Oil just doesn’t get enough respect. We still can’t do without it, and recent prices would have been considered unaffordable in a healthier economic climate just a few years ago.

But there’s lots of crude in storage and the price action has not wowed anyone of late in the manner of Bitcoins and Fannie Mae preferreds. So some on Wall Street have begun to prophesy a long-lasting slump deep enough to shake the foundations of established order.

Anemic growth in the developed world is, in fact, a big part of the problem and a real drag on energy demand in most rich countries. Factor in burgeoning US production and we’re left with a surplus of costly crude.

US crude inventories rose to a 23-year high last week as production from the booming new tight oil shale plays in Texas and North Dakota continued to increase notwithstanding the stagnant domestic demand. There has been plenty of progress on transporting some of this crude to distant coastal refineries as an alternative to the more expensive imports. But the Eagle Ford and the Bakken are still gushing steadily increasing crude volumes, apparently in excess of what refineries require at the moment.

Source: US Energy Information Administration

Recently steady crude futures finally saw some volatility in response to the inventory build. West Texas Intermediate (WTI) slid 5 percent over two days. But the WTI has actually been a beneficiary of the improving transportation links between its main storage hub in Cushing, Oklahoma and refineries. The spot price for Brent crude from the North Sea is generally considered more representative of the global market. And Brent has dropped from $120 to $105 per barrel in two months, despite the severe crimp in Iranian exports as a result of sanctions over that country’s rogue nuclear program.

Source: Bloomberg.com

Brent has declined, in part, because high prices have stimulated production from marginal North Sea wells. But slack global demand has probably played an even bigger role. In the US, gasoline consumption has been dropping by more than 1 percent per year. Europe has cut back even more in the midst of a painful recession.

Japan, the third-largest national oil consumer after the US and China, imported 2.7 percent less crude in February than a year ago, and the depreciating yen figures to make Japanese consumers even more conservation-minded than usual.

China remains the key driver of global energy demand, recently overtaking the US as the leading crude importer. Chinese oil demand rose 4.9 percent in February from a year earlier, according to Reuters calculations from government data. But demand was down sequentially from December’s record, and the pace of annual gains has also slowed alongside Chinese economic growth.

Meanwhile, in India — now the fourth-biggest oil consumer — consumption shrank year-over-year in February as a result of slowing auto sales and the paring of fuel subsidies. Saudi Arabia, which exports more crude than anyone but also burns more than Germany, France or Mexico, has only recently increased its output from a two-year low necessitated by slack domestic demand, at least until the summer heat returns.

In other words, there’s plenty of oil all over the place, not least because Iraq has largely offset the lost Iranian production, while the Eagle Ford and the Bakken have picked up the slack for the Saudis. And also because much of the rich world is struggling to grow. Last month, the International Energy Agency cited “a recent string of disappointing economic signals spanning several key economies” in trimming its 2013 demand forecast. Earlier this month it cut it once again.

For Citigroup economist Seth Kleinman the “End Is Nigh,” as he claims in a much-discussed recent report sketching the coming oil slump. Kleinman and Co. believe rapid adoption of alternatives such as natural gas and renewables could set off a protracted downturn pushing Brent to as little as $80 a barrel by 2020. Less bearish analysts hardly seem more enthused. Merrill Lynch expects WTI to mark time slightly below current levels though the end of next year, while perennially bullish Barclays recently slashed its price projection for 2013.

I’m skeptical that scalable alternatives to oil will become practical and economically competitive before the next growth spurt in developing countries. But in the meantime swollen global inventories certainly don’t tell a bullish tale. And inventories could prove to be the least of energy investors’ worries should Iran or Venezuela undergo a change in regime or policy.

Though the latest round of international talks failed to halt Iran’s nuclear program, the partial embargo on Iranian crude exports seems to be succeeding in wrecking Iran’s economy. Should Teheran have a change of heart, a deal would add a lot of extra capacity to a market that’s already well-supplied. A less socialist Venezuelan government would have much the same effect (though the pro-market challenger there is a clear underdog in Sunday’s balloting to the late Hugo Chavez’s handpicked successor.)

Those are some daunting downside risks. Then again, betting on accommodation with Venezuela or Iran hasn’t paid off in years. People in developing countries continue to use a tiny fraction of the energy the rich world takes for granted. They’ll be clamoring for more at the earliest available opportunity. And if that comes once the rich economies revive, the message could be delivered via rising prices.

Source: J. David Hughes

Take a look at the above chart of per-capita oil consumption to understand why global demand will continue to be driven at the margin by the policies and choices in China, India and Indonesia. Then have a look below at India’s long-term energy demand curve before getting carried away by  one slow month.

The other long-term trend favoring higher oil prices is the gradual depletion of the most accessible deposits and their constant replacement with ones that are harder to reach and more expensive to exploit. Tight shale plays would be uneconomical if crude still sold for $50 a barrel, yet even $90 a barrel won’t help a rapidly depleting well last longer. If skeptics are right production from the Bakken and Eagle Ford will peak within a few years (or maybe a decade or more to listen to the CEOs.)

In the meantime, the EIA downgraded its production forecasts though the end of next year this week, and a Goldman Sachs analyst suggested that Texas production has in recent months lagged expectations. But of course Goldman conceded the end of the oil “super-cycle” last year, so its call for costlier WTI in the coming months is strictly tactical.

In fact, though the cheaper WTI crude still fetches $95, it’s hard to remember the last time Wall Street was so dismissive of the potential for further gains. Take that as a short-term plus, and leave the worrying about inventories to their owners.