Increasing consumption and slowing production in developing countries
    support steady ascent in oil prices, says new CIBC World Markets report

    TORONTO, July 18 /CNW/ - CIBC (CM: TSX; NYSE) - Triple digit oil prices
are on the horizon and may be permanent as major oil-producing countries in
the developing (non-OECD) world reduce exports to meet soaring demand at home,
according to a new report by CIBC World Markets.
    The situation is intensifying the world's oil supply gap which shows no
sign of being filled anytime soon by new supplies or by rising prices that
normally choke demand, says Jeff Rubin, Chief Economist and Chief Strategist
at CIBC World Markets.
    "All of a sudden, major oil-producing countries are becoming major oil
consuming countries," notes Mr. Rubin. "One has to look no further than price
to see why," he adds, pointing to Venezuela, Iran and other Middle Eastern
countries where gasoline is sold at 20-80 cents a gallon, a fraction of the
world price. That cheap and abundant gasoline is fuelling "some of the fastest
growth in domestic demand anywhere in the world."
    The report states that declining oil production in developing countries
coupled with increased consumption by newly-empowered consumers in those
markets is eating into export capacity and will reduce crude oil exports by as
much as 2.5 million barrels a day between now and the end of the decade.
    "It's far from obvious who will fill that supply gap," says Rubin. "What
is obvious is that if that gap isn't filled, not only are triple digit oil
prices on the horizon, but even more problematic, are here to stay."
    The report predicts new record highs of US$80 a barrel this year and
reaching as high as $100 a barrel by the end of 2008 as soaring oil demand
outpaces growth in global supply.
    Past assurances from Big Oil that technological advances in the oil patch
would help ramp up oil supply and that today's higher prices would choke
demand and limit price increases are now giving way to warnings of depletion
and rising prices as the steady ascent to $100 oil continues.
    With the exception of the Western European countries where carbon
conscious economies have successfully reduced oil demand, countries around the
world have continued to consume oil at record rates. This is the case not only
for developing countries with massive energy appetites such as China, but also
for oil producing countries themselves. Together with Mexico and Russia, daily
consumption in OPEC countries last year was in excess of 12 million barrels a
day, over 60 per cent more than the level of Chinese consumption.
    Faced with this evidence, the oil industry admits demand for oil may be
less price elastic than previously acknowledged. "An apparent acceleration in
world oil demand this year in the face of a doubling in prices over the past
three years has left International Energy Agency (IEA) economists scratching
their heads," Rubin says.
    The full CIBC World Markets StrategEcon report is available at:
http://research.cibcwm.com/economic_public/download/sjul07.pdf

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