RIYADH, Jan 3: From peak to plenty, the energy world has covered an exceptionally long rather tumultuous distance over a period of less than six months. And in the New Year too, the market could encounter many upheavals.

As 2008 began global energy markets crossed the Rubicon — the $100 mark — for the first time in history. And then it continued registering one peak after the other, touching the $147 a barrel mark on July 11.

And in the intervening period there were discussions of oil going even beyond the $200 mark. The entire world was at a loss to know about the truth. But now things have changed drastically.

In less than six months the oil industry stands transformed. It is now in the grip of what is being termed as overcapacity. The world oil market now suffers from a “recession shock” affecting all the conventional, alternative, and renewable energy sources, says Daniel Yergin, the chairman of Cambridge Energy Research Associates (CERA).

Demand destruction is now a real fact of life impacting the global energy industry. The IEA annual Energy Outlook for 2009 predicts that the American oil use, instead of growing, rapidly remain mostly unchanged through the year 2030.

New fuel efficiency rules for vehicles, requirements for increased use of renewable fuels and the pressure on fuel prices will limit demand in the world’s largest consuming economy, it is now being felt. Opec is also expecting global oil demand to slide even further over the next year — with the total global requirement averaging 85 million barrels per day by the end of this year.

At the start of last year, analysts estimated global demand growth to be as high as 2.1 million barrels per day. However, CERA now estimates the demand for 2008 to decline by 300,000 bpd and for 2009, they expect an additional 660,000 bpd drop. “The last time demand dropped this much was in the deep recession of 1981,” CERA emphasises.

There is another interesting aspect of the global energy equation. Notwithstanding the weakness in oil demand and prices, oil supply capacity — the difference between total liquids production capacity and actual output — will expand as new supplies, already under development, come to market. A CERA report says surplus in spare capacity will be a “defining factor” for the oil market.”

“Spare capacity will increase significantly in the next few years due to falling oil demand and as supply materialises from investments already under way,” it says. And there are other negative pulls on the market too. Rising inventories is an additional burden on the collapsing markets.

The EIA report, released last week, illustrates a further fall in the demand on energy. At 318.2 million barrels, US crude oil inventories are in the upper half of the average range for this time of the year.

And all this would have repercussions, too. The steep fall in oil prices is already causing “havoc” with investment plans in oil producing countries and jeopardises future oil supplies. Saudi Oil Minister Ali Al-Naimi believes that the prevalent market prices were already too low to support the necessary investment in energy projects.

A number of factors seem impacting the final scenario. Would Opec be able to stand by its output cut commitments? How the global economy would behave in 2009? How the emerging economies, often termed as the major driver of the bull run on the market, would behave in the changing global environment?

Professor Paul Stevens of Royal Institute of International Affairs says: “In 2009, we will see continued prices weakness in first half or quarter of year. A lot depends on demand and that depends on the nature and depth of the economic recession...if demand does not completely collapse, my guess is that as we move through 2009, as Opec’s determination to defend its price bears up, then prices will creep up to $70-80.”Fadel Gheit of Oppenheimer believes that oil and gas prices will remain volatile, but they will fluctuate in a much narrower range than in the last 12 months. Anne Kohler of Caris & Company forecasts an oil price target of $45 per barrel for the first half of 2009 and just $50 at the end of the year.

According to a recent Reuters’ poll, analysts have cut their 2009 price forecasts by more than $14 a barrel to an average of $58.48 for US crude, as recession dampens demand for fuel worldwide. Oil price forecasts have been brought down by nearly $60 in the past 5 months, and most analysts now see prices rising early 2009 from the lows experienced in 2008.

The consensus forecast was for US crude to average $49 in the first quarter of 2009, down from $64.57 in last month’s poll, as analysts moderated their expectations further of a price recovery.

Only one thing at this stage seems certain. The peak attained in 2008 is now a mater of a bygone era. And in the meantime, the pundits of peak oil theory -- the Mat Simmons & Co -- seem nowhere on the horizon, at least for now. And what a relief indeed.