How low will oil prices go? We have seen prices as low as $33 per barrel recently and wholesale gas prices at eighty five cents. The current oil price at $38 per barrel hardly seems affected by tensions in the Middle East.
There are a number of scenarios that could influence the price of oil either upward, above fifty dollars or downward, to below thirty dollars per barrel.
One bearish case for oil was recently made by Merill Lynch. Their forecast was for oil in the twenty dollar per barrel range in 2009 if the recession deepened in China. Currently China is forecast to have growth in 2009 of 7% or more but if that number falls oil would fall as well.
It remains to be seen if the 600 billion dollar stimulus package passed by the Communist Party will have the desired effect of stimulating inside growth and consumer demand in that export oriented country.
If is succeeds and consumer demand inside China keeps factories running this could keep oil prices up. Another factor of the China stimulus money would be increased use of diesel and asphalt (a petroleum product) as road building increases.
Factors that could push oil back up above fifty dollars per barrel include increased tensions in the Middle East.
As Israel increased military activity in Gaza with troops poised for a ground invasion we could see Iran or Saudi Arabia to step in and play an active military role by supplying arms. Israel would likely strike shipping to stop such arms shipments. In either case the Mideast could become engulfed in war and oil shipments could be affected. In another scenario Russia would take a gamble and invade a former satellite country as a test to the new Obama administration.
The price of oil affects everything nowadays, including how fast the economy recovers from recession. Very low oil prices are not necessarily good for the world economy because they result in instability in countries like Venezuela and regions like the Middle East where oil revenues help keep the peace by providing jobs and subsidized housing to growing, restless populations.
Businesses need stable oil prices to be able to plan for future operations. Airlines that lock in a year's fuel cost at forty dollars per barrel will find it hard to compete with carriers who lock fuel prices in at twenty dollars per barrel. For a stable economy we need a stable oil price since both very high and very low prices can have negative effects.
To find the daily price of oil see this link:
http://energyindustryphotos.com/us_rig_count_worldwide_rig_count.htm