Rebound in oil prices could be years off

…Long time oil bulls have been bucked right out of the ring after having had the ride of their lives as oil prices peaked at US$150 per barrel last summer. With oil prices languishing below US$40 per barrel recently, peak oil theorists argue that the next commodity cycle will be even more severe than the last because spending is being cut so hard in the current recession. That may be true, but a rebound in oil prices could be years off.

China, the biggest factor in the oil bull market, responsible for most of the rise in demand in recent years is experiencing a severe economic slowdown. Global oil demand is expected to contract in 2008 for the first time since 1982 according to the International Energy Agency. And OPEC capacity will have risen by roughly 1 million barrels per day in 2008 and by over 1 million barrels per day on average in each of the past three years. Thus, spare capacity will likely recover to over 5 million bpd by the end of 2008 (capacity fell to below 2 million bpd in 2005).

The global economy will come out of the gate slowly in 2010 and trade will remain soft. Oil demand will not pose a problem for rising capacity for some time. Even if peak oil is upon us, so what?

National Post