Under most circumstances, a drop in demand in the US would bring oil prices down some. The recession should cut the amount of oil consumed here as drivers, airlines, and other big markets for oil-based products shrink.
It may not be that simple. Many analysts now believe that the amount of oil available is not quite so large as was hoped. Older fields are pumping less crude. There are fewer discoveries of large, new reserves, even off-shore. OPEC is not increasing production. Oil exporters are keeping more crude to power their own increasing number of cars and trucks.
According to The Wall Street Journal the Bush administration now believes "prices will remain buoyant well after speculative investors head elsewhere, as the cost of finding new sources of oil continues to soar and demand in Asia and the Middle East climbs." If the view is right, even if interest rates fall, the US economy faces a multi-year problem with the pricing of its most critical commodity.
Oil prices have already beaten up the airline and car industries. Similar problems will begin to move into other sectors. Retail sales depend on buyers getting out and about. So does the tourism industry. Petro-chemical based products are used in everything from lubricants to plastics.
The US government can’t solve the problem. And, King Faisal, sometime friend to the US, is dead.
Douglas A. McIntyre
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