Think tank expects oil demand to crash

There are two schools of thought on oil prices. The first is that the recession will not last long and that exploration by major oil companies has slowed as oil fields begin to yield less. In this case, oil prices will move back toward $100 over the next year. Another contributing factor to rising oil will be the ongoing effort by OPEC to cut production.

The second case is that the economy is just so bad that the demand for oil will be crippled for a year or two. The price of crude could actually head back toward $30.

According to the Guardian, the Organization for Economic Co-operation and Development, a Paris-based think tank, painted a bleak picture for the G7 economies, as well as the four so-called BRIC countries of Brazil, Russia, India, and China, predicting a "strong slowdown." This case is almost certainly incorrect. China's economy has already begun to show signs of recovery based on data released yesterday. The $585 billion stimulus package is beginning to take hold. In the United States, there are early signs in retail sales and manufacturing measurements that the recession here has at least bottomed. Many economists expect Q4 to show modest GDP growth.

Older oil fields are yielding less. Combine that with demand that is likely to rise by the beginning of 2010, and crude prices are going up.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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