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For many months now the major question perplexing the world’s policymakers, and nearly everybody else, is just when some type of economic rebound will begin and what such a rebound might look like. While opinions range from the “next quarter” to many years, few seem to take the issue of slowing global oil production into account.

Some see slowing rates of economic decline in recent weeks as sure signs of a imminent recovery, while others say we are seeing normal spring increases in economic activity and wonder why the trillions in government money being poured into the economies around the world are not having a greater effect.

Those familiar with the world’s oil supply situation are becoming increasingly concerned that an economic recovery must inevitably collide with declining oil supplies. Currently, however, there appears to be an oversupply of oil and many are wondering if we are due for a precipitous drop in crude prices after the current speculative surge has run its course.

Last week IEA officials and the Saudis again expressed concern about the decline in ongoing investment in oil exploration and production. The Agency currently says that the oil companies have cancelled $170 billion in investment.

Analysts looking at the global supply situation say that while OPEC currently has spare capacity due to recently completed projects and curtailed production, rapid oil depletion in several non-OPEC countries continues to eat away at that surplus. In another two to four years world oil production is likely to be in an uncontrollable decline.  Last week the respected consulting firm of McKinsey & Company issued a report arguing that an oil shock in the next few years is inevitable. The firm sees the shock coming as soon as 2010 if an economic recovery begins soon, or as late as 2013 if the downturn turns out to be more severe than seen to date.

Unless the global economic situation becomes much worse and is prolonged, within the next few years oil prices are likely to begin climbing towards economy-damaging levels such as we saw last summer. If a significant economic rebound starts within the next year or so, there is likely to be excess oil production around to support some increase of economic activity for another year or two. If the global economy stays in the vicinity of its current level for the next few of years, it is doubtful there will be sufficient spare oil production capacity available to support an economic rebound after that.