Projo Cars Blog

Seen the price of oil this morning?

Down to around $55 a barrel with some analysts talking about it challenging "the $50 threshold," and even "the $40 threshold."

Of course, this technobabble is being spouted by the same analysts who were no doubt talking about $150-to-$200 a barrel back in July when oil was trading at a high of $147.

And, yeah, I feel like a jerk because I went along with them!

So why has the price of oil fallen off a cliff? The drop in demand for oil from the slowdown in the global economy.

And the latest news on that front is not good.

The Paris-based Organization for Economic Cooperation and Development announced today that it sees the Gross Domestic Product (GDP) for the developed world falling by 0.3 percent next year.

That's next year, folks, not next quarter.

It sees the U.S. economy contracting by 0.9 percent in 2009, the Euro economies (which do not include Britain) by 0.5 percent and the Japanese economy by 0.1 percent.

This would mark the first such contraction in global economic activity since the oil embargoes of the early 1970s.

Indeed, Germany today announced that its economy had officially fallen into recession, which is defined by two quarters of negative economic growth, and the rest of the world appears to be following close behind.

(BTW, one definition of a depression is a 10 percent contraction in GDP, so we appear to be a long way from the dreaded D-word.)

And looking on the bright side, the drop-off in oil prices is an important silver lining to the gloomy economic picture as prices for gasoline and diesel, let alone heating oil, jet fuel, etc, should remain fairly modest in the near term.

But don't get slap-happy!

The Paris-based International Energy Agency sees global demand for oil increasing by an average 1.6 percent a year through 2030, and yesterday warned of a future supply crunch if the current economic slowdown causes cut backs in oil production.

- Peter C.T. Elsworth

 Tags  Oil prices

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