on oil
production over the next 20 years could well be a peaking in demand,
not supply, as lower birthrates, improved energy efficiency and
changing values reduce the globe’s use of oil without the need for
shortages and skyrocketing prices.

In the meantime, Cover calculates, global supply has managed to rise
faster than demand over the past year, leaving the pace of production
about 1.3 million barrels a day faster than consumption by year end.

That excess of supply would be even larger were it not for efforts by
the Organization of Petroleum Exporting Countries to keep prices high
by withholding some of their production. OPEC’s spare capacity tripled
last year to 4.4 million barrels a day of potential production, and as
new capacity becomes available, it is expected to reach six million
barrels a day late next year.

With demand restrained and supply continuing to grow, prices should
remain pretty tame over the coming couple of years. Cover estimates an
average oil price of $80 US per barrel this year and $85 next. On
Wednesday, oil closed in New York at about $77.

The stable-prices scenario isn’t unanimous. Veteran commodity
specialist Patricia Mohr at the Bank of Nova Scotia expects oil to rise
to between $85 and $90 this year. She says OPEC will work hard to keep
holding back its surplus capacity, while non-OPEC producers such as
Canada and Russia won’t have much more production to offer in the short
run.

Source: The Calgary Herald

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