The current price collapse is a symptom of the slowing economy. "Oil prices during the last two weeks have reflected the growing perception that the U.S. and European economies are dragging the global economy into recession and a major slowdown in macroeconomic activity," the Report said.
The Report also noted that the drop in demand is unprecedented. "Final monthly numbers for U.S. oil demand, released by the U.S. Department of Energy's Energy Information Administration last week, were revised downward again for the seventh straight month in a row. Total U.S. petroleum demand for July is now down by 1.355 million barrels per day (mmbd) from a year ago, to the lowest level in 11 years for the month of July, which was also the month when oil prices hit their intra-day high of $147.27 per barrel.
"Other recent data releases show Japanese oil demand down by nearly 9 percent in August, with gasoline demand down by 14 percent; UK demand was off by 4 percent in July, with gasoline down by nearly 10 percent. If these trends continue in the last part of the year, global oil demand growth for 2008 may turn out to be only 0.5 to 0.6 mmbd, the lowest in a decade.
"U.S. gasoline prices at the end of September were down more that $0.80 per gallon from their peak. Crude oil at $90 per barrel is still almost $20 above the average price for 2007 and $10 higher than prices at this time last year.
Despite recent falling prices, the Abraham Energy Report stands by its latest forecast that "prices are likely to trade in the $95 to $115 per barrel range most of the time in the coming months. There may be occasional excursions below $90 or above $120 per barrel, but they are likely to be short-lived."
With lower crude prices and demand destruction, many observers are closely watching the response from OPEC. But the Report tells subscribers to expect a cautious approach. "OPEC ministers have been relatively quiet lately, judging from press reports. Part of this may be due to the fact that September was the holy month of Ramadan, and part of it has to do with the rapid development of the global financial crisis.
"It doesn't seem likely that OPEC will take concerted action to defend prices at this time. Saudi Arabia has a long-term interest in maintaining strong global oil demand, and has repeatedly demonstrated its willingness to buck the OPEC majority to defend its interests.
"We believe many members of OPEC have a strong interest in being part of a collective solution, rather than part of the problem."
