Wider Troubles Trickle Down to Oil Sector

As fears of an American recession ripple across the globe this week, analysts and energy experts are wondering whether the great oil boom of the last five years is finally coming to an end — or whether it is simply taking a break.

While an economic slowdown might lead to lower oil demand, as consumers scale back their gasoline consumption and businesses cut air travel, some economists say this might not necessarily produce lower energy prices. Global oil supplies are tight, geopolitical tensions remain high, and producers are counting on higher prices to offset rising costs.
After briefly touching $100 a barrel twice, oil prices have shed 13 percent since the beginning of the year. Crude oil futures on the New York Mercantile Exchange dropped $2.22 a barrel, or 2.5 percent, to close at $86.99 a barrel on Wednesday, their lowest level since October.

Even as economic growth slows in the United States, some experts fear the world might still find itself confronted with high energy costs, a situation that would be reminiscent of the mid-1970s or the early 1990s. Despite the clouds hanging over the economy, and recent stock market losses, several energy analysts say that oil prices will average $80 a barrel this year, $8 a barrel higher than last year’s average — and nearly double the figure of 2004.

The prospect of a collapse in oil prices, like the one that drove oil to $10 a barrel after the Asian financial crisis in the late 1990s, remains fairly remote. In fact, energy traders are betting on historically high prices into 2010, paying around $83 a barrel for futures contacts that call for delivery of oil in two years.

New York Times