Soaring rates of domestic oil consumption will reduce crude exports from OPEC, Russia and Mexico by 2.5 million barrels per day by the end of this decade, predicts a new CIBC World Markets study. Currently these countries account for roughly 60 per cent of global production.

The study found that suddenly oil producing countries are themselves becoming major oil consumers. Last year, OPEC members together with independent producers Russia and Mexico consumed over 12 million barrels per day, surpassing Western Europe to become the second largest oil market in the world. The CIBC World Markets report found that highly subsidized gasoline prices are often a significant factor in surging rates of domestic oil consumption found in many major oil producing countries.

"Domestic demand growth of as much as five per cent per year in key oil producing countries is already beginning to cannibalize exports and will increasingly do so in the future as production plateaus or declines in many of these countries," says Jeff Rubin, Chief Economist at CIBC World Markets. "At current rates of domestic consumption growth in the Middle East, OPEC's future export capacity must be increasingly called into question. Similar trends of rising domestic consumption are now evident in Russia and Mexico as well. These trends are likely to result in a sharp escalation in world oil prices over the next few years."

With exports from OPEC, Russia and Mexico expected to decline by seven per cent over the next three years, markets will seek greater reliance on higher cost unconventional deposits. CIBC World Markets expects that Canadian oil sands will surpass deep water wells as the single largest source of new oil exports by decade end.

In sharp contrast to trends in OPEC, Mexico and China, Canada's own oil consumption fell last year and will be increasingly subject to carbon abatement regulations in the future. Virtually all of the nearly one million barrel increase in production by the end of the decade will be exported.

Canada's oil sands are likely to become more coveted as they represent one of the last great reserves of supply open to private investment. The CIBC World Markets study estimates they represent anywhere from 50- 70 per cent of the world's oil reserves open to private investment, depending on one's view of the investment climate in Nigeria and Kazakhstan.

Mr. Rubin notes "For most multinational firms, the world is rapidly shrinking. Increasingly they are shut out of the backyards of all the state- owned oil patches and they have to compete against those state firms in places still open to private investment. Canada remains one of the few places where there is still private access to strategically important reserves, in sharp contrast, for example, to the oil sand deposits in Venezuela."