Downturn dries up oil demand

Peak oil may have arrived in the developed world – but for the consumption of crude, rather than its production.

The recession has crushed demand across the globe, the Organization of Petroleum Exporting Countries said yesterday. It does not expect demand for production to return to pre-recession levels until 2013.

Consumption in the developed world will remain stagnant for many years to come, OPEC said, even as many economists believe the wealthy world's seemingly insatiable demand for oil may well have peaked permanently.

The weaker-than-expected demand should help keep a lid on crude prices, and could undermine the viability of some oil sands projects, said energy economist Peter Tertzakian, of Calgary-based ARC Financial Corp.

He expects prices to remain between $60 (U.S.) a barrel and $100 for the foreseeable future, as any substantial increase in price would put more downward pressure on demand.

“That [price] will be enough for some oil sands projects, but not all the ones being touted just a year ago,” Mr. Tertzakian said.

Many oil sands producers, however, remain confident that, in the longer term, prices will justify continued investment.

Chris Bloomer, chief operating officer at Petrobank Energy and Resources Ltd., said the drop in oil exploration spending is severe enough that falling supply will likely soon outpace suppressed demand.

“Globally, there's going to be an underinvestment in development for the near-term, for sure,” he said. “With the decline rates on existing production of, say, 7 to 9 per cent a year, you've got to replace millions of barrels of oil production a year. And if you're underinvesting, the supply curve is going to cross over with the demand curve fairly soon.” link.....