Crude and heating oil prices maintained high levels reached after an opening dip this morning. Crude oil gained nearly 4% to reach $46 a barrel and heating oil gained 2.5%. Concern over Russia as a reliable source of energy intensified as the market mulled the implications of the second-largest oil-producer’s decision to cut off natural gas supplies to Ukraine after a contract disagreement. Fog off of the U.S. Gulf Coast kept incoming oil tankers from reaching refining facilities in Louisiana. The U.S. stock market also helped support higher oil prices by a strong showing today, reaching a two-week high as investors hoped that the worst trading days during this 2008-2009 recession are over.

HEAT USA price experts regretted to report another price increase for Monday, noting an increase of almost 30 cents since the beginning of this week.

HEAT USA Price Report
Evening projection (for Monday’s average retail price per gallon): UP $0.04

The price of crude in 2008 Image: FinancialTimes.com

As 2008 draws to a close, traders and analysts on the on the oil markets are happy to see it go.  The price of crude oil fell 54% from its peak in July, the largest annual decline since 1983, as a global economic crisis sapped fuel demand and froze lines of credit.

So what is in store for the oil markets in 2009?  It is of course impossible to predict where crude and heating oil prices will go, but chances are, after this year’s historic declines, they will be moving upward, gradually or quickly.  Whatever happens to oil prices, we can be sure of a few key factors exerting the most influence.

OPEC discipline.  OPEC nations have lost the most as a result of low oil prices, and have taken drastic action in an attempt to turn that trend around.  The organization has announced production cuts of over 4 million barrels a day since September.  The important question is: will all of the member nations comply with the cuts?  Many once-skeptical analysts are predicting that they will.  OPEC nations (especially smaller producers such as Venezuela and Libya) have a long history of agreeing to the cuts that they then neglect to implement, for fear of losing short-term revenue.  According to a Wall Street Journal article, the first annual decline of crude prices in seven years has given OPEC a “newfound discipline” that will translate to almost-full compliance with the production cuts by February of 2009.  In an interview with CNBC.com, oil expert Azlin Ahmad, editor at Argus Media, called OPEC’s discipline the most important factor in determining oil prices in 2009 (watch the video here).

The global recession.  Oil prices plummeted in 2008 largely because of slumping demand in the world’s biggest oil-consuming regions (the U.S., Japan, and Europe), which in turn led to slowing growth and diminished demand in developing nations like China and India.  When credit begins to thaw and consumer economies like the U.S.’s begin to recover, they will kick-start the huge producer economies of India and China.  Americans will begin to drive more again, and the factories in developing nations will need huge amounts of oil to get humming again.  As demand returns around the world, oil prices will climb.  In her CNBC interview, Ms. Ahmad called slumping demand the “main problem” in oil prices today and predicted that developing nations would continue their economic growth and maintain a (smaller than before) demand for oil.  This demand may or may not be offset by low demand from developed nations, she said.

Geopolitical events.  On Monday of this week, the surge in oil prices in response to Israel’s military campaign in Gaza reminded us that geopolitical events can cause huge swings in oil prices.  If Iran decides to enter the conflict and deny Israel’s allies oil, prices could soar.  If Iran’s radical president Ahmadinejad is replaced by a moderate less hostile towards the west, prices could fall fast.  As unpredictable as the weather, elections, wars, trade agreements and other evens around the world could have profound effects on the oil markets next year.

Depending on those three main factors, oil prices in 2009 could post a great recovery or a great continuation of 2008.  Only time will tell.

Plummeting oil prices could give President-elect Barack Obama the upper hand in any diplomatic engagements with Iran and President Ahmadinejad

An October 29th HEAT Zone post discussed how the collapse of oil prices have had a disproportionately negative effect on oil-dependent, anti-U.S. regimes Iran, Russia, and Venezuela.

Since then, the price of oil has fallen farther (from $66.54 to $45.54 a barrel) and America has chosen a new president.  An Associated Press article published today revisited the topic of how the collapse of oil prices could affect the United States’ relationships with other nations.  In Iran, dropping oil prices have continued to devastate an unstable economy  and has made U.S. economic sanctions even more deeply felt.  Secretary of State Condoleezza Rice stated her hope that the economic turmoil “will lead Iran to take a more reasonable course” in its relations with the United States and other nations it had previously agitated against.  The article also notes that, although lower oil prices mean less funding for governments like Iraq to battle Middle East-based international terrorism, they also mean less financial support and mobility for terrorist groups as well.  Former United Nations Ambassador Thomas Pickering also noted that the fall of oil prices and the global recession affords incoming president Barack Obama a unique opportunity to reestablish America as a world leader by leading the world out of the recession.

