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.
"The market is fixated on the demand side and ignoring the supply side, and if oil prices remain at these levels, what we will see is supply destruction that is much greater than the demand destruction than we have seen," he said after addressing the Calgary CFA Society 2009 forecast dinner on Thursday.
It's the reason Mr. Ollenberger doesn't see oil prices staying at today's levels for long.
"In the 1980s and through the 1990s, we had lower prices for protracted periods because we had excess supply over that entire period. We don't have that today," he said. "I think the turnaround here will be much, much quicker. Maybe not a turnaround in 2009, but by the end of 2009 we will see pretty clear evidence of the supply destruction."
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