With another US bank having succumbed to the financial turmoil (my own Wachovia) and other banks in Europe taking emergency measures, the oil and gas markets decided that demand was falling faster than inventories. The price fell more than 10% back into the double digits and Deutsche Bank lowered its oil price forecast 23% for 2009, to $92.50 per barrel. Economic recession in Europe and Japan along with a likely recession in the US brings with it the potential for global oil demand to be close to flat next year. Even with slow production growth, such stagnation in demand could allow oil inventories to rebuild to average levels and bring some price relief for oil importers.
But the bank forecast oil prices to rise to $100 again in 2010 as economies recover and supplies stagnate on increasing costs. The high uncertainty for the US economy in the months ahead, especially after the House voted the first bailout down, will be reflected in continued oil price volatility. If an eventual bailout plan succeeds, oil may stay in the triple digits. But if a deep recession comes, some producers may have to cut back to keep prices above their marginal costs, as Chesapeake Energy just did for domestic natural gas.
News of Hurricane Ike recovery inching along and Azeri oil cuts due to pipeline problems that total more than one million barrels per day in lost supply are drowned by the dim economic news. This Wednesday will probably bring one more bullish oil inventory report as most fuels look likely to drop. But next week may usher in numbers that begin to rebalance the system and mitigate the fuel shortages that have plagued many southeastern communities.
While our financial system may or may not provide the necessary lending for a rush of new solar and wind systems in the months ahead, it is clear that energy efficiency can reduce costs and help American households get their finances back in order. Aggressive efficiency can get our per capita energy use more in line with our peers in Europe and help us achieve post-Kyoto emissions reduction targets such as 25% below 1990 levels by 2020. The climate and our wallets agree on this strategy, so let’s get to it.
Tags: financial collapse, Hurricane Ike recovery, oil prices, recession