DJ-AIG Commodity Indexes

Remember "peak oil"? The theory, popularized in the past decade, said global crude-oil production would eventually reach its zenith and oil prices would have only one way to go: up.

So much for that idea. Oil production continues to climb, and the latest theory is that oil demand could peak first. The idea is prompting some analysts to rethink assumptions about the market and to call for a period of long-term stability or decline in crude prices.

Last month, the commodities team at Citigroup, headed by veteran oil analyst Ed Morse, issued a report saying "the end is nigh" for global growth in oil demand. They said demand could peak as soon as the end of this decade as a result of improving vehicle efficiency and widespread displacement of oil with cheap and abundant natural gas.

"The tipping point for oil demand may come much sooner than the markets are expecting," the analysts wrote. They issued a long-term forecast for Brent crude of $80 to $90 a barrel—roughly 20% below today's levels.

What followed the Morse report was a stream of similar views, with the Organization of Petroleum Exporting Countries, the International Energy Agency, and the U.S. Energy Information Administration each reducing its forecast for 2013 global oil demand last week. They cited economic weakness in the U.S. and Europe, the world's biggest users of crude.

At Barclays, analysts in early April cut their 2013 Brent-oil forecast to $112 a barrel from $125 a barrel, and their view for West Texas Intermediate crude to $95 a barrel from $108 a barrel. They cited a "more placid geopolitical environment than we previously expected," noting that Iran is back at the negotiating table.

THE MORE BEARISH TONE in the oil market has coincided with a rare period of stability in crude prices. West Texas Intermediate crude, the U.S. benchmark, is down 0.6% this year, and has barely budged from a tight range of $90 to $98 a barrel. Brent crude, seen as a global benchmark, has tumbled 7.2% this year.

While renewed tensions with Iran or output problems in the North Sea or Nigeria could spur another rally, oil supply is looking robust. In the U.S., where a revolution in oil drilling has unlocked vast quantities of new crude, production in 2012 was the highest in 17 years. Output in Libya—which cratered during the 2011 civil war—has recovered to prewar levels. And last year, Iraq surpassed Iran to become the No. 2 producer in OPEC.

On the demand side, the forces are similarly bearish. U.S. oil demand is now the weakest since 1996, according to the EIA.

Even China—the locomotive that fueled much of the past decade's rally in oil prices—is showing signs of slowing. In March, the country imported 23.05 million metric tons of crude, a drop of 2.1% from the previous year.

Oil bulls, take note: fears of peak oil are starting to look overblown.

A SELL-OFF IN GOLD LAST WEEK officially pushed the market into bear territory, as the metal's status as a safe-haven continues to wane. The front-month contract for April delivery settled at $1,501 an ounce on the Comex division of the Nymex on Friday, the lowest close since July 2011.

online.barrons.com/