Oil Prices expected to drop further next year.

The UK Financial Times projects the global demand for oil to continue to drop in 2009. January light sweet crude closed at $42 and change per barrel yesterday. The US Department of Energy expects similar trends for the US demand as well. Locally, here near Kansas City, Unleaded Regular gasoline is selling for $1.279 a gallon.

Global demand for oil to plummet

By Javier Blas in London and Krishna Guha in Washington

Published: December 9 2008 20:09 | Last updated: December 9 2008 20:09

Global oil demand will collapse next year and commodities will not return to the highs they reached this summer in the foreseeable future, two authoritative reports said on Tuesday as they forecast a long and painful worldwide recession.

The stark conclusions came as the World Bank’s chief economist predicted that the world faced “the worst recession since the Great Depression”.

The US energy department said global oil demand will fall this year and next, marking the first two consecutive years’ decline in 30 years.

“The increasing likelihood of a prolonged global economic downturn continues to dominate market perceptions, putting downward pressure on oil prices,” it said, forecasting that demand would drop 50,000 barrels a day this year and a hefty 450,000 b/d in 2009. US oil demand will drop next year to the lowest level in 11 years.

Meanwhile, the World Bank’s Global Economic Prospects report said the commodities boom of the past five years – which drove up prices 130 per cent – had “come to an end”.

The World Bank’s analysis of the commodities boom contrasts with the prevalent view among natural resources companies – and most Wall Street analysts – that the ongoing price drop is a correction within an upward trend.

Although it ruled out a return to the torrid high prices of this summer, it said commodities prices would not fall back to the depressed levels of the 1990s.

Oil would return to about $75 a barrel within the next three years, it said, while food would trade 60 per cent higher than in 2003, but about half below this year’s record.

“Over the longer run, the price of extracted commodities should fall,” the bank said, adding that because of slower population and income growth, world demand for raw materials will ease.

Andrew Burns, the leading author of the report, dismissed the idea – widely supported among the industry and international bodies such as the International Energy Agency – that the credit crunch could result in higher prices when the economy recovers as companies cancel supply expansion projects.

The bank forecast that world trade – an engine of growth for many developing countries – would contract for the first time since 1982.

Justin Lin, the World Bank’s chief economist, said the current downturn was likely to see simultaneous recessions in most of the industrialised world, and that these recessions were likely to last longer than in the early 1980s, and the decline in growth would be more universal than in past episodes in recent decades.