A Los Angeles Times opinion piece by academic and Iran expert Hossein Askari focuses on Obama’s policy toward the problematic nation and urges him to embrace diplomacy, but only after slumping oil prices have sufficiently reduced the clout of its anti-American regime.  He explains that sanctions implemented in 2007 and strengthened last month have succeeded in economically isolating Iran, and that falling oil prices have made the sanctions all that more powerful.  Askari classified Iran as not economically or militarily powerful enough to pose an immediate threat to the U.S. or Israel, allowing Obama to take his time and let falling oil prices take their full toll on the nation’s government until economic hardships force them to reach out to an Obama administration.

Whatever path Obama chooses to take with Iran when he becomes president, it will almost certainly be hugely affected by falling oil prices and the toll they continue to take on the Iranian economy.

Crude and heating oil rose late in the day to pare earlier losses and close just slightly beflow their opening prices. Crude oil, which briefly touched below the $44 mark today, recovered in the afternoon, closing 3% from its opening position at $46.28 a barrel. Heating oil, which was down by almost 5% earlier today, closed at less than 1% below its opening price.

The state of the “big three” U.S. auto makers continued to dominate the markets today, with a bailout bill’s failure in the senate driving prices down this morning. This afternoon, the announcement by President Bush’s Treasury Department that it would intervene to prevent the collapse of the auto manufacturers if necessary lifted stock and commodities markets across the board.

Friday capped an extremely volatile week for stocks and commodities, leading oil analyst Stephen Schork to comment, “This is a market that is trading on any headline out there,” in an Associated Press article.

HEAT USA Price Experts noted that heating oil closed near its opening price and therefore announced no change in Monday’s retail prices.

HEAT USA Price Report
Evening projection (for Monday’s average retail heating oil price per gallon): NO CHANGE

The $15 billion bailout bill that passed the House late Wednesday died in the Senate yesterday, following heavy partisan opposition that included a Republican filibuster. The failure of the bill was met with widespread market pessimism that touched Asian stock markets as well as U.S. stocks and crude and heating oil prices. Crude had fallen almost 7% to $44.71 a barrel and heating oil was down about 4% minutes before the opening of the New York Mercantile Exchange at 9 am eastern time.

Goldman Sachs weighed in on the future of oil prices, reducing its estimate to an average 2009 price of $45 a barrel, saying, “The collapse in world oil demand in the fourth quarter of 2008 as the global credit crunch intensified, now threatens to push oil prices below $40 a barrel in the near term.” (from CNBC.com)

Although OPEC is still expected to make a large cut in production levels (up to 2 million barrels a day) at its meeting next Wednesday, the auto bailout failure and the global recession appeared to dominate the market mood this morning.

HEAT USA price experts confirmed yesterday’s small end-of-day increase, but pointed out that the mid-morning increase made for an overall price jump of $0.11 from Thursday morning to today.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.02
Morning projection (for Monday’s average price per gallon): DOWN $0.04

Image: washingtonpost.com

The latest chapter in the saga of the still-unfolding American economic downturn is the bailout (or non-bailout) of the “big three” auto manufacturers: Ford, Chrysler, and General Motors. Two of the three (Chrysler and GM) have indicated that they require loans or other financial assistance by the end of 2008 to avoid complete economic collapse. Ford has said it also needs economic help, though its collapse is less imminent.

Late last night, the House of Representatives passed a bill on a 237 to 170 vote that could be seen as the first step toward a full-scale bailout, approving a “stop-gap” loan of $15 billion to the two more-troubled companies that would ensure their survival through March of 2009. Although the bill still faces tough Republican opposition in the Senate, “the market knows that [the bailout] is going to happen in one shape or another,” said Peter Cardillo, chief market economist at Avalon Partners, quoted on MarketWatch.com. The news of the bill’s passage helped to boost the price of crude on NYMEX today, according to CNNMoney.com, primarily because the failure of the big three would deal a huge blow to the already-floundering U.S. economy. Less damage to the economy means a swifter recovery and a quicker return of oil demand, which has recently sunk to its lowest level in decades. Also, a recovering auto industry would directly increase demand for oil in the U.S., as it is a major part of the country’s manufacturing sector–manufacturing requires huge amounts of oil to operate machinery; crude oil is also a key ingredient in plastics and other raw materials, so increased demand will trickle down from the auto industry to other manufacturing sectors as well.

