The Patch: Peak supply vs. peak demand

The market’s obsession with plummeting oil demand has

been so pervasive in the past six months it even fostered a

new theory — peak demand.

Much like the peak oil movement gained momentum

when oil prices were rising, now that they have

collapsed some are convinced oil demand hit its

highest point last year in many developed countries and

will never return. They’re also pumped by the

commitment of many governments to support

conservation and new alternative energy.

“There is a reasonable likelihood that OECD oil

demand has peaked,” Peter Davies, former chief

economist at BP PLC, told Reuters this week. Antoine

Halff and Veronique Lashinski, energy analysts at the

U.S. brokerage, Newedge, said: “More and more

analysts are sold on the idea that U.S. oil demand

peaked in 2007. The market meltdown is likely to

entrench current demand losses not only in the U.S.

itself but in the world at large.”

That, of course, would be bad news for a growing oil

producer such as Canada.

Yet the same market focus on shrinking oil demand to

the exclusion of everything else is beginning to

encourage another, just as powerful view: that oil

supply is disappearing faster than demand is falling.

Randy Ollenberger, managing director of oil and gas

research at BMO Capital Markets, said global oil

supply could decline by as much as 20 million barrels a

day over the next three years if the oil industry stops

investing new capital, whether by building new

projects or sustaining existing ones, because oil prices

are too low. This would dwarf a decline in demand of

about 2.25 million barrels a day over the same period.