"With only about two million barrels of spare OPEC capacity left, the global economy is hurtling towards an oil supply wall at alarming speed." CIBC

A conservative bank 
sounds the alarm

Gasoline to hit $1 a litre: 
Canadian Imperial Bank of Commerce report

Economists say oil production near peak, as demand continues to rise

Eric Beauchesne
The Ottawa Citizen  Friday, October 6, 2000

Gasoline prices will climb to a dollar a litre in Canada over the next few years as world demand for oil outstrips supplies of the increasingly precious liquid, a major Canadian investment house is warning.

"After rising for 140 years, world oil production is about to peak," according to a sobering new study by economists at CIBC World Markets released yesterday.

"Today's tight oil markets are only destined to get tighter," said Jeffrey Rubin, chief economist.

Even with the recent spike in energy prices, world demand is still rising at a rate that will exceed supply.

"Much higher prices will be needed to constrain demand below the global production ceiling," warns the study, which criticizes moves to cushion consumers against higher prices, such as the U.S. decision to dip into its emergency reserves or the clamour here for cuts in energy taxes.

"There are lots of reasons for cutting the overall tax burden in Canada," it says. "But the cuts should not be aimed at bolstering gasoline demand at a time of growing scarcity."

"Not only will crude rise next year to $40 per barrel, but it will continue to climb over the next three to four years to as much as $50 per barrel," Mr. Rubin predicted.

That translates into a jump in gasoline prices to $1 a litre from what is now somewhat more than 70 cents a litre on average, he said.

"With only about two million barrels of spare OPEC capacity left, the global economy is hurtling towards an oil supply wall at alarming speed," the report says.

At the present rate of consumption, the report warns that "demand will exhaust potential global supply of around 80 million barrels a day in two years."

"When it does, oil prices will ... explode."

Higher prices will eventually cut consumption, and global economic activity, which the report says will buy some time to lower energy use.

The report argues that potential oil production has peaked in all but a handful of Persian Gulf nations -- Saudi Arabia, Iran, Iraq, Kuwait, the United Arab Emirates -- which have another decade or so before they, too, see output start to slide.

"Even if OPEC is fully accommodative, global demand at its current rate of growth would exhaust the roughly 2.2 million barrels a day of spare capacity in about two years," it says.

The upside is that the shortage of oil will spur investment in alternative energy sources, Mr. Rubin said.

"The economy is a lot less energy dependent than it was 20 years ago, about 30 to 35 per cent less," he said. "But I suspect that in the next 10 years it's going to have to become another 30-per-cent less dependent."

"And maybe, that's not such a bad thing," he said.

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