President-elect Obama (who has signaled support for the auto industry bailout) and the economic recovery plan he announced last weekend (covered on the Monday morning’s HEAT Zone post) have also helped to stimulate the economy lately, sending oil prices up along with the stock market on Monday. If Obama successfully implements his plan, stimulating job growth and kick-starting U.S. manufacturing, it could, in combination with a revived auto industry, but the antidote that brings the American economy back to life. Of course, expedient economic recovery would be a positive for all Americans, but it could also bring about a less-popular effect much sooner than anticipated: a return high oil prices.

The reported 533,000 lost jobs last month were the most since 1974.  The bad economic news led to a sharp downturn in oil prices this morning kept them down until the market’s close this afternoon.  Crude fell over 5% to settle at $40.81 a barrel, the lowest in four years.  Heating oil lost 5% and continued to decline in after-hours trading.

HEAT USA price experts announced a larger-than-expected drop in Monday’s retail prices.

HEAT USA Price Report
Evening projection (for Monday’s average retail heating oil price per gallon): DOWN $0.07

The HEAT Zone has, in the last six weeks or so, taken the position that the only reliable prediction for oil prices in 2009 is  unpredictability.  A major global recession, plummeting demand for oil and oil products, and unstable regimes in oil-producing nations are just a few of the factors make the price of oil over the next year as unpredictable as the weather.

Nevertheless, there are legions of well-educated, well-paid analysts out there whose job it is to make predictions, and, despite the volatile times, continue to do their jobs.  These extraordinary times make for incredibly wide range of predictions, which just this week included guesses of crude oil reaching as low as $25 or as high as $60 a barrel next year.  Analysts at Merril Lynch cited the global recession reaching China (the world’s fastest-growing oil consumer) as the root cause of crude prices temporarily falling below $25 a barrel next year, according to an article on Bloomberg.com.

On the same say as the Merril Lynch announcement (December 4th), Forbes.com published an Associated Press article which covered other analysts’ projections for “a bump in oil prices for 2009.”  The article quoted analysts from Raymond James Equity Research and Credit Suisse who predicted a (modest) recovery in oil prices next year.  The analysts cited future production cuts and last week’s surprising news of stockpile decreases in the U.S. as reasons to expect a recovery in crude oil prices.

It is almost certain that recovery from the current global recession will restore worldwide oil demand and thus bring up oil prices.  When that will happen is the question that no one can answer.  Crude prices will most likely between $25 and $60 a barrel in 2009.  Any predictions that get more specific than that should be regarded with skepticism.  The truth is, the current economic situation is completely unprecedented, so people who say they know what will happen next probably have a separate agenda.  Or they could just be doing their jobs.

Oil prices plummeted this morning in reaction to no data from the U.S. Department of Labor that showed 533,000 job losses in November, capping 1.2 million jobs lost over the last three months.  Crude oil had dropped 2% to $42.87 a barrel, and heating oil had fallen 1% as of 9:31 am eastern time.  The new employment statistics signified that the current recession may be more severe than previously expected, intensifying concerns of long-lasting demand destruction that could continue to drive prices down for months.

HEAT USA Price Experts confirmed a moderate drop in retail prices today and predicted smaller price decreases for next week.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: DOWN $0.07 to $0.08
Morning projection (for Monday’s average price per gallon): DOWN $0.02

Persistent concerns over dwindling energy demand caused by recessions in the world’s wealthiest nations appeared to dominate the oil markets this morning. Crude was down 2% and heating oil had lost three-quarters of a percent as of 9:27 am eastern time. Crude oil opened the day at $45.95 a barrel, touching near a four-year low point. With no new oil demand or production data to be released today, general indicators of the state of the world economy have the most influence on oil prices. World stock markets are the main indicator of economic health.

From CNBC.com: “’With the oil market looking at equity markets for guidance, you need these to stabilize first before the oil market itself can recover,’ said Harry Tchilinguirian, analyst at BNP Paribas.”

Major U.S. stock indices were down as of 9:37 am on news of layoffs from DuPont and AT&T as well as weak retail numbers throughout the U.S.

