Peak Oil Theory Now Sparking Talk of 'Peak Demand': Analysts

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Jim Seida | NBC News

Peak oil—the theory that fossil fuel demand will, at some point in the unspecified future peak, outstrip supply and send prices spiking—has now given way to a new concept: peak demand.

Last week, Citigroup commodity analysts floated the novel idea that the U.S. energy resurgence could mean that demand for oil "may be topping out much sooner than markets expect." The migration to shale and natural gas from oil is helping to compress prices, Citi's analysts wrote. It is also helping to sate the country's voracious demand for energy.

Eventually, the bountiful supply of energy—along with several other key factors impacting fuel consumption—will dampen the thirst for oil, according to Citi's report.

(Read More: Bakken Emerges as Contender for US Oil Drilling Crown)

Most oil market observers think demand for oil will continue what Citi called an "inexorable rise through 2030."

However, the bank warned ominously that "several developments in fact give reason to question the consensus, and raise the possibility that the tipping point for oil demand may come much sooner than the markets are expecting."

In large measure, that tipping point is being spurred by increased auto efficiency. Cars that burn less gas will cut projected oil demand by 3.8 million barrels per day (b/d) by 2020, Citi's analysts forecast.

"Taken together, the improvement in global fleet efficiency and the substitution of natural gas for oil could be enough to put in a plateau for global oil demand by the end of this decade," Citi analysts wrote.

Not every analyst has joined this peak demand bandwagon. The sobering outlook for oil demand is being reflected in forecasts for oil prices that appear surprisingly tame.

Although big question marks hang over the global economy's health, oil has largely ignored tumult in oil-rich countries and other worldwide risks, suggesting that the market could be factoring in an increase in supply.

Meanwhile, America's energy boom is quickly becoming what a growing number of people are calling a game-changer. The U.S. is importing less oil by drilling domestically, while building a niche in natural gas and shale.

"The reason we foresee gradual weakness is mostly a function of supply, supply not exclusively from domestic production," said Pavel Molchanov, energy analyst at Raymond James, in a recent interview. He expects U.S. oil to fall to $70 by next year, largely due to ramped-up U.S. demand.

The U.S. has been "the world's largest incremental supply source" for five consecutive years, Molchanov said. Along with increasing production from Canada, Iraq, and Ghana, increased supply is "netting out other countries where supply seems to shrink."

Bank of America/Merrill Lynch said this week that "surging shale oil output, combined with refining and export constraints, could isolate North American crude markets." The bank's analysts see West Texas Intermediate (WTI) prices averaging a comparatively modest $90 per barrel this year, and $92 per barrel in 2014.

One outlier to the softer oil picture is Goldman Sachs, which is forecasting WTI rising to $105 a barrel in the next three to six months. The bank also expects, however, that U.S. oil will fall back to $97 a barrel by next March.