The oil leak in the Gulf of Mexico and resulting uncertainty about future offshore supply won’t likely send oil prices soaring anytime soon, finds a new report from CIBC World Markets Inc.

The report also notes that even a successful containment of Europe’s debt crisis is unlikely to lift oil prices much higher. Instead, several countering forces are “at play” in the oil market that should see prices stay below triple-digit territory over the next 18 months, averaging US$80 a barrel this year and US$85 in 2011.

In the report, Peter Buchanan, senior economist, says many oil consuming countries, including the U.S., “will have to cut bloated deficits, and the drag from those efforts will keep the global recovery’s pace from matching past ones, restraining oil demand.”

Buchanan further notes that oil prices are cyclical and that there has historically been four to five years on average between price peaks. “That would suggest 2012 or 2013 as the next high water mark for prices, although the exact timing obviously depends on the pace of demand and capacity growth,” he says.

“Surging demand historically has amplified price shocks, leading to recession or slower growth, which in turn has begat lower prices. Those have helped to grease the wheels of economic recovery,” adds Buchanan.

Elsewhere in the report, CIBC’s Chief Economist Avery Shenfeld notes that the euro zone’s bailout plan is unlikely to dampen safe-haven inflows into Canada’s bond market. “When it comes to quality, global investors will give credit where credit is due, and Canada’s past success in paring deficits will put its bond market in good stead.”

The report also notes that the European bailout plan and austerity measures to follow will likely lead to further euro weakness particularly against commodities currencies like the Canadian and Australian dollars and Norwegian Krone. The report highlights several strategies for investors to take advantage of this potential continued weakness in the euro.

IE