HEAT USA price experts confirmed a steady retail price of heating oil from Wednesday, and predicted a small-to-moderate drop in Friday’s prices.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: NO CHANGE
Morning projection (for Friday’s average price per gallon): DOWN $0.03

Crude and heating oil prices are on the rise this morning, but only after crude hit $47.36 a barrel in interday trading, its lowest price since May 2005.  Market pessimism stemming from OPEC’s non-action at its meeting on Saturday and news released yesterday that the U.S. recession officially began in December of last year combined to drive down prices for the duration of overnight trading.  Rallies in European stock markets and early gains on U.S. markets injected oil markets with a dose of optimism this morning, stimulating modest price gains.

The price of crude was up 1% and the price of heating oil was up 1.5% as of 9:30 am eastern time.

HEAT USA price experts confirmed a large drop in retail heating oil prices this morning, and predicted small increases in tomorrow’s prices.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: DOWN $0.10
Morning projection (for Wednesday’s average price per gallon): UP $0.03

Crude and heating oil prices both fell by about 3% from Wednesday’s closing prices this morning on NYMEX. The market was closed yesterday for the Thanksgiving holiday. This weekend’s “unofficial” OPEC meeting in Cairo appears to be the largest influence on oil prices today. Oil ministers from several member nations have said the meeting will be only be consultory, and it is unlikely any production cuts will come out of Cairo. “Here we will prepare some data and maybe the final decision will be in Algeria,” Iranian Oil minister, Gholam Hossein Nozari said, quoted in a BBC News article, referring to the group’s next official meeting on December 17th in Algeria.

Some analysts expect another major production cut to be announced at the Algeria meeting, augmenting the 2 million-barrel-per day reduction instituted over the last two months. The market seems to be skeptical of another production cut’s effectiveness at raising prices, however, as global oil demand continues to decline, most acutely in the the U.S., the world’s biggest oil consumer. Recently-released EIA data showed that U.S. crude and gasoline stocks had increased again last week and that gasoline demand continued to fall rapidly.

HEAT USA price experts confirmed a moderate increase in retail prices from Wednesday, and expected a small reduction by Monday.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.04
Morning projection (for Monday’s average price per gallon): DOWN $0.03

Crude and heating oil prices sunk today, with crude dropping 6% to settle below $51 a barrel. Heating oil fell by about 4% to end the day at $1.71 per gallon. The news of a shrinking GDP in the United States that seemed to have little effect on oil prices early this morning caught up to the markets and stoked fears of spiraling energy demand as a result of a global recession as the day went on.

Inventory numbers for petroleum products are scheduled to be released tomorrow morning, and anticipation of increased stockpiles of crude, gasoline, and distillates appears to have added additional drag on today’s prices.

HEAT USA price experts noted the extreme volatility that continues to rule the oil market and announced a larger-than-expected drop in retail heating oil prices tomorrow.

HEAT USA Price Report
Evening projection (for Wednesday’s average price per gallon): DOWN $0.07 to $0.08

Crude oil fell 7% to close at $49.62 a barrel today, its lowest price since May 2005.  Heating oil prices lost over 4% to close at $1.69 a gallon.  Plummeting oil prices are strong signal that the global recession is here and steadily getting worse.

A New York Times article emphasized that there is no end of the economic crisis and resulting oil price fallout in sight, citing some experts who are predicting that the price of crude could reach as low as $30 a barrel next year.

HEAT USA price experts announced a larger-than-expected drop in retail prices tomorrow as a result of the historic price plunge on today’s market.

HEAT USA Price Report
Evening projection (for Friday’s average price per gallon): DOWN $0.07 to $0.08

Crude oil prices plunged 3% this morning to just a few cents above the $50 a barrel mark.  Heating oil followed, losing about 3% to $1.70 per gallon.  New economic data showing skyrocketing unemployment and a significant drop in consumer prices worsened market pessimism amid worldwide recession and shrinking energy demand.

From CNBC.com:

“Weakness in stocks reflects weakness in the economy at the moment looking forward, but I think the general trend in oil is lower anyway,” said Sucden’s head of research Michael Davies.”It’s a bit of a chicken or egg thing. Everything’s moving together, it’s hard to say what’s leading,” Davies said.

HEAT USA price experts confirmed the expected increase in average retail prices for heating oil this morning, and predicted moderate-to-large declines in tomorrow’s prices following the market slide.

