Oil prices have been the saving grace of the Patch of late. Natural gas prices have been so dour as to force many domestic plays into uneconomic territory, but $70-per-barrel crude has helped assuage gas-price difficulties for U.S. producers.

The forecast for oil prices, at least in the near term, is not heartening, however. Jan Stuart, New York-based Macquarie Capital (USA) Inc. global oil economist, sees real strength in oil prices in 2010 and beyond, but his view of the short term is less rosy.

“We think there is downside risk to prices in the very near term, and it’s only beyond the first half of next year that we get bullish from a fundamentals perspective,” he said in a recent roundtable discussion on commodity prices.

Currently, the story of oil is all about demand. The demand for oil in emerging markets collapsed in fourth-quarter 2008, but a V-shaped recovery is already under way. China’s demand, particularly for gasoline and kerosene, is growing gangbusters.

That’s a sharp contrast to what’s going on in OECD (Organization for Economic Co-operation and Development) countries, where oil demand is still falling. Oil demand is down 6% in Europe year-over-year, and down almost 5% in the U.S., on top of a previous 5% decline in August 2008.

“We are 2 million barrels a day below the peak levels in 2006-2007 in North America alone,” said Stuart. That’s four times oil-demand growth in China, which means North American markets are dragging down global demand in spite of strength in the emerging economies.

Indeed, there is no growth where it counts in North America. Diesel and jet-fuel demand are still in free fall, posting double-digit drops.

While many observers expect U.S. industrial production will pick up in fourth-quarter 2009, it will not necessarily correlate to growth in diesel use. In the U.S., diesel use tends to be driven by consumer spending and residential construction, neither of which shows signs of revival.

Inventories are another issue. While worldwide demand was falling off a cliff in midyear 2008, supply took two more months to respond. During that time inventories rose strongly, and continue to build. On-land stocks in OECD countries are high by any measure, and when the 132 million barrels presently floating in tankers on the high seas are added, the size of the world’s inventory is staggering.

“In third-quarter 2009, we had no real draw on on-land inventories,” said Stuart. “Going forward, we don’t see much room to draw these inventories down.”

While short-term factors all point to a bear market for oil, the bull will prevail in the future. Compelling trends in supply and demand paint a picture of scarcity during the next three to seven years.

While worldwide oil-production capacity can show upticks, Macquarie sees the underlying trend as one of long-term decline. Despite massive increases in upstream expenditures and activities over the past five to six years, world oil supply has not grown markedly. It appears that, no matter how high the price, non-OPEC global conventional crude production has a hard time growing to more than 54 million barrels a day.

“We think global oil supplies are on the way down, not up,” he said.

This is not the picture of peak oil: Macquarie does not think the world is running out of oil. Rather, global supplies reflect how much production can be brought online, and how many areas—such as Venezuela and Russia—are effectively off-limits to the broader industry.

“In the face of a supply ceiling, any growth in demand will result in scarcity from 2012 to 2013 and beyond,” he said. “The short-term picture is fairly ugly, but global oil-production limits are in sight.”

To sustain oil prices in the $70-per-barrel range now, OECD oil use has to rebound quickly, a scenario Macquarie doubts. Its estimate for West Texas Intermediate prices in fourth-quarter 2009 is $52 a barrel. That will gradually rise to $84 a barrel in 2012.

Future prices will be driven by the supply-side cost of marginal supplies, which include Canadian oil sands, Brazilian subsalt fields and coal-to-liquids developments. These resources are abundant and will provide oil to the world, but at a steeper cost than conventional sources.