Where Are Oil Prices Headed in 2009?

Oil prices have become something of a contrarian indicator for alternative energy. While the surge above $145 a barrel this summer seemed to promise a golden age of investment in cleaner power, now that prices are back near the $37-a-barrel range and credit is in short supply, things aren’t looking so sunny.

As we close the doors on the strange and tumultuous year that was 2008, analysts are looking ahead to what 2009 will bring. So far, signs are mixed. The Energy Information Administration projects crude oil will trade at an average of $51 a barrel in 2009, translating into low gasoline prices:

Along with lower projected crude oil prices, annual average retail gasoline and diesel fuel prices in 2009 are projected to be $2.03 and $2.47 per gallon, respectively…The U.S. economic recession is also contributing to lower natural gas wellhead prices. The Henry Hub natural gas spot price is projected to decline from an average of $9.17 per Mcf in 2008 to $6.25 per Mcf in 2009.

The chief energy economist of Deutsche Bank, Adam Sieminski, said recently that the demand for oil in 2009 will drop more than any other time in the last quarter of a century, due to the weak economy. Sieminski forecasts oil traded in New York falling as low as $30 and averaging $47.50 for the whole year. He says higher forecasts haven’t adequately factored in how the global downturn will hurt oil demand.

Others see the supply-demand balance starting to tip in favor of higher prices later in the year, thanks in part to OPEC’s plans to cut output. Paul Stevens, a professor at the UK’s Royal Institute of International Affairs, said:

In 2009, we will see continued prices weakness in first half or quarter of year. A lot depends on demand and that depends on the nature and depth of the economic recession…if demand does not completely collapse, my guess is that as we move through 2009, as OPEC’s determination to defend its price bears up, then prices will creep up to US$70, to US$80 that they want.

Once demand returns, oil prices could spike quickly if companies decide to lay off workers and cut back on new investments. That could rekindle interest in cleantech initiatives in the private sector, apart from what is expected from public stimulus. In the topsy-turvy world of energy investments, OPEC may be a key factor in reviving green energy next year.

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