HEAT USA Price Report
Today’s average heating oil price per gallon: UP $0.005 to $0.01
Morning projection (for Friday’s average price per gallon): DOWN $0.05

Not even pirates hijacking oil tankers could rescue falling oil prices today, after news of an official recession in Japan and reports of big demand reductions from China’s biggest oil company drove the price of crude to a 21-month low of $54.95 a barrel.  The price of heating oil dropped less sharply, losing 2% to settle at $1.79 a gallon.

HEAT USA price experts were pleased to see the upward trends of the morning reversed, and expect a drop in tomorrow’s retail prices similar to the decline seen this morning.

HEAT USA Price Report
Evening projection (for Tuesday’s average price per gallon): DOWN $0.04

After a slight lift in morning trading, both crude and heating oil prices dropped by about 2% today. The cause of the price decline appears to be residual reactions to news that the European Union is officially experiencing a recession coupled with new data that showed retail sales in the US at their lowest levels in years.

From CNBC.com: “’With a steady stream of news chronicling worsening economic performance, the downward momentum will only be slowed with great difficulty,’” Mike Fitzpatrick, vice president at MF Global, said in a research note.”

HEAT USA Price experts expected a moderate drop in Monday’s retail heating oil prices to match today’s moderate drop on the commodities market.

HEAT USA Price Report
Evening Projection (for Monday’s average price per gallon): DOWN $0.04

After continuing yesterday’s steady rise in interday trading, the price for a barrel of crude continued to increase overnight, peaking near $60. Official confirmation that the European Union has entered a recession seemed to spook oil investors early this morning, bringing crude prices down to just over $57 a barrel.

Data that OPEC member nations are in fact complying with an agreement to cut overall production by 1.5 million barrels a day and bargain-hunting may have contributed to a cautious recovery around 8:00 am this morning, putting crude near $59 a barrel. Heating oil was at $1.88 per gallon as of 8:42 am, a fraction above its opening price.

HEAT USA price experts confirmed a small up tick in retail heating oil prices this morning, and predicted a short decline in tomorrow’s prices after a flat trading day today.

HEAT USA Price Report
Today’s average heating oil price per gallon: UP $0.04
Morning Projection (for Monday’s average price per gallon): DOWN $0.01

After-hours trading drove the price for a barrel of crude down to $55.64, after it settled at $56.16 at the market’s close.  The price for a gallon of heating oil also dropped sharply, losing over 5% on the day and settling at $1.83.  Reduced predictions of oil consumption by the US EIA and IEA further intensified fears of a major worldwide recession.

“Fear global recession is worsening day by day is driving this market down.  Demand for oil is deteriorating week by week,” said Rob Laughlin, senior oil analyst at MF Global, quoted on CNBC.com.

HEAT USA price experts were pleased to announce a hefty drop in retail prices for tomorrow.

HEAT USA Price Report
Evening projection (for Thursday’s average retail price per gallon): DOWN $0.10

Image: AP/Wall Street Journal

Although oil prices surged today, the $70 per barrel price is nearly 25% lower than this time last year and 50% lower than the peak of $147 reached in July.  This morning, investment bank Credit Suisse made the case that oil prices will continue to drop for months to come.  Th bank revised its oil price prediction for the second time this month, reducing its 2009 prediction to $60 a barrel (from $70) and 2010 prediction to $80 a barrel.  Bank researchers cited the effects a global recession will soon have on China, the world’s second-largest oil consumer after the United States, as the main cause of their reduced price projections.

As an article in the Wall Street Journal reported, Credit Suisse forecast 7% economic growth for the next three quarters in China, a substantial reduction for the world’s fastest-growing economy, which has enjoyed double-digit growth of its gross domestic product (GDP) since 2002.  If Credit Suisse’s prediction plays out, China’s GDP growth will fall below the 8% mark that the Chinese government has stated as necessary to accommodate the massive rural-to-urban demographic shift that is underway in that country (source: Guardian UK).  Resulting problems would only further disrupt China’s humming manufacturing sector, which has already shown signs of slowing down in response to decreased demand for consumer products in the US and around the world.

As China has risen to take its place as a dominant economic force in the global economy during the first decade of the 21st Century, it is no surprise that it is poised to be hit hardest by economic crises from other parts of the world.  Sparked by a global recession, a slowdown in China’s production apparatus would lead to reduced demand for oil and keep oil prices low.  And that is how a factory in Beijing shutting down could lead to you paying lower prices for gasoline and heating oil.