Last year energy experts were predicting that in 2008 the price of oil will vary between $80 and $90 per barrel. However, the demand and speculation proved them wrong and the price of oil reached the unprecedented $147 per barrel in July 2008 only to fall to $67 in mid October. Now they are predicting that by December the price will fall to about $50 per barrel and OPEC will drastically cut production because a price below $70 is under their pain threshold. What will happen to production? What will happen to energy prices? Is a depression coming?

We saw the price of oil increasing from a two-digit number to the unbelievable $147 per barrel during the first half of the year, but this increase in price was mostly due to speculations and not to increase in demand. As we know the price of oil reacts to the news from the NYSE or the Fed announcements, or almost to anything. That is why after favorable news on the NYSE or positive info released by some big corporation listed on the stock exchange the oil price goes up and up. Until mid July we would mostly hear good news about stock price growth or innovations and new discoveries in the oil industry, which shot the price of oil to unprecedented heights. Unfortunately, then something quite expected happened to the US economy. The financial bubble exploded and banks started going bankrupt. Knowing that the oil price reacts to everything happening in the economy, we unsurprisingly saw the oil price going down with the economy. Logically we would expect that if the price of oil is low, then it would be cheaper to use oil in production and the costs to producers will be lower. Thus production should go up and stimulate growth. However, quite the opposite is happening. The price of oil is unhealthily low, but production is going down and energy prices are going up.

Why? Because investors and not investing, because banks are afraid to lend money, because people are afraid to borrow, and because everyone shifted his consumption patterns. Now people will transform themselves from spenders to savers. This will certainly be very bad for the world economy because savings can increase future productivity, but we need increase in current productivity. If we do not consume now and do not provide the producers with an incentive to produce, if we are afraid to lend and do not provide the investors with incentive to invest, if we do not make the money flow again through the economy, then definitely we are going into a depression and most probably it will be worse than the previous one.